Insolvency

Creditors' voluntary arrangement - company unable to pay debts as falling due - moneys received by supervisors under arrangement held on trusts of arrangementIn re Brelec Installations Ltd (in liquidation): ChD (Blackburne J): 11 April 2000

In 1996 the creditors of a company approved a proposal for a creditors' voluntary arrangement (CVA) under which fixed monthly payments were to be made by the company to the supervisors of the arrangement for the benefit of the arrangement creditors for five years.The company could only make its payments under the CVA at the expense of its post-CVA creditors and continued to trade at a heavy loss.

In 1998 it was placed in creditors' voluntary liquidation.

The supervisors sought a direction from the court as to whether the sum of 76,285.85 they had received from the company during the CVA was held subject to the trusts created by the CVA.Glen Davis (instructed by Dibb Lupton Alsop, Leeds) for the supervisors.

Raquel Agnello (instructed by Hammond Suddards, Leeds) for the liquidator.Held, directing that the moneys were held subject to the trusts created by the CVA, that a CVA had to be construed practically, otherwise hasty drafting, coupled with an over-literal approach to its construction, could to serve to frustrate rather than achieve the purpose of the arrangement; that in the present case a commonly used 'trading-out' arrangement had been adopted, whereby regular payments were made to the supervisor in fixed amounts for a fixed period, after which the company would be released from its obligations to the CVA creditors; that as a mater of construction it was unlikely that such a default would bring the CVA to an end, since that would require a potentially minute examination of the course of the company's trading to detect when default had first occurred to establish from which date any subsequent payments should be regarded as being held for the benefit of the company or its creditors; and that even if the arrangement came to an end as the liquidator contended, it did not follow that the subsequent instalments had to be treated as being held by the supervisors for the benefit of the company.This CVA contained no terms requiring undistributed money in the supervisors' hands to be paid to the company and it was inconsistent with the company's intention when making payments to the supervisors for those payments to be held on resulting trust for the company or its creditors.