The Insolvency (No.2) Act 1994 represents the successful outcome of a prolonged campaign by the Law Society.

It will have little practical impact on the administration of insolvent estates but it will remove a problem in the property market, thereby simplifying conveyancing procedures for the benefit of both buyers and lenders.

The problem was created - this is becoming a familiar observation - by the Insolvency Act 1986.

The provisions for setting aside transactions at an undervalue and preferences contained only limited protection for subsequent purchasers.

The problem has been particularly noticeable in connection with titles to the residential property where gifts are not uncommon.

The practical effect of the provisions contained in the 1986 Act was to create a defect in title and pru dent lenders generally required insurance to be taken out.

A more common-sense approach is achieved by the Insolvency (No.2) Act 1994.

This amends ss.241 and 342 of the Insolvency Act 1986.

The original legislation provided protection for certain interests and persons who received benefits 'in good faith, for value and without notice of the relevant circumstances'.

The amendments will result in protection being available where there has been an acquisition 'in good faith and for value'.

However, there will be a rebuttable presumption that a person acquired an interest or received a benefit otherwise than in good faith where he or she either had notice of the relevant surrounding circumstances and of the relevant insolvency proceedings or was connected with, or was an associate of, either the insolvent (either an individual or a company) or the person with whom the insolvent entered into the transaction or to whom the insolvent gave the preference.

The relevant surrounding circumstances are the fact that the insolvent had entered into the transaction at an undervalue or the circumstances which amounted to the giving of the preference by the insolvent.The 1994 Act only applies to interests acquired and benefits received after it comes into force on 26 July 1994.

The 1994 Act does nothing to extend protection to any recipient of a benefit who was either a party to the transaction at an undervalue or the recipient of a preference (given at a time when he or she was a creditor).

It also does not apply to interests acquired directly from the insolvent.

The protection is for the benefit of subsequent purchasers.-- Voluntary arrangementsThere have been a growing stream of cases exposing the shortcomings of the legislation concerning voluntary arrangements.

The latest is Re Cranley Mansions Ltd (unreported, 13 May 1994).

A voluntary arrangement was proposed in respect of the company.

The applicant claimed to be a creditor of the company for a sum estimated to be in excess of £900,000.

At the creditors' meeting the applicant was treated as a creditor entitled to vote in respect of £1.The applicant sought an order under s.6 of the Insolvency Act 1986 revoking or suspending the approval of the voluntary arrangement at the creditors' meeting or, in the alternative, equivalent relief by way of appeal under r.1.17(5) of the Insolvency Rules 1986.

It was held that there had been a material irregularity at the meeting in that the vote had been admitted in respect of £1, whereas the applicant was precluded from voting by the opening words of r.1.17(3).

This states: 'A creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put upon the debt an estimated minimum value for the purpose of entitlement to vote.' The exception did not apply because no 'estimated minimum value' had been agreed.

It was further held that agreement required some element of bilateral concurrence between the chairman of the meeting and the creditor in question.

Where the exception (of an agreed estimated minimum value) does not apply, there is no entitlement to vote and if there is no entitlement to vote, the creditor is not bound by the arrangement.

In view of the decision that the applicant had no entitlement, she failed under s.6 because she had no locus standi.

Under r.1.17(7) the court set aside the chairman's decision on the applicant's claim but the judge saw no point in ordering another meeting to be summoned.

It would not be right to revoke or suspend th e approval of the proposals at the meeting since that arose by virtue of votes the validity of which had not been impeached.

The consequence of the arrangement having been approved but not being binding on the applicant would have to be worked out later.

This is very unfortunate.

The anomalous result of the decision in Re Cranley Mansions Ltd is that creditors whose claims are unliquidated or unascertained have, in effect, a choice as to whether or not they wish to be bound by a voluntary arrangement.

The problem arises directly from the drafting of the Insolvency Rules 1986, which were given a somewhat literal interpretation by the court.

The case concerned a corporate voluntary arrangement but the relevant rules for individual voluntary arrangements are the same.

The decision is a heavy blow to the efficacy of voluntary arrangements.

Assuming that the matter is not resolved by the Court of Appeal adopting a more purposive interpretation, there is a serious problem which will necessitate amendment of the rules.

For the moment, insolvency practitioners concerned with the formulation of proposals for voluntary arrangements and creditors considering their acceptability, need to be conscious of the implications of the decision.

Well structured proposals will anticipate the problem.-- Purchasers' rightsEnglish insolvency law respects and observes proprietary rights.

It is, therefore, of fundamental importance to purchasers whether they have acquired title to goods remaining in the possession of the company.Two recent decisions are of interest in this respect.

The first is Kensington v Unrepresented Non-allocated Claimants [1994] The Times, 1 June, which was a decision of the Privy Council on appeal from the Court of Appeal in New Zealand but the reasoning is applicable to the same questions in English law.

Customers of a company dealing in gold and other precious metals asserted proprietary claims to bullion stocks ranking in priority to the claims of a bank under a crystallised floating charge pursuant to which receivers had been appointed.

The case primarily related to non-allocated purchases.

