Sections 127 and 284 of The Insolvency Act 1986 - Overruling certain transactions

Court Ordered Liquidations - Compulsory Liquidations - Insolvency Law re Overruling Certain Transactions Pre Liquidation

 

How are payments made by a company treated by a subsequent liquidator when those payments are made after the issue of a winding up petition?

 

It is Section 127 of The Insolvency Act 1986 that applies to transactions undertaken by a company between the date of the issue of a winding up petition and the date of the winding up order. The company is said to be in "compulsory liquidation" following the making of the winding up order.

 

Section 127 of The Insolvency Act 1986 therefore deals with limited companies.

 

Section 284 of The Insolvency Act 1986 contains similar wording to Section 127 but Section 284 deals with transactions undertaken between the date of issue of a bankruptcy petition and the date of the bankruptcy order.

 

Section 284 of The Insolvency Act 1986 therefore deals with individuals as opposed to companies.

 

Section 127 of The Insolvency Act 1986 provides a hard hitting rule which impacts on many transactions that take place between:

  • the date on which a winding up petition is issued (ie date stamped) by the court and
  • the later date on which the court "hears" the petition and makes the winding up order.

 

In that period:

  • any disposal of company property (such as a cheque paid, or an asset sold or transferred) and
  • any transfer of company shares

will be of no effect, unless the court orders otherwise.

 

A "disposal of company property" includes cheques paid out by your business!

For instance, if you paid a supplier £7,000 during the Section 127 period, that sum would probably be recoverable by the liquidator.

 

Clearly, if your company has a winding up petition issued against it the earlier you take professional advice, the better to discuss how to validate any necessary transactions in the Section 127 period and / or to take steps to avoid a winding up order being made