Insolvency lawyers left in book debt quandary

Insolvency practitioners (IPs) have been rendered helpless on the issue of what to do with a bankrupt company’s assets as a ruling stating that the money should go to the Government has been sent to the Court of Appeal.

IPs, who now cannot determine whether book debt (payments owed to a company) should go to banks or the Inland Revenue, have millions of pounds worth of assets sitting in bank accounts, where they will stay until the case, NatWest v Spectrum, is decided.

On 15 January, the Vice-Chancellor Sir Andrew Morritt ruled that book debt payments should go to the Government. Then he immediately granted NatWest, represented by Allen & Overy (A&O) and 3/4 South Square’s Gabriel Moss QC, leave to appeal the case that it had brought against the liquidators of insolvent company Spectrum, the Inland Revenue and Customs & Excise.

“Putting it simply, we just don’t know who to pay,” said John Verrill, head of both the insolvency practitioners’ association R3 and the corporate recovery department at Lawrence Graham.

The decision follows the ruling in Brumark, the famous Privy Council case which ruled that the fixed charge taken by banks over a company’s assets may not be valid when the company becomes insolvent.

“This is a decision at first instance and we’ll have to wait until the final outcome. Whether an appeal will be made remains to be seen. As an IP, I’ll just have to sit and wait,” said Paul Appleton, a partner at insolvency accountants David Rubin & Partners.

The Inland Revenue and Customs & Excise handled the case in-house. Spectrum’s liquidators instructed Lawrence Graham partner Nick Pike.