At the time of crystallisation, there had not been any appropriation of specific and segregated parcels of bullion to the individual non-allocated purchase contracts.

The board rejected arguments based on contractual entitlement, collateral promises, declarations of trust, estoppel, remedial constructive trusts and restitutionary proprietary rights.

It was held that the non-allocated purchasers had no proprietary rights and that the claims of the bank prevailed.

Further, any estoppel binding the company would not have bound the bank which, on crystallisation of the charge, became entitled to a proprietary interest asserted adversely to the company.As regards separate claims by the owners of bullion wrongfully dealt with by the company, the court restored remedies granted by the trial judge.

These involved applying conventional principles of tracing to the effect that the proprietary recoveries of those claimants could not exceed the lowest balance of metal held by the company between the accrual of their rights and the commencement of the receivership.The second case deserving comment is Re Ellis, Son & Vidler Ltd (unreported, 22 April 1994), a decision of the High Court.

Administrative receivers were appointed in respect of two companies, both wine merchants.

The receivers sought directions under s.35 of the Insolvency Act 1986 in relation to stocks of wine held on behalf of customers.

There were various categories of cl aimants.

In the case of one company, the customer reserve stocks were completely segregated from its own trading stock and the documentation was in good order.

The company had not regarded the wine as belonging to it.

On a proper legal analysis there had been two contracts with customers.

First, a contract for the sale of goods and, secondly, a contract for the storage of the purchased wine.

It was held that, if a number of cases or bottles of identical wine were held, not mingled with the company's own trading stock, in store for a group of customers, those cases or bottles were ascertained for the purposes of s.16 of the Sale of Goods Act 1979 even though not immediately appropriated to each customer.

Property passed by common intention and not pursuant to s.18(5) with the purchasers taking as tenants in common.

However, proprietary claims by customers were rejected in respect of wine ordered and paid for en primeur but which had not been dispatched from the vineyards at the time of the receivers' appointment.Such wine remained part of the generic stock of the vineyard subject to a contract for its sale to the wine merchants.

As in Kensington, there was no question of any trust of the purchase money.

In the case of the second company, customers' wine held in the company's own duty-paid warehouse had clearly been appropriated to the individual customers and was released by the receivers.However, in contrast to the procedures of the first company, the second firm had made no attempt to allocate any wine held in a bonded warehouse to customers' orders.

It was held that the subject matter of customers' contracts in such wine had not been ascertained and that the only remedy lay in damages.The two decisions are not inconsistent.

The distinction lies in the procedures adopted by the selling company.

Re Ellis, Son & Vidler Ltd provides a good example of the courts giving substantive effect to the intentions of the parties.

A contrary decision would have resulted in a windfall to creditors.

The same cannot be said of Kensington, where the unfortunate, non-allocated purchasers were not able to point to any distinct pool of assets constituting their property.

Customer deposits, pre-payments and rights in respect of bulk stocks raise emotive and contentious issues.

It should be noted that there is no indication that the government intends to legislate in response to the recommendations of the Law Commission on goods purchased out of bulk (Law Com No.215).

-- Fixed chargesLenders anxious to improve their security position are naturally interested in extending the range of assets on which they take fixed charges.

This process has received some encouragement from the decision of the Court of Appeal in Re New Bullas Trading Ltd [1994] BCC 36, upholding a fixed charge on book debts taken by a lender which was not a clearing bank.

Although the principal focus of attention in this area concerns the creation of fixed charge security on receivables, the conceptual difficulties are greater in the case of intangibles than with chattels.

The decision of the High Court in Re SE Tunbridge Ltd (unreported, 27 April 1994) shows that it may still be difficult to convince a court that a purported fixed charge on tangible movables is not, in reality, a floating charge.

The company had carried on business selling and repairing cars.

A debenture had been given to one of the directors and, much later, the company went into administration.

An issue arose between the director and the administrators as to the true status of a purported fixed char ge.

The debenture provided separately for a charge by way of legal mortgage on freehold properties and a floating charge on cars and spare parts.

The disputed fixed charge related to all other chattels and to book debts.

The debenture provided that, until crystallisation of the floating charge, the company was at liberty to dispose of assets covered by the floating charge in the ordinary course of business but otherwise could not dispose of the charged assets or permit them to be attached without the written consent of the director.

It was found that the relevant charge related to a class of assets of the company present and future and that the debenture clearly contemplated that the company was to carry on business in the ordinary way with those assets.

The crucial question was whether the class of assets was one which would be changing from time to time in the ordinary course of business.

The court considered the question of the purported charges on book debts and other assets separately and held that the debenture was not apt to create a specific charge over book debts.

Although the company had not been a manufacturing company, the range of chattels owned by it made it unrealistic to suppose that they would not be changed or removed from time to time and so the third indicia of a floating charge (see Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, on appeal, sub nom Illingworth v Holdsworth [1904] AC 355) was also present.

It might have been otherwise if particular chattels had been itemised in a schedule to the debenture.

The mere restriction on disposal without consent did not make what would otherwise be a floating charge into a fixed charge and the description of the charge as a fixed charge was not determinative.

The document viewed as a whole disclosed a floating charge despite the fact that the parties supposed they were creating a fixed charge.