Moratorium
Cases
Money Markets International Stockbrokers (In Liq)
[2012] IEHC 214
McGovern J.
“Therefore, the court can proceed to decide this preliminary issue on the basis of whether or not Mr. Fanning’s claim to the shares or the proceeds of sale thereof is a claim within the liquidation or outside the liquidation.
18. In F.S. Compensation Scheme Ltd. v. Larnell (Insurances) Ltd. (see above), Moore-Bick L.J., having referred to Cotterell v. Price, said, at p. 827 (para. 60):
“These authorities were followed and applied by Mr. John Jarvis Q.C. in Anglo Manx Group Ltd. v. Aitken [2002] BPIR 215. They support the conclusion that a distinction is to be drawn between rights to obtain satisfaction of claims from property of the company through the process of the liquidation, which are determined as at the date of the commencement of the winding up, and rights that may be enforceable outside the liquidation, for example, by recourse to security. In the case of the former time does not run after the date of the winding up so that a proof may be submitted at any time, although without disturbing any previous distributions. In the case of the latte, time runs in the ordinary way.”
19. In the same case, Lloyd L.J. considered the operation of limitation periods in an insolvent administration in the light of in Re General Rolling Stock Co. At p. 814 (para. 13), he said:
“I must describe next the position in an insolvency as regards the debtor’s liabilities. In a voluntary winding up, the liquidator’s duty is to apply the company’s property ‘in satisfaction of the company’s liabilities pari passu’: see section 107 of the Insolvency Act 1986. Similar provisions apply in a compulsory winding up and in bankruptcy. An obligation which, at the relevant date, is barred by limitation, so that no action can be brought to enforce it, is not a ‘liability’ for the purposes of the insolvency legislation. See In re Art Reproduction Co Ltd [1952} Ch. 89. In that case, Wynn-Parry J relied on the decision of the Court of Appeal in Chancery in In Re General Rolling Stock Co. [1872] LR 7 Ch App 646. The court held that a claim which was still in time at the date when the winding up commenced but which was not asserted by way of proof until after the normal period of limitation had expired was to be admitted to proof, because it was in respect of something which had been a liability at the commencement of the winding up. In effect, so far as the operation of the winding up is concerned, limitation periods cease to run at that date so long as they have not already expired.
That case has been followed ever since, whatever the type of insolvency, and whether the claim is disputed or not: see, for example, In re Cases of Taffs Well Ltd. [1992} Ch 179, and In re Mixhurst Ltd. [1994} 2 BCLC 19.
In the first of those cases, Judge Paul Baker Q.C. said at p. 189:
‘As I have indicated, I accept that the period of limitation does not cease to run when the petition to wind up is presented, save as regards the petitioning creditor. It is, however, an over-simplification to say that the period ceases to run on the making up of the winding up order or the passing of a resolution to wind up. The true question, as I see it, is whether the original contracts of the creditors were discharged by operation of law and replaced by other rights before time had run out, by which actions would have had to be brought to enforce them. It is not simply that time has stopped running against the creditor; the cause of action itself is destroyed and replaced by other rights’.
Having considered in Re General Rolling Stock Co. and other cases, he answered his question as follows, at p. 191:
‘One may conclude that the effect of an order to wind up is to convert the contractual rights of the creditors into proprietary rights under a trust. It may still be necessary and appropriate for a creditor to bring an action after the liquidation for the purpose of elucidating his original contractual rights, for which purpose he would have to get leave; but it is not necessary for the purpose of stopping time running against him in relationto his erstwhile contractual rights’.”
20. Lloyd L.J. then went on to consider the limits to the application of the general Rolling Stock principle. He made referenceto a number of cases including In re Benzon [1914] 2 Ch. 68, Cotterell v. Price [1960] 1 WLR 1097, and Anglo Manx Group Ltd. v. Aitken [2002] BPIR 215. In Anglo Manx Group Ltd. v. Aitken, Mr. John Jarvis Q.C. sitting as deputy judge of the Chancery Division, referring to Re Benzon, said at para 60:
“There was considerable argument before me as to what is meant by the words ‘in the bankruptcy’ as distinct from the words ‘outside the bankruptcy’. Mr. Adair [for the defendant] submitted that the question can be formulated in this way. Is the claim being directed at property within the statutory trust, or does it relate to property outside of the trust: for example, after acquired property, or property which cannot form part of the estate. It seems to me that that is the correct formulation and is consistent with the analysis of Buckley J. in Cotterel v. Price.”
Later, he said at para. 66, that the result of the Court of Appeal decision in In Re Benzon is:
“… that the Statue of Limitations, having begun to run against the claimant before the commencement of the bankruptcy, continues to run, notwithstanding the bankruptcy, in respect of a claim in relation to a fund pursued outside of the bankruptcy.”
21. In FS. Compensation Scheme Ltd. v. Larnell (Insurances) Ltd., Moore-Bick L.J. said at p. 827:
“59. The decision of Buckley J. in Cotterell v. Price [1960]1 WLR 1097, further demonstrates that rights enforceable otherwise than against property held by the liquidator or trustee in bankruptcy are subject to the operation of the Limitation Acts in the ordinary way.
60. These authorities were followed and applied by Mr. John Jarvis Q.C. in Anglo Manx Group Ltd v. Aitken [2002] BPIR 215. They support the conclusion that a distinction is to be drawn between rights to obtain satisfaction of claims from the property of the company through the process of the liquidation, which are determined as at the date of commencement of the winding up, and rights that may be enforceable outside the liquidation, for example, by recourse to security. In the case of the former, time does not run after the date of the winding up so that a proof may be submitted at any time, although without disturbing any previous distribution. In the case of the latter, time runs in the ordinary way.”
22. It seems to me that these authorities are persuasive and I feel that it is proper and reasonable to follow them. What then is the effect of these legal principles on the facts before the court on this preliminary issue?”
