Keystone Law’s insolvency and restructuring partner Stephen Young has successfully advised former director of Bitumina Industries Limited (“BIL”) and secured creditor, Rami Farah, in the case of Manning and Gunn v Neste AB and Farah [2022] EWHC 2578 (Ch). In the case, the High Court was asked to determine whether Mr Farah’s floating charge security over BIL’s assets which was created 17 months before BIL entered administration was valid. The charge had been created to secure the purchase price for shares in a Dubai registered company that were acquired by BIL from Mr Farah.

The question arose when Neste AB, an unsecured creditor of the administration of BIL, challenged the validity of Mr Farah’s floating charge.

Section 245 Insolvency Act 1986 aims to prevent creditors from obtaining an unfair advantage over other creditors during a period when the company’s ability to repay its debts is uncertain. Under this section, a floating charge will be invalid if it has been created during a ‘relevant time’ and the consideration provided for the charge does not consist of  “money paid, or goods or services supplied to the company at the same time as, or after, the creation of the charge.” A “relevant time” is either 12 months prior to the company entering administration or liquidation, or two years if the charge holder is ‘connected to the company’ (such as a director of the company).

The Judgment

 In this case, the Court had to decide whether the transfer of shares by Mr Farah to BIL constituted consideration “at the same time as or after the creation of the charge” so as to validate it, and in particular, whether the transfer of shares could amount to ‘goods’.

The judge determined that ‘goods’ in this context should mean those which:

 … form of benefit to the company which arise from day-to-day trading and finance and have a readily ascertainable value

And that the meaning should encompass goods but also things in action (such as money receivables) and intangibles (such as intellectual property rights) that:

(a)      are received by the company in accordance with its ordinary trading activity; and

(b)      have clear value, such that transfer of their ownership to the company necessarily swells the assets of the company.

BIL was a holding company whose sole purpose was to acquire shares of Bitumen trading companies. The Court determined that the shares transferred by Mr Farah to BIL could be defined as ‘goods’. Therefore, as the transfer of Mr Farah’s shares to BIL occurred at the same time as the creation of his floating charge, the Court confirmed that his floating charge security was valid.

Commenting on the successful outcome of the case, Stephen Young said:

This judgment is significant as it is the first time the High Court has had to consider whether shares are capable of constituting consideration for the purposes of s.245 Insolvency Act 1986.

 The judgment reflects a more modern interpretation of what constitutes ‘goods’ in an ever-changing world and this approach is something insolvency and restructuring lawyers will welcome going forward.

Christopher Brockman of Enterprise Chambers also represented the successful secured creditor, Mr Farah.

Click for the full judgment

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