British Eagle International Airlines Ltd v Compagnie Nationale Air France
British Eagle International Air Lines Ltd v Cie Nationale Air France [1975] 1 WLR 758 is a UK insolvency law case, concerning priority of creditors in a company winding up.
Facts
A number of airlines agreed to set up a clearing house to manage complicated debt and credit accounts among themselves. The clearing house fell under the authority of the International Air Transport Association, or IATA. Participants were meant to not claim against each other, only IATA for any net balance due to the particular airline in the scheme, settled at the end of each month. British Eagle went insolvent. It was a debtor to the clearing house overall but a creditor to Air France. The liquidator attempted to recover the money from Air France and Air France argued it was bound by the clearing house scheme, and could only collect money after netting out the claims of creditors of British Eagle in IATA. So the liquidator challenged the legality of the scheme, as it purported to sidestep pari passu.
Judgment
Speaking with a majority of the House of Lords Lord Cross of Chelsea held it to be against public policy to vary the claims of the insolvent estate under the ordinary rules for winding up. It was unlawful to attempt to contract out of the (what is now) Insolvency Act 1986 section 107. The scheme if it operated on insolvency would remove the sum due to Air France from British Eagle's estate, and hence reduce the amount available to the creditors generally.
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