Corrie and Bankruptcy Law

In this latest episode of a Corrie widower’s law blog, I’m going to say a little about bankruptcy law.

This week everyone’s favourite hard man builder, Owen Armstrong, has been doing some debt collecting. He called on the wife of a customer, Valerie Phelan, at her nail bar. He had apparently done some work at the premises when it was the husband’s travel agents’ shop. The nail bar owner had great pleasure in fobbing off our Owen, but he was not to be deterred.

In the next scene in this story line, he doorstepped Pat Phelan at his luxurious house, demanding payment for his £4k of invoices. The answer he got was a simple “Sorry mate, I’ve been declared bankrupt. I wish I could pay but I’ve got nothing.” It transpired that the nail bar premises and the obviously large house are all in the wife’s name.

So on the back of this episode, it seems the easiest way to run a small business is to run up a load of business debts, transfer every asset into a spouse’s name and go bankrupt. Easy.

Whilst we are obviously being led to expect some, shall we say, unconventional debt recovery techniques from Owen, the boring lawyer’s approach is to question the transfers of assets into the spouse’s name. It should come as no surprise that the law has cottoned on to that basic trick (see the cross heading Wrongdoing by the bankrupt before and after bankruptcy in the Insolvency Act 1986, Part IX, Chap VI), so a simple way to start getting redress might be to contact the Official Receiver (named on the bankruptcy order being flourished by Pat Phelan in Owen’s face), who has a statutory duty to investigate the affairs of the bankrupt. If Owen didn’t catch who the Official Receiver is on the order, he can always contract the Manchester Official Receiver’s office.

Not that I think Owen will – that wouldn’t make for an interesting story line, would it?

PS

As a contract lawyer, I’d point out that if you are in a small business, include a so-called Romalpa clause in your terms and conditions, so that you can get back anything you have sold prior to full payment (see this old post on Romalpa). As a law student, I advised a friend of a friend who supplied stadium speaker systems, who had a Romalpa clause, to get immediately into his truck and recover his equipment from a venue, as he’d been tipped off that his defaulting customer was about to go into involuntary liquidation. If he hadn’t done so, he would have risked become an unsecured creditor, eventually getting back a fraction of what he was owed, instead of recovering his expensive speakers.

What's mine is yours – until I want it back

Occasionally a law case becomes so well know that its name lives on to label the issue first raised in the case.  My favourite was the Anton Piller Order, which used to be a fairly common court order sought to provide the applicant with the right to search premises and seize evidence without prior warning.  The order is named after the case Anton Piller KG v. Manufacturing Processes Limited [1976] Ch 55.  What has always amused me is that I’ve never met another lawyer who has advised on Anton Piller Orders who actually knew who Anton Piller was and what Anton Piller KG deals with (check this link if you want to know – I only knew because I was responsible for a lot of Anton Piller equipment as an engineer).

In commercial law, the classic example is the so-called Romalpa clause, after Aluminium Industrie Vaassen BV v. Romalpa Aluminum Ltd [1976] 1 WLR 676.  This case concerned the supply of aluminium rolls.  The seller had inserted a retention of title clause into the sale agreement, so that ownership of delivered rolls only transferred to the purchaser when all payments for the rolls had been made.  Until full payment, the clause gave the seller the right to get the rolls back.  The case became litigious as a result of the delivered rolls becoming mixed with rolls from other suppliers into aluminium products and a dispute between the parties about the effect of their retention of title clause in those circumstances.  In short, the court upheld the interpretation of the clause that provided that when there was mixing, the proceeds of any sale of mixed goods to sub-purchasers were held on trust by the purchaser for the seller, who therefore had the benefit of these proceeds in priority to other secured or unsecured creditors.

However, although this is an old case, retention of title clause continue to cause problems.  A recent case went against the seller, so deserves some attention. In Bulbinder Singh Sandhu v. Jet Star Retail Limited [2010 EWHC B17 (Mercantile) an “all monies” clause was defeated.  This type of clause attempts to give the seller a claim over the goods supplied (or proceeds of sale) until the purchaser has repaid all monies owed to the seller for the goods and for any other arrangements between them.  However, this case involved a purchaser who was buying stock in trade for resale to consumers and so would be extremely unlikely to repay all monies before reselling the stock, particularly as the retention of title clause permitted the purchaser to resell even following its insolvency.  Given the circumstances of the case, the clause was ruled to be ineffective.  It would appear from this judgement that it will be very difficult to ensure that retention of title clause in wholesale, revolving supply agreements will be effective.