Each airline in the group owed multiple and changing debts to one another, so to make settlements easier, participants were not meant to claim against one another, but simply enter their transactions in the clearing house, and then settle the balance at the end of each month.

So the liquidator challenged the legality of the scheme, as it purported to sidestep the mandatory rules on pari passu distribution.

The documents were not drawn so as to create charges but simply so as to set up by simple contract a method of settling each other's mutual indebtedness at monthly intervals.

The respondents argue that the position which, according to them, the clearing house creditors have achieved, though it may be anomalous and unfair to the general body of unsecured creditors, is not forbidden by any provision in the Companies Act, and that the power of the court to go behind agreements, the results of which are repugnant to our insolvency legislation, is confined to cases in which the parties' dominant purpose was to evade its operation.

The court could only go behind it if it was satisfied — as was indeed obvious in that case — that it had been created deliberately in order to provide for a different distribution of the insolvent's property on his bankruptcy from that prescribed by the law.