Insolvency Act 1986, section 245

Avoidance of certain floating charges

Part VI Miscellaneous Provisions Applying to Companies Which are Insolvent or in Liquidation

(1)This section applies as does section 238, but applies to Scotland as well as to England and Wales.

(2)Subject as follows, a floating charge on the company’s undertaking or property created at a relevant time is invalid except to the extent of the aggregate of—

(a)the value of so much of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the company at the same time as, or after, the creation of the charge,

(b)the value of so much of that consideration as consists of the discharge or reduction, at the same time as, or after, the creation of the charge, of any debt of the company, and

(c)the amount of such interest (if any) as is payable on the amount falling within paragraph (a) or (b) in pursuance of any agreement under which the money was so paid, the goods or services were so supplied or the debt was so discharged or reduced.

(3)Subject to the next subsection, the time at which a floating charge is created by a company is a relevant time for the purposes of this section if the charge is created—

(a)in the case of a charge which is created in favour of a person who is connected with the company, at a time in the period of 2 years ending with the onset of insolvency,

(b)F530in the case of a charge which is created in favour of any other person, at a time in the period of 12 months ending with the onset of insolvency,. . .

[F531 (c)in either case, at a time between the making of an administration application in respect of the company and the making of an administration order on that application, or

(d)in either case, at a time between the filing with the court of a copy of notice of intention to appoint an administrator under paragraph 14 or 22 of Schedule B1 and the making of an appointment under that paragraph.F531]

(4)Where a company creates a floating charge at a time mentioned in subsection (3)(b) and the person in favour of whom the charge is created is not connected with the company, that time is not a relevant time for the purposes of this section unless the company—

(a)is at that time unable to pay its debts within the meaning of section 123 in Chapter VI of Part IV, or

(b)becomes unable to pay its debts within the meaning of that section in consequence of the transaction under which the charge is created.

(5)For the purposes of subsection (3), the onset of insolvency is—

[F532 (a)in a case where this section applies by reason of an administrator of a company being appointed by administration order, the date on which the administration application is made,

(b)in a case where this section applies by reason of an administrator of a company being appointed under paragraph 14 or 22 of Schedule B1 following filing with the court of a copy of notice of intention to appoint under that paragraph, the date on which the copy of the notice is filed,

(c)in a case where this section applies by reason of an administrator of a company being appointed otherwise than as mentioned in paragraph (a) or (b), the date on which the appointment takes effect, and

(d)in a case where this section applies by reason of a company going into liquidation, the date of the commencement of the winding up.F532]

(6)For the purposes of subsection (2)(a) the value of any goods or services supplied by way of consideration for a floating charge is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company.

Definitions used in section 245 3

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
agreement

4 For the purposes of sections 72B and 72E and this Schedule “agreement” includes an agreement or undertaking effected by—

(a)contract,

(b)deed, or

(c)any other instrument intended to have effect in accordance with the law of England and Wales, Scotland or another jurisdiction.

Defined in Sch.2A para.4 · see it in the full Act

(2) “Agreement” includes any agreement or undertaking effected by—

(a)contract,

(b)deed, or

(c)any other instrument intended to have effect in accordance with the law of England and Wales, Scotland or another jurisdiction.

Defined in Sch.ZA1 para.19(2) · see it in the full Act
administrator

1 (1) For the purposes of this Act “administrator” of a company means a person appointed under this Schedule to manage the company’s affairs, business and property.

Defined in Sch.B1 para.1(1) · see it in the full Act

Cases considering section 245 16

Crumpler & Anor (Liquidators of Peak Hotels And Resorts Ltd) v Candey Ltd

[2019] EWCA Civ 345 · 8 March 2019Interprets

The court construed section 245 as invalidating a floating charge created in the relevant period except to the statutory extent of new value supplied after its creation. It leaves the underlying debt intact while depriving the creditor of security for the invalid balance. (see [31]-[34]) The court held that the saving applies to the value of services actually supplied after creation of the charge. An available facility and the contractual fairness of a fixed-fee agreement are not the statutory measure of secured value. (see [35]-[40]) The court applied the express saving for contractual interest. It held that the secured value of services could not also include compensation for delayed payment. (see [46]) The court held that the provision requires an objective, retrospective valuation of work actually supplied in the ordinary course of the supplier’s business. Terms relating to consideration, including the fixed fee and its payment structure, must be disregarded. (see [35]-[45])