MJBCH Ltd -v- Murphy
[2013] IEHC 256
Finlay Geoghegan J.
The Law
6. Section 222 of the Companies Act 1963 provides:
“When a winding-up order had been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.”
7. Applications pursuant to s. 222 are brought as a matter of course in the Examiner’s Court motion list. In recent years, it has been the practice to reject applications made in respect of proceedings commenced after the making of a winding up order and prior to an application under section 222. This was done following the approach of Rattee J. in the English High Court to s. 130(2) of the Insolvency Act 1986, which is expressed in identical terms to s. 222, in Re National Employers Mutual General Insurance Association Ltd. (In Liquidation) [1995] 1 B.C.L.C. 232. Until the present application, no counsel or solicitor has sought to challenge the correctness of this approach as the proper construction of s. 222 of the Act of 1963.
8. Counsel for the applicant does so in this application relying, in particular, on the reasoning of and authorities referred to in two decisions also of the English High Court: Re Saunders (A Bankrupt) [1997] Ch. 60, and Re Colliers International UK plc. (In Administration) & Ors. [2012] EWHC 2942 (Ch), decided subsequent to Re National Employers Mutual General Insurance Association Ltd. Counsel, in making the application, informed the Court that he was not aware of any contrary authorities in England and Wales (other than those referred to in these two judgments) and had been unable to find any written Irish judgment on s. 222 of the Act of 1963. The carefully reasoned judgments given by Lindsay J. in Re Saunders and David Richards J. in Re Colliers International UK plc. appear to me persuasive and necessitate a reconsideration of the former practice of following the approach of Rattee J. in Re National Employers Mutual General Insurance Association Ltd. Furthermore, on a full consideration of the issues, there is the additional requirement in Ireland that s. 222 of the Act of 1963 be given a construction consistent with the Constitution, and in particular, the right of access to the courts guaranteed by Article 40.3.
9. The issue is whether, on a proper construction of s. 222, a proceeding commenced against a company which has already been the subject of a winding up order without leave of the court, is a nullity, or whether such a proceeding is merely an irregularity and s. 222 gives the Court jurisdiction to consider retrospectively making an order granting leave for the commencement of the proceedings which has the effect of validating the proceedings already commenced.
10. In Re National Employers Mutual General Insurance Association Ltd., Rattee J. followed an earlier decision of Milmo J. in Wilson v. Banner Scaffolding Ltd. (1982) Times, 22 June, in which Milmo J. decided that s. 231 of the Companies Act 1948 (the predecessor of s. 130(2) of the 1986 Insolvency Act) meant that proceedings commenced without leave were a nullity and could not be validated by a retrospective leave from the Court. Milmo J. is reported as determining:
“. . . the writ as originally issued with the name of the second defendants upon it was a nullity as far as the second defendants were concerned. The prohibition against issue without leave of the court imposed by s. 231 of the Companies Act 1948 was absolute and unqualified.”
11. Rattee J. observes:
“As Milmo J. in Wilson v. Banner Scaffolding Ltd. (1982) Times, 22 June pointed out, that provision [i.e. s. 231 of the Act of 1948] was intended by the legislature to protect the interests of the creditors of a company in liquidation by preventing the company being subject to actions once it had gone into liquidation without the court first considering whether such an action ought to be allowed.”
12. He subsequently concluded that Milmo J. was correct in his construction of s. 231 of the Act of 1948, and he saw no reason to reach a different conclusion in relation to the indistinguishable provisions of s. 130(2) of the Insolvency Act 1986.
13. This decision was reconsidered in England in 1996 by Lindsay J. in In Re Saunders (A Bankrupt) [1997] Ch. 60 in a lengthy judgment which followed three days of inter partes submissions. The section under consideration was s. 285(3) of the Insolvency Act 1986, which applies to bankruptcy and insofar as relevant provides:
“After the making of a bankruptcy order, no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall . . . commence any action or other legal proceeding against the bankrupt except with the leave of the court and on such terms as the court may impose . . .”
14. Whilst the section at issue in Saunders related to bankruptcy and not the winding up of companies, there was no distinction made in argument between the relevant sections. Rather, it was submitted to the Court that a significant number of prior relevant English decisions and Commonwealth decisions had not been opened to either Milmo J. or Rattee J. in their decisions already referred to herein and that their conclusions were wrong in principle, insofar as they determined that the commencement of proceedings without leave in insolvency meant the proceedings were a nullity rather than irregular. Lindsay J. having considered in some detail the earlier English decisions and Commonwealth decisions, at p. 82, summarised the position in the following terms:
“There was a practice in England dating back at least to Re Wanzer Ltd. [1891] 1 Ch. 305, a practice recognised to be such at least as early as R v Lord Mayor of London, ex p Boaler [1893] 2 Q.B. 146, that proceedings in insolvency begun without the stipulated leave should not be regarded as irretrievably null but rather as existing and capable of redemption by the late giving of leave. Judges and counsel of great experience in England, from Re Wanzer Ltd in 1891 to Re Hutton (a bankrupt), [1969] 2 Ch. 201, treated retrospective leave in insolvency as a thing capable of being granted and as requiring no particular discussion. As the Court of Appeal emphasised in Rendall v Blair 45 Ch. D. 139, the legislature knows well enough how to provide that leave shall be a strict condition precedent to valid proceedings being issued and that clear words are to be used if that is intended, words perhaps even requiring a provision for the dismissal of the proceedings if the condition precedent is not satisfied. Without some such clear language being used the provision can be taken to be directory- the word used in Rendall v Blair, and, in Australia, used in Re Testro Bros Consolidated Ltd [1965] V.R. 18 and Re Horsham Kyosan Engineering Co Ltd [1972] V.R. 403. To the same effect is the view taken in Canada (Wheat Board) v Krupski 26 C.B.R. (3d) 293 and elsewhere that a want of leave is only an irregularity.”
