Avoidance recoveries and crystallised debentures: sums clawed back by liquidators do not enter secured creditors' security.

Money recovered by liquidators from avoiding a preferential payment was treated as a statutory recovery for the benefit of creditors generally, not as a proprietary asset of the company when the debenture security crystallised. Because the payment had already left the company's property, the recovered sum was not subject to the debenture charge and did not become part of the secured creditor's general security. The court therefore held that the recovery was impressed with a trust for distribution among creditors and rejected the secured creditor's claim to the fund in favour of the liquidators.

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Issues: Whether money recovered by liquidators by avoiding a preferential payment became part of the company's general assets available to a secured creditor under a crystallised debenture.

Analysis: The right to recover the payment was a statutory remedy available for the benefit of creditors generally, not a proprietary asset of the company when the debenture security crystallised. Once the sum had been paid out, it ceased to be the company's property and was not subject to the debenture charge. Money recovered by the liquidators under the relevant avoidance provisions was therefore impressed with a trust for distribution among creditors and did not fall into the secured creditor's security.

Conclusion: The recovered sum did not form part of the company's general assets available under the debenture, and the application was rejected in favour of the liquidators.

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