Hartley Pensions Limited (in administration) v Wilton UK (Group) Limited

[2023] EWHC 1700 (Ch) · 7 July 2023Interprets

Applies the relevant-time rules to assess whether the floating charge supporting the earlier appointment was invalid. The court found strong grounds for invalidity but avoided finally deciding the issue. (see paras [71]-[79]) Interprets the statutory exceptions to invalidity by focusing on money, goods or services supplied to the company, or the discharge or reduction of a company debt, as consideration for the charge. The evidence indicated that the charge secured liabilities of the holding company rather than value given to the company. (see paras [73]-[78])

Lee Manning & Anor v Neste AB & Anor

[2022] EWHC 2578 (Ch) · 12 October 2022Limits

Interprets the principal invalidity rule for floating charges created during the relevant period. The charge is invalid except to the extent of qualifying value actually supplied to the company at or after creation, subject to the section’s specified categories of value (see paras [18], [22]-[23], [40]). Interprets “consideration” as actual value in the form of money, goods or services supplied at or after creation, and treats qualifying shares as goods where they have clear value and swell the company’s assets. The provision did not invalidate the charge to the extent of the value derived from the DMCC shares (see paras [55]-[74], [116]). Interprets the provision purposively so that an automatic exchange of an existing debt for a substantially equivalent new debt owed to the same creditor does not constitute a discharge or reduction supplying new value. No qualifying debt discharge occurred on the facts (see paras [96]-[110], [116]). Applies the provision identifying the date of the administration application as the onset of insolvency where the administrator is appointed by the court (see para [20]). Applies an arm’s-length valuation approach to goods or services supplied as consideration. The purchase price of the DMCC shares was not determinative; their value could require determination at a further hearing (see paras [75]-[77]).

What each judgment says about section 245 is in the case-law panel in the full Act.

Amendments and notes

12 notes from legislation.gov.uk

Amendments

  1. F530Word in s. 245(3)(b) repealed (15.9.2003) by 2002 c. 40, ss. 248(3), 278, 279, Sch. 17 para. 31(2), Sch. 26 (with s. 249(1)-(3)(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))
  2. F531S. 245(3)(c)(d) substituted (15.9.2003) for s. 245(3)(c) by 2002 c. 40, ss. 248, 279, Sch. 17 para. 31(3) (with s. 249(1)-(3)(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))
  3. F532S. 245(5)(a)-(d) substituted (15.9.2003) for s. 245(5)(a)(b) by 2002 c. 40, ss. 248(3), 279, Sch. 17 para. 31(4) (with s. 249(1)-(3)(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))

Modifications

  1. C842S. 245 applied (with modifications) (S.) (6.4.2001) by S.S.I. 2001/128, reg. 4(1), Sch. 2
  2. C843S. 245 excluded (26.12.2003) by The Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226), reg. 10(5)
  3. C844S. 245 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 103, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 2
  4. C845S. 245 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 145, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 3
  5. C846S. 245 excluded by The Financial Market and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979), reg. 16(3) (as amended (2.2.2006) by The Financial Markets and Insolvency (Settlement Finality) (Amendment) Regulations 2006 (S.I. 2006/50), reg. 2(8)(10) and as amended (1.10.2009) by The Financial Markets and Insolvency (Settlement Finality) (Amendment) Regulations 2009 (S.I. 2009/1972), reg. 6(a))
  6. C847S. 245 modified (temp.) (retrospective to 27.4.2020) by Corporate Insolvency and Governance Act 2020 (c. 12), Sch. 10 paras. 8(1)(2), 18 (with ss. 2(2), 5(2))
  7. C848S. 245 applied (with modifications) (8.7.2021) by The Payment and Electronic Money Institution Insolvency Regulations 2021 (S.I. 2021/716), regs. 2, 37 (with reg. 5) (as amended (4.1.2024) by S.I. 2023/1399, regs. 1(2), 4, 11)
  8. C849S. 245 applied (with modifications) (4.1.2024) by S.I. 2021/716, Sch. 1 para. 3 (as amended by The Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023 (S.I. 2023/1399), regs. 1(2), 20)
  9. C850S. 245 applied (with modifications) (E.W.) (15.3.2024) by The Water Industry (Special Administration) Regulations 2024 (S.I. 2024/205), regs. 2(2), 5(1), 47 (with reg. 64)