Insolvency Act 1986 s.223 – Inability to pay debts: debt remaining unsatisfed after action brought

An unregistered company is deemed (for the purposes of section 221) unable to pay its debts if an action or other proceeding has been instituted against any member for any debt or demand due, or claimed to be due, from the company, or from him in his character of member, and—

(a)notice in writing of the institution of the action or proceeding has been served on the company by leaving it at the company’s principal place of business (or by delivering it to the secretary, or some director, manager or principal officer of the company, or by otherwise serving it in such manner as the court may approve or direct), and

(b)the company has not within 3 weeks after service of the notice paid, secured or compounded for the debt or demand, or procured the action or proceeding to be stayed or sisted, or indemnified the defendant or defender to his reasonable satisfaction against the action or proceeding, and against all costs, damages and expenses to be incurred by him because of it.

Definitions used in section 223 2

unregistered company: For the purposes of this Part “unregistered company” includes any association and any company, with the exception of a company registered under the Companies Act 2006 in any part of the United Kingdom.
Defined in s.220 · see it in the full Act
the company: 2 Section 233B does not apply in relation to a contract for the supply of goods or services to a company (“the company”) where any of paragraphs 3 to 11 applies.
Defined in Sch.4ZZA para.2 · see it in the full Act

Cases considering section 223 3

Town & Country Properties (GB) Ltd & Ors v Black Capital & Ors

[2022] EWHC 2914 (Ch) · 17 November 2022

Confirms that section 223 may be relied upon under article 7 through the modifications in the Insolvent Partnerships Order 1994. (see para [46])

Diamond Hangar Ltd & Anor v Abacus Lighting Ltd & Anor

[2019] EWHC 224 (Ch) · 6 February 2019

Uses the statutory ability-to-pay-debts test in assessing commercial solvency. The court accepted that reliance on continuing third-party loans can still satisfy the test where the funding is reliable and sufficient to meet debts as they fall due (see paras [11]-[12], [27]-[30]).

National Westminster Bank Plc v Msaada Group (a firm) & Ors

[2011] EWHC 3423 (Ch) · 21 December 2011Disapplies

Notes that the modified provision was not relevant on the facts, leaving section 224 as the operative route for establishing inability to pay debts (see para [64]).

What each judgment says about section 223 is in the case-law panel in the full Act.

Amendments and notes

1 notes from legislation.gov.uk

Modifications

C719Ss. 220-223 applied (with modifications) (1.12.1994) by S.I. 1994/2421, art. 7(1)(2), art. 9, Sch. 3, Pt. I