Lindsay J. recognised considerable force in a conclusion that the natural construction of the words of s. 130(2) of the Insolvency Act 1986, was in accordance with the conclusions of Milmo J. and Rattee J. Nevertheless, having regard to the decisions to which he referred and the practical inconveniences and injustices described, he decided that the words were capable of more than one legitimate meaning and that he should give effect to the statutory purpose by concluding that the section gave him jurisdiction to grant leave, notwithstanding that the proceedings had already commenced.
15. Notwithstanding this decision in 1996, it appears from the subsequent decision in Re Colliers International UK plc. [2012] EWHC 2942 (Ch) given on 24th October, 2012, that there continued to be differing views in the English High Court. In that judgment David Richards J. referred to a decision on the bankruptcy side in Re Taylor [2006] EWHC 3029 (Ch) [2007] Ch. 150, in which HH Judge Kershaw Q.C. (sitting as a High Court judge), having reviewed all the authorities and submissions considered in Saunders, concluded that the decision was wrong and rejected an unopposed application for retrospective permission to commence an action against a defendant who had been adjudicated bankrupt. Other High Court decisions are also referred to in the judgment, to the opposite effect of the position in Saunders.
16. None of the English decisions or Commonwealth decisions are binding on me. Insofar as they consider the proper statutory construction, having regard to the purposes of Acts similar to the Companies Act 1963, they are of assistance. In this respect, the judgment of David Richards J. in Re Colliers International UK plc. is of particular assistance. In addressing the question as to whether the proper construction of the various sections required the conclusion that proceedings brought without the required permission under the provisions of the UK Insolvency Act are a nullity, he stated at para. 32:
“In addition to the consequences of holding that proceedings are a nullity, it is clearly relevant to have regard to the purpose of the provisions in the context of insolvency. It is important to note that the requirement for permission for the commencement of proceedings applies to insolvency proceedings under the control of the court: bankruptcy, winding-up by the court and administration. It does not apply to a company in creditors’ voluntary winding-up. This suggests that the real purpose of these provisions is not so much the protection of creditors as the purpose identified by Black LJ in Boyd v Lee Guinness Limited [1963] N.I. 149.
‘This section is one of a series of provisions designed to ensure that when a winding-up order has been made by the court the whole of the task of supervising the collection and distribution of the company’s assets should be committed to the winding-up court and, accordingly, that all proceedings having any bearing upon the winding-up of the company should remain under the supervision and control of that court.’
Given that purpose, it is hard to see why the court should not be permitted to grant retrospective permission if in the circumstances it is appropriate to do so.”
Having regard, inter alia, to such statutory purpose, David Richards J. reached the conclusion that Re Saunders was correctly decided and that retrospective permission could be given for the commencement of proceedings under the relevant sections of the Insolvency Act 1986, including s. 130(2), which is stated in identical terms to s. 222 of the Act of 1963.
17. In this jurisdiction, s. 222 of the Act of 1963 only applies to a winding up by the Court and the Companies Acts do not impose a leave requirement on the commencement of proceedings against a company in voluntary liquidation, including a creditor’s voluntary liquidation. It appears to me that the purpose of s. 222 is not simply the protection of creditors, but rather, primarily the purpose identified by Black L.J. in the Court of Appeal in Northern Ireland in Boyd v. Lee Guinness Ltd., of placing all proceedings in relation to the company being wound up by the court under the supervision of the court.
18. In an Irish context, s. 222 of the Act of 1963 must, of course, be construed in accordance with the ordinary meaning of the words used so as to give effect to the purpose intended by the Oireachtas. Such purpose is presumed to be one which is consistent with the Constitution.
19. The restriction imposed by s. 222 of the Act of 1963 on the commencement of proceedings against a company following the making of a winding up order is a restriction on a potential plaintiff’s constitutional right of access to the courts guaranteed by Article 40.3 and deriving from Article 34.3.1 (McCauley v. Minister for Posts & Telegraphs [1966] I.R. 345). The requirement for leave as a restriction on the general constitutional right of access to the courts should be strictly construed (Murphy v. Greene [1990] 2 I.R. 566).
20. In my judgment, having regard to the purpose of s. 222 as set out above and the above constitutional principles, in the absence of express words which provide that the commencement of proceedings without leave of the court in breach of s. 222 render proceedings a nullity or which preclude the court from granting leave for commencement after the event s. 222 should not be so construed. Whilst s. 222, by its express words provides “no action or proceeding shall be proceeded with or commenced against the company except by leave of the court”, it does not provide for the consequences of the commencement of an action without leave of the court. Further, while the words “except by leave of the court” are open to the construction that leave should be obtained prior to commencement, it does not appear to me that, having regard to the statutory purpose and the necessity to construe the restriction on access to the courts strictly, that these words should be construed as precluding the court granting leave for the commencement of the action after the event. A broader construction of the time at which leave may be sought is in accordance with the statutory purpose of controlling proceedings in a court ordered winding up as the entitlement to pursue the action is still under the control of the court. This construction also avoids the potential adverse consequences of a restriction on access to the courts unnecessary to the statutory purpose of s.222, such as failing to commence within a limitation period or incurring the unnecessary expenses of two sets of proceedings. If s. 222 is construed as not giving the court jurisdiction to make an order granting leave after commencement, it inevitably creates a situation which requires at a minimum discontinuance of the proceedings and, if leave is then subsequently granted, recommencement and service of identical proceedings, and if a limitation period has expired there would be further potentially severe adverse consequences for a plaintiff.
21. Accordingly, I have come to the conclusion that the Court does have jurisdiction pursuant to s. 222 of the Act of 1963, to consider granting leave for proceedings already commenced and that if such leave is granted, the order will have the effect of retrospectively authorising the commencement and authorising the continuation of the proceedings for the purposes of s. 222 of the Act of 1963.
