THE IMPACT OF LEYLAND DAF House of Lords Appeal                                                  Westminster Palace As many of those members involved in the Insolvency world will be aware on March 4th 2004 an appeal was made by the Leyland DAF debenture holder, Stiching Ofasec. In the wake of this appeal the House of Lords collectively agreed that the expenditure and outlay of a liquidation as a whole will not necessarily be payable from assets subject to a floating charge of the debenture holder. This decision overturned over 30 years of law. In 1970 the case, Re Barleycorn, was brought before the Court of Appeal and it was approved by the court that liquidation costs would be paid from floating charge assets first, then to the liquidation preferred creditors and finally to the floating charge holder. At the time the receivers disputed the ruling on the grounds that there was no defined statutory justification for this. With the success of the appeal by Stiching Ofasec the Law Lords had effectively agreed that this previous ruling was erroneous. For those members who do not work in the insolvency world a floating charge is the term for money lent by a financier to a company against the assets of that company. The assets are used as normal in the daily running of the business until such time as the floating charge becomes a fixed charge. The House of Lords agreed with the receivers in the 1970 case and under sections 40 and 1 75 of the Insolvency Act 1986 there was nothing to imply that liquidation costs should be released in this manner.   It ruled that if a company is in administrative receivership and liquidation, and not withstanding any fixed charges, the former assets of the business consist of two separate funds, to quote Lord Hoffman 'The expenses of the administrative receivership are borne by the debenture-holder's fund. The expenses of the winding up are borne by the company's fund.' The company fund comprising of monies received from the assets that do not fall under the floating charge. The liquidator is now paid, for time and expenses out of the second fund, and comes secondary to the floating-charge holder/ or financier. The only monies to come out of the first fund are those costs incurred by the liquidator in realising the assets that form part of the floating-charge holders fund. As a result of this liquidators are becoming very cautious about taking on a case where they may not be able to recover their costs and in situations where they do take on the case they have to agree fees in advance. Insolvency Clients. The impact on us as valuers and auctioneers is two fold. We are getting less case work as liquidators are not taking on cases that they feel may not cover their costs. In some cases the valuation has been conducted, the liquidator has then realised that the case is not worth taking on, and refused to pay the valuation charges. It is therefore recommended that any valuer working in insolvency ensures their client signs an agreement with them in which they agree an up front fee or minimum fee and outline the service that fee provides them and how any additional charges will be levied. For more advice please contact the NAVA Head Office on 0115 9707580. Caroline Newton, Acting C.E.O.