Jeff Bacon obtains declaration that “money held by solicitors to the order of a third party are not the “property of the company” under s.127 Insolvency Act.

Monies received and held “to the order of” a third party by solicitors acting for a company against which a winding up petition had been issued were not the “property of the company” under s.127 Insolvency Act so that when those solicitors returned those monies on the order of the third party, this did not amount to a “disposition of the property of the company” under s.127 and was not therefore void.  Jeffrey Bacon obtained a declaration to this effect in a hearing in the Chancery Division in Manchester.

Jeffrey acted for a company CWC who were the owners of a site in Manchester in relation to which they had permission to develop. CWC engaged a company called Daw Developments Ltd (“DDL”) as building contractor (works value £3.5 million odd) and DDL sub-contracted the works to Reco Construction Ltd (“Reco”).

In mid-late 2014 a dispute arose between DDL and Reco as to sums alleged to be due under the sub-contract. Reco issued a valuation for £380,000 odd.   DDL had a valuation of its own which estimated the works at £205,000 odd.  DDL however also had concerns which arguably amounted to defences or cross claims.

An impasse came about. Reco insisted that the £205,000 sum was paid unconditionally or it would issue a petition.  DDL offered to pay that amount by way of security of some form to await agreement or other determination of what was due.

On 23/12/14 DDL applied to restrain presentation of a petition, or if one had been issued, to restrain its advertisement, that application being heard by HHJ Hodge at 2pm. Unknown to the Court or DDL, in fact on the same day, Reco had issued its petition.  HHJ Hodge made an order restraining presentation, alternatively advertisement, pending a further hearing inter partes on 5th January 2015.  However he also ordered that if the sum of £205,000 odd was not paid into the account of the solicitors for DDL by 12 noon on 31st December 2015, the injunction would be discharged and the hearing on 5th January would be vacated.  The Court was informed by counsel for DDL that the funds to meet that condition would have to come “from overseas”, which was a reference to CWC which is controlled by Chinese investors.   Mr Daw (the owner and director or DDL) contacted 2 of those involved with CWC over the period 23-27 December 2014 asking that they send the £205,000 sum to DDL’s solicitors “to be held in trust” until the outcome of the dispute between DDL and Reco.  There were various personal discussions, telephone calls, emails and whatsapp messages, but in any event DDL’s solicitors’ attendance note of 27 December 2014 with Mr Daw recorded that CWC would endeavour to pay the relevant monies but provided they “remained” CWC’s money.  The solicitor told Mr Daw that he would prefer direct instructions, but Mr Daw explained that it was the Xmas period, he was in India, the CWC people in China.  The solicitor told Mr Daw that he would hold any monies received “to the order of CWC”.

The liquidators of DDL argued that monies paid on that basis could not satisfy the Hodge HHJ Order and therefore had to be paid unconditionally. That was rejected by the Court.  If the monies were held to the order of CWC, they were held to the order of CWC and the solicitors could not change the basis on which it held the money without explicit instructions from CWC.  Accordingly those monies never became CWC’s money and paying them back to CWC could not be a disposition of its property.

2nd May 2017