A little too presumptuous? Abdulali v Finnegan & another  EWHC 1806 (Ch)
One of the key practical features that separates insolvency litigation from most other legal disputes is the fact that the party typically bringing the claim – the officeholder – is usually unable to give any first-hand evidence of the background facts. By the time the officeholder arrives on the scene, the relevant events giving rise to the claim have usually already happened – sometimes a long time ago. The officeholder often faces a significant disadvantage: he needs to prove matters to which he was not a party in circumstances where the actual protagonists often have reason to put a self serving spin on the facts.
To even things up a bit, the legislature has bestowed on insolvency officeholders the benefit of a statutory presumption for some of the claims available under the Insolvency Act 1986 (‘Act’). When bringing a claim to a transaction at an undervalue (s 238 of the Act for corporate insolvency and s 339 of the Act for personal insolvency) or a preference (s 239 of the Act for corporate insolvency and s 340 of the Act for personal insolvency), in certain circumstances a respondent can be required to disprove some aspects of the claim. In the case of a transaction at an undervalue, the pro-officeholder presumption is in respect of proving the insolvency of the debtor. That question can often be illuminated by looking at books and records or factual matters such as creditors going unpaid. Perhaps more interesting is the presumption that can be available in preference claims. In that case, the presumption concerns the transferee debtor’s state of mind – a subtle and sometimes difficult inquiry. The appeal in Abdulali v Finnegan was all about that question.
PREFERENCES – AND THE PRESUMPTION
Abdulali v Finnegan was a case about personal insolvency, so the summary that follows is drawn from s 340 of the Act. But the legal position is almost exactly the same in corporate insolvency. There are two distinct components to a preference claim. Firstly, at a ‘relevant time’ (up to two years before presentation of the petition and while the debtor is insolvent) a debtor must do or allow something to be done that has the effect of putting a creditor into a position which, in the event of the debtor’s bankruptcy, ‘… will be better than the position he would have been in if that thing had not been done’. This first aspect we might term the ‘preference in fact’ and such circumstances are found in many, if not most, insolvencies. Secondly, the debtor must have been ‘… influenced in deciding to give [the preference] by a desire to produce’ the preferential effect just mentioned (which statutory desire appears in s 340(4) of the Act). It is the second aspect that maysometimes be presumed, as provided for by s 340(5) of the Act. The presumption arises where the creditor is an ‘associate’ of the debtor, as that term is defined in s 435 of the Act. In the personal insolvency context, ‘associate’ most commonly means family members. Where the presumption engages, it is for the respondent to the officeholder’s claim to disprove that the debtor was influenced by the desire to prefer.
To read on, follow this link: A little too presumptuous? Abdulali v Finnegan & another  EWHC 1806
Written by Restructuring and Insolvency Partner, Séamas Gray
Please get in touch should you want more information in relation to this case, or any other insolvency matters.
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