Tags

, , , ,

The Supreme Court has delivered its judgment in Eurosail – an important decision in determining when a company is insolvent for the purposes of s123(2) of the Insolvency Act 1986.

The following is a guest blog by David Moyhuddin of Exchange Chambers and on behalf of Exchange Insolvency.

BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc

 [2013] UKSC 28

 Rowing back from the point of no return

 “A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities” Insolvency Act 1986, s 123(2).

Hearing the appeal from the Court of Appeal in Eurosail, the Supreme Court has decided that s 123(2) of the Insolvency Act 1986 requires the Court to make a judgment whether it has been established that, looking at the company’s assets and making a proper allowance for its prospective and contingent liabilities, it cannot be reasonably expected to be able to meet those liabilities. If so, it will be deemed insolvent  although it is currently able to pay its debts as they fall due. The more distant the liabilities, the harder this will be to establish. The “point of no return” test is not the proper test.

It is for the petitioner or applicant to satisfy the court, on the balance of probabilities, that a company has insufficient assets to be able to meet all its liabilities, including prospective and contingent liabilities.

The court must be provided with evidence which will allow it to assess how speculative the likelihood is that a liability will require to be discharged such that it can form a view whether there will eventually be a deficiency. This evidence will necessarily have to consider the time before the liability might fall in and how likely it is that the liability will ultimately fall in. That view must be reached on the evidence presented to the court when it hears the petition meaning that if the court cannot form a view on the likelihood of the liability being required to be met, it cannot conclude that the company will be unable to meet it.

For more information or to speak with a member of Exchange Insolvency, please contact:

Nick Buckley

Ian Spencer

0161 833 2722

0113 203 1970

buckley@exchangechambers.co.uk

spencer@exchangechambers.co.uk

You can download a pdf version of David’s summary E-alerter re Eurosail

You can access a copy of the judgment here

Follow Exchange Chambers on Twitter @exchangec