Secured creditors may proceed with confidence

In the recent English case of Waypark Commercial Mortgage Ltd v Vanguard Number 1 Ltd (In Liquidation), the Court had to consider whether the sale of property by a secured creditor of a company in liquidation was impacted by the automatic stay imposed by section 130(2) of the English Insolvency Act, 1986. Section 130(2) of the Insolvency Act, 1986 provides that: "When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose." The Court determined that the statutory stay did not impact the sale of property subject to security by a secured creditor. In reaching its decision, the Court considered the definition of "action" and "proceedings" and whether a sale of a property by a secured creditor fell within the scope of these terms. Neither term is defined in the Insolvency Act but in reliance on common law, the Court concluded that the term "action" referred to Court proceedings, and the word "proceedings" was limited to legal proceedings or quasi-legal proceedings such as arbitrations. It followed, therefore, that it is not necessary for leave to be obtained from the Court before a sale of property that is subject to security may proceed notwithstanding that the debtor company is in liquidation. The Court's decision provides secured creditors and prospective purchasers of property subject to security assurance that the purchase is not subject to the automatic stay arising under the Insolvency Act. However, Waypark is of no assistance to an unsecured creditor that seeks to realise property of a company in liquidation. The term "proceedings" had been interpreted to include execution and distress in other case authorities because those remedies are likely to have the effect of conferring an advantage on creditors who avail themselves of such remedy, thereby offending against the pari passu rule of distribution in a liquidation. Property that is subject to security will not normally form part of the general pot of assets available for distribution amongst unsecured creditors. The ruling in Waypark serves as helpful guidance for liquidators, secured creditors and prospective purchasers of assets of companies subject to liquidation. The ruling may be persuasive in the Cayman Islands and British Virgin Islands, both having statutory provisions equivalent to section 130(2) of the English Insolvency Act, namely section 97 of the Cayman Islands Companies Act 2025, and section 175(1)(c) of the BVI Insolvency Act 2003 (although note that under BVI law, a secured creditor is expressly empowered to enforce their security against the secured assets despite the appointment of liquidators to the company). Please note that we do not practise the law of England & Wales.