Re MC Bacon Ltd
A transaction is not a voidable preference unless the company was influenced by a desire to put the creditor in a better position, and granting security to a bank to keep trading is not such a desire.
Facts
MC Bacon was in financial difficulties. Its bank required it to grant a debenture securing its overdraft, as a condition of continuing to provide it. The company granted the debenture, and went into insolvent liquidation a few months later. The liquidator argued that the debenture was a voidable preference under section 239 of the Insolvency Act 1986, and a transaction at an undervalue under section 238.
Legal principle
Millett J held that the debenture was neither a preference nor a transaction at an undervalue. A preference requires that the company was influenced, in deciding to give it, by a desire to improve the creditor's position in the event of its own insolvent liquidation. The directors had granted the debenture because they wanted the bank to continue to support the company, so that it could continue to trade, not because they wanted to improve the bank's position. The grant of security was not a transaction at an undervalue, because it did not deplete the company's assets.
Related cases on company charges, insolvency and disqualification
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
- BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408
- Re Continental Assurance Co of London plc [2007] 2 BCLC 287
- Re Lo-Line Electric Motors Ltd [1988] Ch 477
- Morris v Bank of India [2005] EWCA Civ 693
- Re Panama, New Zealand and Australian Royal Mail Co (1870) LR 5 Ch App 318
- Re Patrick and Lyon Ltd [1933] Ch 786
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