Insolvency, Coffee and the Court of Appeal's consideration of s.245 Insolvency Act 1986

10 FEB 2011

We have discussed insolvency and food on this blog before particularly in relation to the contention that IPs must eat. The subject comes to the fore again this time in the context of section 245 of the Insolvency Act 1986 (IA86). This provision has the potential to invalidate floating charges in the pre-insolvency period. The provision notes that a floating charge on the company's undertaking or property created at a relevant time is invalid except in certain circumstances.

In Re Shoe Lace Ltd [1993] BCC 609 the timing of the grant of the charge was considered. It was held that a charge made to secure payments which had been made by the lender company at some time previous to the creation of the charge was invalid. During the course of his judgment Sir Christopher Slade made the following observation:


"In the latter situation, I do not, for my part, see how the relevant temporal requirements of the exemption contained in sec. 212 of the 1908 Act or sec. 245 of the 1986 Act can be satisfied if the making of the advance precedes the formal execution of the debenture by any time whatsoever, unless the interval is so short that it can be regarded as de minimis–for example a “coffee-break”.

Professor Howard Bennett noted in relation to this time period, "it would appear that lunch, or other more extended gastronomic indulgence, would exceed the permitted delay." (see: Bennet, H, in Armour, J & Bennet, H (Eds). Voidable Transactions in Corporate Insolvency (Oxford Hart Publishing, 2003), 183, 209). Enjoy your coffee!

 

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