Re MC Bacon Ltd (No 1)
Encyclopedia
Re MC Bacon Ltd [1990] BCLC 324 is a leading UK insolvency law
case, concerning transactions at an undervalue (IA 1986 s 238) and voidable preferences (IA 1986s 239).
, its main office on 192-194 Trundley’s Road, London
. Started in 1973 it did normal bacon and then from 1983 diversified into gammon steaks, joints and rashered bacon. But in 1986 Dee Corporation, its principal supplier withdrew. Two directors, Mr Creal and Mr Glover took legal advice but decided to keep trading. It made redundancies but still could not keep up. Mr Creal was old and wanted his son to take over. Mr Glover was 22.5 stone and had arthritis and could not do the work with his previous vitality. In May 1986 its bank, Natwest, granted an overdraft facility, secured with a debenture. It was clear that the company was already insolvent and needed the bank’s help to keep going. The company went into creditor voluntary liquidation in August 1987 with a deficiency of about £330,000 to unsecured creditors. The liquidator argued the debenture was either a voidable preference or transaction at an undervalue. It also brought a wrongful trading claim against the bank as a shadow director. But before strike out proceedings before Millett J the action was abandoned after 12 of 17 days.
. In a subsequent case, Re MC Bacon Ltd (No 2) Millett J held that anything recovered under s 214 is held on statutory trust for unsecured creditors. The proceedings were not to realise company assets and expenses did not fall under rule 4.218(1)(a). Therefore, any recovery would not go to secured creditors.
UK insolvency law
United Kingdom insolvency law deals with the insolvency of firms and individuals in the United Kingdom. The important statutes are the Insolvency Act 1986, as amended by the Enterprise Act 2002, as well as the Company Director Disqualification Act 1986 and the Companies Act 2006.Insolvency is a...
case, concerning transactions at an undervalue (IA 1986 s 238) and voidable preferences (IA 1986s 239).
Facts
MC Bacon Ltd imported baconBacon
Bacon is a cured meat prepared from a pig. It is first cured using large quantities of salt, either in a brine or in a dry packing; the result is fresh bacon . Fresh bacon may then be further dried for weeks or months in cold air, boiled, or smoked. Fresh and dried bacon must be cooked before eating...
, its main office on 192-194 Trundley’s Road, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
. Started in 1973 it did normal bacon and then from 1983 diversified into gammon steaks, joints and rashered bacon. But in 1986 Dee Corporation, its principal supplier withdrew. Two directors, Mr Creal and Mr Glover took legal advice but decided to keep trading. It made redundancies but still could not keep up. Mr Creal was old and wanted his son to take over. Mr Glover was 22.5 stone and had arthritis and could not do the work with his previous vitality. In May 1986 its bank, Natwest, granted an overdraft facility, secured with a debenture. It was clear that the company was already insolvent and needed the bank’s help to keep going. The company went into creditor voluntary liquidation in August 1987 with a deficiency of about £330,000 to unsecured creditors. The liquidator argued the debenture was either a voidable preference or transaction at an undervalue. It also brought a wrongful trading claim against the bank as a shadow director. But before strike out proceedings before Millett J the action was abandoned after 12 of 17 days.
Judgment
Millett J held that the company and its directors had not done anything in contravention of sections 238 or 239. A transaction that results in preferential status for one creditor is only voidable under section 239 if a company positively wishes, or desires, to prefer that creditor, and that desire influences entering the transaction. Here the directors did not want to improve the banks position, but simply wishes to continue trading. The creation of the security in favour of the bank was not a transaction at an undervalue within the meaning of section 238 because it did not deplete or diminish the value of the assets of the company. His judgment went as follows.Significance
This case was one of the earliest decided cases under new provisions of the Insolvency Act 1986Insolvency Act 1986
The Insolvency Act 1986 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.-History:...
. In a subsequent case, Re MC Bacon Ltd (No 2) Millett J held that anything recovered under s 214 is held on statutory trust for unsecured creditors. The proceedings were not to realise company assets and expenses did not fall under rule 4.218(1)(a). Therefore, any recovery would not go to secured creditors.