Restitution

Payments made by company to creditor after winding-up petition presented - liquidator having restitutionary claim against creditor if payments void - change of position capable of affording defence to liquidator's claim

Rose v AIB Group (UK) plc and another: ChD (Mr Nicholas Warren QC): 9 June 2003

At the date of presentation of a winding-up petition, the company's accounts with a bank were approximately 49,000 overdrawn, the liability being secured by a legal charge over a house belonging to the company's director.

After the petition had been presented against it, the company caused its debts owed to the bank and another creditor to be paid off.

Two years later, the bank released its charge over the director's property on the innocent assumption that all the company's liabilities had been discharged.

The liquidator applied for a declaration that the payments made after presentation of the petition were void pursuant to section 127 of the Insolvency Act 1986.

The bank sought the validation of those payments, contending that it had changed its position when releasing the charge and that it could rely on that change of position as a defence to the liquidator's restitutionary claim.

Sebastian Prentis (instructed by Moorhead James) for the liquidator; Nicholas Cherryman (instructed by Callaghans, Guildford) for the bank; the other creditor did not appear and was not represented.

Held, that the defence of change of position could be available to a creditor so as to defeat a restitutionary claim by a liquidator made under section 127 of the 1986 Act; that whether the defence succeeded depended, among other things, on whether the creditor had acted in good or bad faith when changing its position; that although the bank had not acted in bad faith, the change of position in releasing the charge had been made not in reliance on the initial validity of the credits to the accounts, but on the assumption that no claim would be made to assert that validity; and that it followed that the bank could not rely on the defence.