22. Notwithstanding this construction, in the normal course, leave should be sought prior to the commencement of the proceedings. However, where this has not been done, it follows the court retains a jurisdiction to consider, retrospectively, the granting of leave. In deciding any such application, the court should take the same approach as it would have taken had the application been made prior to the commencement of proceedings. A plaintiff who fails to comply with the statutory requirement of s. 222 should not gain any advantage by not having obtained leave at the appropriate time.
23. On the facts herein, I have concluded that I should exercise discretion in favour of now granting leave pursuant to s.222 of the Act of 1963. The applicant would have been entitled to such an order if the application had been made prior to the commencement of the plenary proceedings. The applicant contends that she suffered an injury in premises allegedly occupied by the Company. Whilst the Official Liquidator has indicated that there are no funds available to meet any claim, the applicant envisages that she may be able to avail of s. 62 of the Civil Liability Act 1961, and also having regard to her claim against other defendants, she seeks to avoid any prejudice by reason of s. 35(1)(i) of the Act of 1961.There is no prejudice asserted to the winding-up of the Company in now granting leave.
Relief
24. There will be an order pursuant to s. 222 of the Companies Act 1963 granting the applicant leave retrospectively for the commencement of the plenary proceedings referred to in paragraph one of the notice of motion. “
In the matter of Worldport Ireland Limited (in liquidation)
[2005] IEHC 189
Mr. Justice Clarke
“Section 218 of the Companies Act, 1963 provides that:
“In a winding-up by the court, any disposition of the property of the company, including things in action, and any transfer of shares or alteration in the status of the members of the company, made after the commencement of the winding-up, shall, unless the court otherwise orders, be void.”
It is not really in contention that there was in fact a disposition of the Company’s assets and that such disposition occurred subsequent to the commencement of the winding-up. The only real issue is as to the proper analysis of that disposition for the purposes of determining what it is precisely that is liable to be rendered void. Finally, it should be noted that the parties have reserved their position in respect of the extent to which it is open for either or both of the respondents to argue and, if they are entitled so to argue, whether they are entitled to succeed, in an application to the effect that (to the extent that the transaction may be taken to be a disposition in favour of either or both of them) the court should “otherwise order” so as to validate the transaction. It has been agreed that all questions concerning that issue should be left stand pending a determination as to the proper identity of the party or parties whom, it may be said, were the disponees of any disposition which is to be rendered prima facie void.
Analysis of Transaction
There can be little doubt that a strict analysis of a transaction whereby a party who has an account with a bank which account is, as here, in credit sufficient to make a payment in favour of a third party and who gives instructions to its bank to make such a payment, is that the bank, on foot of its contract with that customer, and on the basis of receiving an appropriate instruction from that customer in accordance with the terms of its contract, reduces the balance standing to the credit of the customer and transmits by some appropriate banking means the relevant sum to the credit of the third party nominated by its customer. It is, undoubtedly, the case that the bank uses its own money to actually effect a transfer to the nominated third party. However, it is equally true that it can do so, properly, and thus reduce the credit balance standing in favour of its customer, only upon receiving proper instructions in accordance with mandate from the customer concerned. Thus the net effect of the receipt of such proper instructions and same being properly carried out by the bank concerned is that:-
a) at the request of the customer the bank’s liability to that customer (on foot of the credit account) is reduced by the sum concerned;
b) the third party receives that sum out of monies held by the bank and, in the event that the sum is paid on foot of an obligation by the customer to that third party, that obligation is, to the extent of the sum involved, reduced or extinguished;
c) the bank has less cash available to it as a result of the transaction (having transferred some of its monies to the third party) but equally has a correspondingly reduced set of obligations being the reduction in the amount which it owes to the customer.
Thus each of the three parties involved has two separate effects on its financial position which are equal and opposite. The customer has reduced the value of its asset in the form of the debt which the Bank owed to it by virtue of it having a credit account but also has reduced its indebtedness to the third party by the same amount. The Bank has reduced its obligation to the customer but also is out an equivalent amount of cash by virtue of having transferred that sum to the third party. The third party has received the relevant sum in cash from the Bank but has correspondingly reduced its entitlement to recover that sum (either in part or in its entirety) from the customer.
It is necessary to consider that series of interlocking relationships in order to ascertain whom it might be said can properly be regarded as a disponee for the purposes of a disposition which is caught by s. 218.
Inc.’s Case
Inc. places significant reliance on the decision of Kearns J. in this court in Re Industrial Services Limited [2001] 2 IR 118. It would appear from the judgment in that case that the court was referred to all relevant recent authority both in this jurisdiction, in the United Kingdom, and by reference to the United Kingdom authorities, in Australia. Having reviewed those authorities, Kearns J. came to the view that a payment made in circumstances similar to those which pertain in this case amounted to a disposition in favour of the bank concerned. In so doing Kearns J. would appear to have declined to make a distinction between that category of cases where, it would appear, it would necessarily have to be accepted on the part of a bank that it was a disponee (for example where there is a lodgement into an account which is in debit, where there is security over an overdraft or where the bank has a right of set-off) and other cases where the bank concerned retained no commercial advantage. In each of the former cases it is clear that the bank concerned would receive a commercial benefit by virtue of the transaction which could have the effect of improving the Bank’s situation upon the proper application of the rules for the distribution of assets in respect of an insolvent company. What was in contention in Industrial Services and what is in contention here is as to whether a bank may nonetheless be regarded as a disponee in a case where the bank could not be said to have obtained any commercial advantage from the transaction involved. In addressing that situation, and having referred to the relevant passages in Breslin’s Banking Law in the Republic of Ireland (1998) ed. at p. 386 which put forward the contrary view, Kearns J. stated as follows:-
“I feel that, notwithstanding the passage just referred to, something more than a commercial desideratum as considered from the bank’s viewpoint would be required to persuade me to take a different view from that expressed by Costello J. in Re Pat Ruth Limited [1981] I.L.R.M. 51. I am not convinced that the reasoning by the Court of Appeal in Hollicourt (Contracts) Limited –v- Bank of Ireland [2001] 2 WLR 290 is preferable to the different view taken by the same court in Re Gray’s Inn Construction Limited [1980] 1 W.L.R. 711. I do not see that some commercial interpretation advantageous to the bank must be given to s. 218 when its meaning, on the face of it, is plain and straightforward. Had the legislature intended that some sort of derogation or qualification would apply in the case of banks, it would have been easy to frame this section appropriately.”
