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4-12-2020

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In Re Macclesfield Town Football Club Ltd (unrep. 26 November 2020) Chief ICC Judge Briggs granted retrospective validation of a loan, debenture and legal charge over a football ground entered into by a football club now in liquidation.

The circumstances of the case were unusual. HMRC presented a winding up petition in January 2019; another creditor was substituted, but later HMRC took the petition back again before, in the end, a winding up order was made in September 2020. A number of validation orders were made while the petition was on foot.

In June 2019 the club borrowed £120,000 to help with cashflow, but no validation order was applied for at the time. It was in those circumstances that what might be thought of as a late application for relief (seeking ratification of the transaction) came before the court.

The transaction was plainly a disposition of the company’s property within the meaning of section 127 Insolvency Act 1986 so on its face void, but the application to ratify it succeeded on the basis that it was for the benefit of creditors generally as it allowed the company to continue to trade. The ultimate cause of the liquidation was Covid-related.

We have seen from cases such as Express Electrical, that the creditor seeking a validation order must prove more than the transaction facilitating the company’s continued trading. There needs to be positive proof that the transaction produced a profit and so was of benefit to the company. That is perhaps hard to prove when the transaction to be validated is the payment for goods supplied but potentially easier in the case of any disposition supporting a loan to the company when the evidence of transmission of funds is likely to be sufficient evidence of the benefit to the company and hence the creditors.

The full judgment has not been published as yet but it is a matter that will warrant further attention and adds to the case law on validation orders under section 127.

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