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Using s.127 Insolvency Act 1986 to advantage

United Kingdom
08/03/2001
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The creditors of a company presented a winding up petition against the debtor company as a strategic move in order to obtain the benefit of s.127 Insolvency Act 1986 (the Act) in the recent case of Re Optima Solutions Ltd ([2001] All ER (D) 333 (Feb).

The facts of the case were rather unusual in that the creditors were originally defendants in separate proceedings and had been awarded security for costs in those proceedings which the claimant had failed to provide.

In the course of without prejudice correspondence, it emerged that the claimant had entered into a contract by which it appeared to have assigned the value of its only asset, patent rights, to a third party which was a recently incorporated off-shore company. Once the creditors were aware of this, they applied to the Court for a winding up petition in order to frustrate the disposition of the debtor company's only asset after the date of the petition, by relying on s.127 of the Act.

The court held the creditors were entitled to the petition against the company which was in any event insolvent and the creditors were therefore able to use the Act to their advantage to prevent the disposition as opposed to, say, applying for an injunction to prevent the debtor from completing the contract.

For further information, please contact Ruth Pedley by e-mail at [email protected] or by telephone on +44 (0)20 7367 2098.

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