It is clear from the judgment that, at least in significant part, the payments under contest in that case included payments out of an account in credit which were, therefore, similar to the payments in question in these proceedings. While it is true to state, as has been noted by counsel for the liquidator and counsel for the Bank, that many of the other judgments referred to by Kearns J. do not relate to payments out of an account in credit, having regard to the clear findings contained in Industrial Services it does not seem to me that it is possible to distinguish the facts of this case to any sufficient material extent.
In those circumstances, as a fall-back argument, both counsel for the liquidator and counsel for the Bank urged that I should reconsider the position as set out in Industrial Services. As was noted by Kearns J., the arguments for and against the proposition that the Bank should be regarded as a disponee in circumstances such as this are finely balanced. The argument in favour of that proposition stems from the fact that as a result of a transaction of the type given effect to here, one of the Company’s assets (viz. its entitlement as a matter of contract to receive the sum held on credit for it by the Bank) is reduced in value so that the Bank’s liability is, as a necessary consequence, reduced. The counter-argument is to the effect that the Bank is, in substance, whatever about form, merely an agent for giving effect to a payment by the Company to the third party concerned. That was the view taken by the Court of Appeal in England in Hollicourt.
I have come to the view that it would not be appropriate, in all the circumstances of this case, for me to revisit the issue so recently decided by Kearns J. in Industrial Services. It is well established that, as a matter of judicial comity, a judge of first instance ought usually follow the decision of another judge of the same court unless there are substantial reasons for believing that the initial judgment was wrong. Huddersfield Police Authority –v- Watson [1947] K.B. 842 at 848, Re Howard’s Will Trusts, Leven & Bradley [1961] Ch. 507 at 523. Amongst the circumstances where it may be appropriate for a court to come to a different view would be where it was clear that the initial decision was not based upon a review of significant relevant authority, where there is a clear error in the judgment, or where the judgment sought to be revisited was delivered a sufficiently lengthy period in the past so that the jurisprudence of the court in the relevant area might be said to have advanced in the intervening period. In the absence of such additional circumstances it seems to me that the virtue of consistency requires that a judge of this court should not seek to second guess a recent determination of the court which was clearly arrived at after a thorough review of all of the relevant authorities and which was, as was noted by Kearns J., based on forming a judgment between evenly balanced argument. If each time such a point were to arise again a judge were free to form his or her own view without proper regard to the fact that the point had already been determined, the level of uncertainty that would be introduced would be disproportionate to any perceived advantage in the matter being reconsidered. In the absence of a definitive ruling from the Supreme Court on this matter I do not, therefore, consider that it is appropriate for me to consider again the issue so recently decided by Kearns J. and I intend, therefore, that I should follow the ratio in Industrial Services and decline to take the view, as urged by counsel for the Bank, that that case was wrongly decided.
It is conceded on behalf of the Bank (at para. 4.1 of the written submissions filed on its behalf) that “on the law as stated by Kearns J. in Industrial Services the Bank would appear to be within the ambit of s. 218”. For the reasons indicated above I would propose following Industrial Services and it therefore follows that I must determine that the Bank in this case is within the ambit of s. 218.”
Bank of Ireland v Hollicourt (Contracts) Limited
[2001] 1 All ER 289, [2000] EWCA Civ 263
Court of Appeal LORD JUSTICE MUMMERY:
3. Section 127 of the Insolvency Act 1986 provides:
” In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up, is, unless the court otherwise orders, void.”
In the case of compulsory liquidation , the winding up of a company is deemed to commence at the time of the presentation of the petition: section 129 (2).
4. “Property” includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property: section 436 of the 1986 Act.
5. This appeal concerns the impact of section 127 in the context of payments made to creditors of Hollicourt (Contracts) Limited (the Company) after the presentation of a winding up petition. The payments were made by cheques drawn on the Company’s bank account with the Bank of Ireland (the Bank). The account was in credit at all material times.
6. The question is: does section 127 make the Bank, which continued to operate the account in accordance with the instructions of the Company, liable, on the application of the liquidator, to make restitution to the Company of the amounts of those cheques? Or does section 127 make only the payees of the cheques liable to make restitution to the Company?
7. The normal and prudent practice of banks, upon becoming aware of a winding up petition against a corporate customer, is to take prompt action. The bank freezes the company’s existing bank accounts, whether in credit or overdraft, as at the date of the presentation of the petition and insists that all subsequent dealings be on a new and separate account in respect of which a validation order may be obtained: see Paget’s Law of Banking (11th Ed) p. 207. The presentation of the petition usually comes to the notice of banks on publication of the advertisement of the petition.
8. According to the evidence in this case the Bank operates a manual system of checking for the presentation of winding up petitions against its customers by using a member of staff to consult that week’s edition of Stubbs Gazette which records all winding up petitions that have been presented. If a petition is shown as having been presented against a customer a block is placed upon the account.
9. Unfortunately that did not happen in this case. As a result of human error the advertisement was missed. The bank account continued to be operated by the Company for over three months after a winding up petition was presented. The issue on this appeal from the judgment of Blackburne J (delivered on 11 November 1999 and now reported at [2000] 1 WLR 895) is whether in these circumstances the Bank is liable, on the application of the liquidator of the Company, to restore the account to the position which it would have been in had withdrawals not been made from it in the interval between presentation of the petition and the making of the winding up order. The Judge held that the retrospective effect of the statutory declaration of voidness of post-presentation dispositions in section 127 is to render the Bank liable to make restitution to the Company.
