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Retrospective Validation Order

Author: Nigel, Cook

In the case of Express Electrical Distributors Limited v Beavis and Others, the Court of Appeal considered an application for a retrospective validation order, following the disposition of property after the issue of a winding up petition.

The Court of Appeal considered an appeal by wholesale suppliers of electrical goods to the company in liquidation against the refusal of a validation order. The company was compulsorily wound up in July 2013 pursuant to a petition filed on 23 May.

After the petition had been presented the company made payments to the supplier in order to obtain goods but a payment of £30,000 was in respect of historic liabilities not for new orders.

The date of presentation in cases of winding up by the court is the effective date for S 127 claims.

At the time it received payment the supplier was unaware of the petition and therefore asserted that it had received funds in good faith and in the ordinary course of business,

The court rejected this argument and stated that good faith is not a justification for the validation.

It went on to confirm that validation orders will be granted only where there is clear evidence that it would be for the benefit of the general body of creditors, save in exceptional circumstances.

The court gave examples of such benefit, including payments made to protect a beneficial contract or to maintain the going concern to preserve value for sale which otherwise would be lost in a break-up situation.

For further information contact Nigel Cook on 01306 502294 or n.cook@downslaw.co.uk.