Legal Thought Leadership

Appellate decision on preference: don’t presume to save your MC Bacon!

January 9, 2019

Séamas Gray and Joseph Curl look at the most significant decision on preference for 30 years

On 17 July 2018, Mr Justice Birss handed down his appellate judgment in the case of Abdulali v. Finnegan & another [2018] All ER (D) 133 in what may be one of the most important decisions on preference since the decision of Millett J (as he then was) in MC Bacon nearly 30 years ago. The appeal followed the initial decision of district judge (DJ) Salmon (as he then was) on 15 December 2017. This case is a salutary reminder for IPs not to rely solely on the benefit of the statutory presumption. The judgment also provides excellent guidance for advisors and IPs alike as to the interpretation of s340 and 239 of the Insolvency Act 1986 (the Act); what exactly is meant by the phrase: ‘influenced by a desire to prefer’; whether such a phrase is referred to or used correctly; and what motivating influences of a debtor (in making a preferential payment in fact) might be considered permissible by a court so as to exclude such a payment from being
challenged as a preference in law under the section. Background For present purposes, the following are the core essential facts (which were not in dispute between the parties):

• The debtor (D) was a director and founder investor in an Irish limited company, Liberty Asset Management Limited (Liberty), which was sold to Friends First Limited (Friends First) for €20m in 2007.
• D invested the proceeds of the sale in various property and other non-liquid Winter 2018 | FEATURE 35 investments. The property crash in 2008 left such assets in substantial negative equity and D became liable to Friends First for the approximate sum of €2.3m pursuant to various breaches of various warranties relating to the sale.
• In 2008, D also entered into agreements with two of his former Liberty codirectors to indemnify them in relation to claims brought by Friends First.
• On 21 July 2009, the first respondent (Mr Finnegan) lent D, his brother-inlaw, €200,000 (Finnegan loan). It was an express term of the loan that it was to be repaid within five weeks. The proceeds of the Finnegan loan were paid over by D to Friends First.
• The €200,000 was not repaid in accordance with the terms of the Finnegan loan and Mr Finnegan pressed for his money. Discussions took place about the loan being secured over an asset of D: his holiday apartment in Spain. Agreement in principle was reached around July 2010 and a draft charge was prepared but not put in

 

To read on, follow this link: Appellate decision on preference – Seamas Gray

 

Written by Restructuring and Insolvency Partner, Séamas Gray

Please get in touch should you want more information in relation to this case, or any other insolvency matters.

DD: +44 (0) 7725 828 819

Email: seamas.gray@gunnercooke.com

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