20. The Legal Position
In our judgment this appeal succeeds on both points.
1. The Policy of Section 127.
Both grounds of appeal turn on the construction of the width of the section. Account must be taken of the purpose of this provision and of equivalent provisions in earlier corporate insolvency legislation. In Re Wiltshire Iron Company (1868) LR 3 Ch App 443 at 446 Lord Cairns LJ referred to section 153 of the Companies Act 1862 (which was in similar terms) as
“….a wholesome and necessary provision , to prevent, during the period which must elapse before a Petition can be heard, the improper alienation and dissipation of the property of a company in extremis.”
21. In Coutts & Co v. Stock at p. 909H Lightman J, in a valuable summary of the relevant principles, described the provision as
” …part of the statutory scheme designed to prevent the directors of a company, when liquidation is imminent, from disposing of the company’s assets to the prejudice of its creditors and to preserve those assets for the benefit of the general body of creditors.”
22. As Oliver J pointed out in Re J Leslie Engineers Co Ltd [1976] 1 WLR 292 at 298 the invalidating provisions (then to be found in section 227 of the Companies Act 1948) do not spell out the appropriate remedy of the company when the disposition is avoided. The right of recovery of the company’s property which has been disposed of is determined by the general law. It is common ground in these proceedings that the right of recovery, whether invoked against the payees or against the Bank, is restitutionary. There is no claim against the Bank in these proceedings for damages either for breach of an alleged duty of care owed to the Company and to the general body of its creditors or for breach of an express or implied term of a contract between the Company and the Bank.
23. In our judgment the policy promoted by section 127 is not aimed at imposing on a bank restitutionary liability to a company in respect of the payments made by cheques in favour of the creditors, in addition to the unquestioned liability of the payees of the cheques. The Bank operated the Company’s account as agent for the Company. In accordance with its mandate it debited the account with the amounts of the cheques. Those amounts have been received by the payees of the cheques in consequence of the Bank duly honouring the cheques drawn in their favour by the Company. The section impinges on the end result of the process of payment initiated by the Company, i.e. the point of ultimate receipt of the Company’s property in consequence of a disposition by the Company. The statutory purpose stated by Lord Cairns LJ and Lightman J is accomplished without any need for the section to impinge on the legal validity of intermediate steps, such as banking transactions, which are merely part of the process by which dispositions of the Company’s property are made.This is not a restitutionary situation where the Bank has been unjustly enriched as against the Company and where the general law requires the restitution of the benefit. Mr Jory for the Company has directed us to no case where in comparable circumstances restitution has been ordered.
2. Dispositions of the Company’s Property.
Consistent with that legislative policy the only dispositions of the Company’s property affected by the section in this case are the payments to the payees of the cheques drawn, after the presentation of the petition, on the Company’s bank account.What is needed for the section to operate is a disposition amounting to an alienation of the Company’s property(see Mersey Steel and Iron Co. v. Naylor Benzon & Co. (1884) 9 App.Cas. 434 at p.440 per Earl of Selborne LC). The Bank in honouring the Company’s cheque obeys as agent the order of its principal to pay out of the principal’s money in the agent’s hands the amount of the cheque to the payee (see Westminster Bank Ltd. v. Hilton (1926) 136 LT 315 at p. 317 per Lord Atkinson). The beneficial ownership of the property represented by the cheque was never transferred to the Bank, to which no alienation of the Company’s property was made.
24. We therefore reject the contention that there were additional relevant dispositions of the Company’s property to the Bank to which section 127 applies. The reasoning in the Australian authorities is convincing on this point. Lightman J expressed the view in Coutts (see p.190g-i) that the Australian cases are in accord with and supportive of the general principles expounded by him at pp. 187-188. In a recent and perceptive discussion of the authorities Professor L Sealy expressed the same view, with which we agree (See Issue 57, Company Law Newsletter 11 July 2000).
25. We also accept Mr Moss’s submission that there is no binding English decision to the contrary and that the decision of the Court of Appeal of Hong Kong relied on by Blackburne J is not persuasive on this point.
31. In summary, our conclusion, in the light of these authorities, is that section 127 only invalidates the dispositions by the Company of its property to the payees of the cheques. It enables the Company to recover the amounts disposed of, but only from the payees. It does not enable the Company to recover the amounts from the Bank, which has only acted in accordance with its instructions as the Company’s agent to make payments to the payees out of the Company’s bank account. As to the intermediate steps in the process of payment through the Bank, there is no relevant disposition of the Company’s property to which the section applies.
32. We would add that, even if the Company’s bank account were in overdraft, which is not this case, the foregoing analysis of the legal effect of section 127 would produce the same result in respect of a claim for recovery against the Bank. This result has the very real practical advantage of not requiring what in some cases could be a complex analysis of whether payments were made out of an account which was in debit or in credit.The need for such an analysis cannot be justified by any sensible view of the purpose of section 127.
(c) The Hong Kong Case.
Blackburne J said (at p 905C) that the reasoning of Clough J.A. in the judgment of the Court of Appeal of Hong Kong in the Bank of South East Asia case (supra) “..is exactly in point in the present” and followed it. The relevant reasoning was that the Court of Appeal in Gray’s Inn Construction Co Ltd (supra) had regarded the payment as recoverable by a liquidator against both the payee and the company’s bank, albeit primarily against the payee; that that English Court of Appeal had not been persuaded to accept the reasoning of Street CJ in the Mal Bower case (which was not even relied on by counsel arguing the Hong Kong appeal); and that the basis of recovery was “obvious” in a straightforward case, as the section rendered the dispositions void and ineffective and, as between the company and the bank, the bank remained in receipt of the company’s property to which it was not entitled.
