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The Leyland DAF Case

Payment of Liquidation Expenses out of Assets comprised in Floating Assets.
The DTI has proposed to amend Section 175 of the Insolvency Act 1986 in order to reverse the effect of the House of Lords decision in Buchler v Talbot, re Leyland DAF (2004). In that case, the House of Lords held that the costs and expenses of a Liquidator in a winding – up are not recoverable out of the assets comprised in a floating charge until the secured debt has been paid in full.

This decision reversed the position that had obtained for many years in England and Wales regarding the payment of expenses, and the DTI intention as expressed in new section 175 is now to return to the law which had so obtained.

The IPC supports the DTI’s intention to deal with the matter in this way and also supports the efforts being made by the RPBs to reach satisfactory arrangements with the major lenders on how to deal with this matter until the amendment to Section 175 can be adopted. The Leyland DAF case brought the law in England and Wales into line with the position in Scotland but the Department of Trade and Industry’s intention is to cause the law to revert.

It has been suggested that the Scottish Executive should take similar statutory action to permit Liquidators in Scotland to take their expenses before the holder of a floating charge is paid but implementing this change would necessitate a substantial change to Scots Law, not merely the reversal of a Court Judgment. The issue is currently being considered by the Scottish Executive following a period of consultation.

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