33. We are unable to agree with Blackburne J on the precedent value of the decision in the Bank of South East Asia case. Its force is diminished by its reliance on those parts of the judgment of Buckley LJ in Gray’s Inn Construction which, for the reasons already stated, are not considered dicta on argued points. We would also point out that the focus in the Hong Kong case was not on a claim by the company against the bank for restitution, but on a claim by the bank, which had reimbursed the company, for reimbursement by the payee to whom the amount had originally been paid. It was a case which assumed, rather than decided, that the the bank was liable under section 127 to make restitution to the company.
3. The Effect and Extent of Avoidance.
It follows from the above reasoning that there is no claim for recovery from the Bank on the basis that, quite apart from the “double disposition” point, the effect of avoiding the dispositions to the payees under section 127 is, without more, to render the Bank liable to make restitution to the Company.
The extent of the automatic retrospective avoidance is limited both by the terms of the section and by the purpose which it was enacted to achieve. The section only avoids “dispositions” of the Company’s property (see Re Oriental Bank Corporation Ex parte Guillemin (1884) 28 Ch.D 634 at pp. 638-639). It does not in terms avoid all or any related transactions.As already explained, the purpose of the section is achieved by only avoiding dispositions of the Company’s property to the ultimate payees of the cheques (i.e. the end result), without the need to affect the validity of any intermediate contracts or transactions occurring during the course of the agency relationship between the Company and the Bank. Section 127 did not avoid, revoke or countermand the Company’s mandate to the Bank to make payments of money out of its account to meet cheques sent by the Company to the payees and subsequently presented for payment. The Company continued to use the Bank as its agent for the purpose of transmitting payments to creditors. Section 127 impinges on the dispositions to the creditors, but not on the authority of the Bank to act on the instructions of the Company or on contracts and other intermediate transactions between the Company and the Bank as part of the process leading to the ultimate disposition of the Company’s property to the payees.
34. Because of this conclusion it is not necessary to say anything on the Bank’s alternative argument that, if the Bank is liable, the Company cannot recover against the Bank without first exhausting its remedies against the payees.
35. For these reasons we allow the appeal and set aside the order of the judge.”
Industrial Services Company (Dublin) Ltd. (In Liquidation), Re
[2001] IEHC 49; [2001] 2 IR 118
Mr Justice Kearns
2. There is no dispute between the parties as to the underlying purpose of the Section. As pointed out by Breslin’s Banking Law in the Republic of Ireland (1998 Ed.) at p.385:-
“The purpose of the Section is to ensure that at the time of liquidation all the assets of the Company are ‘frozen’ so that they may be distributed in accordance with the statutory rules.”
13. In other words the objective is to preserve the net value as of the date of the Petition for the benefit of the general body of creditors.
In Re: Pat Ruth Limited (1981) ILRM 51, Costello J. was in no doubt what that such payments were ‘dispositions’ within the meaning of Section 218, be they lodgements into a company’s bank account or payments out. In that case, the company’sLiquidator applied to the Court for directions as to the validity of three lodgements into the Company’s overdrawn account and payments made by cheque out of the account. All of the transactions, both into and out of the account, had occurred after the presentation of the petition. Two of the lodgements were made prior to the bank having received actual notice of the presentation of the petition. The payments out of the account had been to discharge sums due to the exhibit “B” creditors. There was no explanation of the nature of these creditors and whether they were incurred pre or post liquidation. Costello J. stated (at p.52):-
“I am quite satisfied that each of the payments into the company’s bank account by way of the three lodgments to which I have referred amounts to a ‘disposition’ within the meaning of Section 218 of the Act.
This has not been contested in the course of the submissions made to me and the nature of this transaction in a similar case in the English Courts has been referred to.
The Court of Appeal clearly indicated that lodgments in such circumstances amounted to a ‘disposition’ within the meaning of the corresponding English Section (see in Re: Gray’s Inn Construction Company Limited (1980) 1 A.E.R. 814.) Similarly the payments out to the third parties by means of the cheques referred to in exhibit b are ‘dispositions’ within the meaning of the section. Therefore, prima facia, all these payments are void unless validated by a Court Order under Section 218.”
In Gray’s Inn Construction , Buckley L.J. considered the issue directly in point. In his Judgment, he analysed the implications of the corresponding section of the Companies Act, 1948 as follows (at p. 818):
“The Judge proceeded on the basis, which he held to be the position in law, that payment of monies to the credit of a company’saccount, whether it is in credit or not, do not constitute a disposition of the company’s property. That is a view with which, with deference to the Judge, I feel unable to agree. When a customer’s account with his banker is overdrawn he is a debtor to his banker for the amount of the overdraft. When he pays a sum of money into the account, whether in cash or by payment in of a third parties cheque, he discharges his indebtedness to the bank pro tanto. There is clearly in these circumstances, in my Judgment, a disposition by the Company to the Bank of the amount of the cash or of the cheque. It may well be the case, as Counsel for the Bank has submitted, that in clearing a third party’s cheque and collecting the amount due upon it, the Bank acts as the customers agent, but as soon as it credits the amount collected in reduction of the customer’s overdraft, as in the ordinary course of banking business it has authority to do in the absence of any contrary instruction from the customer, it makes a disposition on the customer’s behalf in its own favour discharging pro tanto the customers liability on the overdraft. Counsel for the Bank was constrained in the course of the argument to accept that this is so. In the present case the Company’s account with the Bank was overdrawn, so I need not consider what the position would have been if any cheque had been paid in when the account was in credit, but I doubt whether even in those circumstances it could properly be said that the payment in did not constitute a disposition of the amount of the cheque in favour of the Bank.
28. The issue was addressed by Breslin’s Banking Law in the Republic of Ireland (1998)(Ed.) at p386 where the author states:-
This Section (i.e. S.218) is of particular relevance to the bank with whom the company in liquidation operates its trading accounts. The appropriation by the bank of a cheque collected by it on behalf of the company to a debt owed by the company to the bank (for example as represented by an overdraft or loan account) will amount to a disposal of the company’s property. This is equivalent to the company, after the date of winding up, paying money to one of its creditors (the bank) – which is clearly not permitted as all creditors must be paid an equal proportion of their debts, which proportion is fixed by the liquidator, and not the company, still less the creditor.
What, therefore of the position where the bank collects a cheque on behalf of the company, but credits it to an account with a zero balance, or which is in credit? Is this a disposition of the property of the company? Strictly speaking, of course, title to the money represented by the cheque effectively vests (as part of the global clearing-netting process) in the collecting bank. The collecting bank then becomes a creditor of the company in the amount of the cheque. However, from a commercial point of view the money is collected by the bank as agent for its customer, and a businessman would view the money as ‘belonging’ to the company. The issue has not yet been addressed in any reported case in Ireland. In Re: Gray’s Inn Construction Company Limited (1980) I W.L.R. 711 Buckley LJ. said, obiter, that the payment of funds to the bank which were then credited to an account in credit would amount to a disposition of the property of the company. It is submitted that, from a commercial point of view, this is wrong; and that the law should reflect the commercial realities of the situation.
Where the bank gives effect to the company’s payment orders the bank is said to be disposing of the company’s property, even if the account is in debit. Yet, strictly speaking, whether the account is in debit or in credit, the bank is paying away its own monies. It is submitted that there can be no logical basis for asserting that an increase in the company’s overdraft is automatically a disposition of the company’s property. Professor Goode identifies three situations where use of an overdraft does amount to a disposition of the company’s property. The first, where the overdraft is secured in favour of the bank; in such a situation a swelling of the assets covered by the security results in a consequential reduction in the amount of assets available for preferential and unsecured creditors. Second, where the bank has a right of set-off so that it can reduce the company’s credit balance on another account by the amount of the overdraft; this has the same practical result as where the overdraft is secured. Thirdly, where the advance is within the limit of an overdraft agreed to be extended by the bank, for, it is argued, this reduces the amount of credit available to the company.”
29. I feel that, notwithstanding the passage just referred to, something more than a commercial desideratum as considered from the Banks viewpoint would be required to persuade me to take a different view from that expressed by Costello J. in Re: Pat Ruth Limited . I am not convinced that the reasoning by the Court of Appeal in Hollicourt is preferable to the different view taken by the same Court in Gray’s Inn Construction Limited . I do not see that some commercial interpretation advantageous to the Bank must be given to Section 218 when its meaning, on the face of it, is plain and straightforward. Had the legislature intended that some sort of derogation or qualification would apply in the case of banks, it would have been easy to frame this Section appropriately.
Elite Logistics Ltd -v- McNamara
[2012] IEHC 246
Laffoy J.
“31. The Oireachtas by providing for the advertisement of a petition must be seen, it seems to me, as wishing to impose an obligation on institutional creditors in particular, not only to have regard to such advertisements, but to control the operation of company accounts in a particular way after it becomes clear that the company is in financial difficulty.
31. Section 286(1) of the Act of 1963, which is the provision which is expressly relied on in the statement of claim, provides as follows
“Subject to the provisions of this section, any conveyance, … or other act relating to property made or done by or against a company which is unable to pay its debts as they become due in favour of any creditor, or of any person on trust for any creditor, with a view to giving such creditor … a preference over the other creditors, shall, if a winding-up of the company commences within 6 months of the making or doing the same and the company is at the time of the commencement of the winding up unable to pay its debts (taking into account the contingent and prospective liabilities), be deemed a fraudulent preference of its creditors and be invalid accordingly.”
Sub-section (3) of s. 286 provides:
“A transaction to which sub-section (1) applies in favour of a connected person which was made within two years before the commencement of the winding- up of the company shall, unless the contrary is shown, be deemed in the event of the company being wound up –
(a) to have been made with a view to giving such person a preference over the other creditors, and
(b) to be a fraudulent preference, and
(c) be invalid accordingly.”
In sub-section (5) of s. 286 the expression “a connected person” is defined as meaning a person who at the time the transaction was made was, inter alia, a director of the company.
32. Insofar as there was a “transaction” on 21st July, 2007, or, contrary to the finding made above, on 15th December, 2006, whereby the defendant acquired the plaintiff’s forty per cent beneficial interest in the Irish property in consideration of the sum of €840,000, which consideration was discharged by a reduction of the balance due by the plaintiff to the defendant on the defendant’s directors’ loan account, the transaction was invalid under s. 286 of the Act of 1963. I have reached that conclusion because I am satisfied –
(a) that on 21st July, 2007 the plaintiff was unable to pay its debts as they fell due,
(b) that at the commencement of the winding up on 31st July, 2007 the company was unable to pay its debts as they fell due,
(c) as the defendant was a connected person within the meaning of s. 286, there is a presumption that the “transaction” was made with a view to giving the defendant a preference over other creditors of the plaintiff and to be a fraudulent preference, and
(d) the defendant has not adduced any evidence sufficient to rebut that presumption.
33. Accordingly, I propose making an order declaring that the transaction entered into on 21st July, 2007 constituted a fraudulent preference within the meaning of s. 286 of the Act of 1963 and is invalid and that the plaintiff is, and has at all material times since it was acquired by the defendant been, the beneficial owner of forty per cent of the Irish property. The jurisdiction of the Court to order a partition or sale of co-owned property is now governed by s. 31 of the Land and Conveyancing Law Reform Act 2009. I do not propose making any order for partition or sale at this juncture and I propose adjourning this aspect of the plaintiff’s claim generally with liberty to re-enter, so that the plaintiff can consider the appropriate procedure as to invoking the jurisdiction and, in particular, what parties should be on notice of the application.