LE CHATELAINE THUDICHUM (in Liquidation) Ltd v CONWAY

• Jurisdiction: Ireland
• Judgment Date: 11 November 2008
• Date: 11 November 2008
• Docket Number: [2007 No. 89 COS]
• Court: High Court

Le Chatelaine Thudichum (In liq.) Ltd. v. Conway

In the matter of Le Chatelaine Thudichum Ltd. (in voluntary liquidation): Le Chatelaine Thudicum Ltd.

Applicant

and

Noel Conway

Respondent

[2008] IEHC 349,

[2007 No. 89 COS]

High Court

Company law - Fraudulent preference - Disposal - Disposition - Whether disposal of goods was fraudulent preference - Whether dominant intention was to prefer one creditor over other creditors - Whether goods acquired in knowledge that company could not discharge debts to other creditors - Companies Act 1963 (No. 33), s. 286 - Companies Act 1990 (No. 33), ss. 135 and 139.

Section 286(1) of the Companies Act 1963, as amended by s. 135 of the Companies Act 1990, provides:-

" … any … delivery of goods, payment, execution 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 … with a view to giving such a 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 …, be deemed a fraudulent preference of its creditors and be invalid accordingly."

Section 139(1) of the Companies Act 1990 provides:-

"Where, on the application of a liquidator, creditor or contributory of a company which is being wound up, it can be shown to the satisfaction of the court that-

(a) any property of the company of any kind whatsoever was disposed of either by way of conveyance, transfer, mortgage, security, loan, or in any way whatsoever whether by act omission, direct or indirect, and

(b) the effect of such disposal was to perpetuate a fraud on the company, its creditors or members, the court may, if it deems it just and equitable to do so, order any person who appears to have the use, control or possession of such property or the proceeds of the sale or development thereof to deliver it or pay a sum in respect of it to the liquidator on such terms or conditions as the court sees fit."

The applicant company had leased a shop premises from the respondent. An arrangement was put in place whereby the respondent purchased goods from a third party before transferring them to the applicant to be sold in the ordinary course of business. The contract between the respondent and the third party included a reservation of title clause in relation to the goods purchased but there was no such clause in the contract as between the applicant company and the respondent. On the 10th April, 2006, the respondent who was owed monies in respect of rent and unpaid invoices in relation to the goods purchased, entered the applicant company's premises and took possession of cash and stock. On the 9th September, 2006, the company went into voluntary liquidation. The liquidator of the applicant company then sought a declaration that the transaction of the 10th April, 2006, was either a fraudulent preference under s. 286 of the Companies Act 1963, as amended, or a fraudulent disposition under s. 139 of the Companies Act 1990.

Held by the High Court (Murphy J.), in deeming the disputed transaction to be a fraudulent disposition and directing that the respondent pay the sum of EUR121,580 to the liquidator under s. 139 of the Act of 1990, 1, that, in an application under s. 286 of the Companies Act 1963, as amended, the applicant must prove that the transfer of property or funds was carried out with the dominant intention of preferring the respondent over the other creditors.

Corran Construction Co. v. Bank of Ireland Finance Ltd. [1976-1977] I.L.R.M. 175 and Station Motors Ltd. v. A.I.B. Ltd.[1985] I.R. 756 applied; Re M. Kushler Ltd. [1943] Ch. 248 considered.

2. That, for a court to make an order under s. 139 of the Companies Act 1990, the court must be satisfied that there was a disposition of company property and the effect of the disposition was to perpetrate a fraud either on the company, its creditors or its members.

3. That s. 139 of the Companies Act 1990 merely required that the company, its creditors or members be deprived of something to which they were lawfully entitled. As the respondent acquired the stock and cash knowing that the company could not fully discharge its debts to its other creditors, he could not be said to have acquired the property bona fide.

4. That all the property was the property of the applicant on the date of its removal by the respondent as a reservation of title clause between the respondent and third party could not extend to transactions between the respondent and the applicant. Such a clause could not be implied into the contract between the applicant and respondent as it was not a term which could be considered so obvious as to go without saying nor was it necessary to give business efficacy to the contract between them.

Carna Foods Ltd. v. Eagle Star Insurance Co. (Ireland) Ltd. [1997] 2 I.R. 193, Sullivan v. Southern Health Board[1997] 3 I.R. 123 and Ward v. Spivack Ltd.[1957] I.R. 40 applied; Trollope and Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601 considered.

Cases mentioned in this report:-

Carna Foods Ltd. v. Eagle Star Insurance Co. (Ireland) Ltd. [1997] 2 I.R. 193; [1997] 2 I.L.R.M. 499.

Corran Construction Co. v. Bank of Ireland Finance Ltd.[1976-1977] I.L.R.M. 175.

Re M. Kushler Ltd. [1943] Ch. 248; [1943] 2 All E.R. 22; (1943) 112 L.J. (Ch.) 194; 169 L.T. 17; 59 T.L.R. 328.

Station Motors Ltd. v. A.I.B. Ltd. [1985] I.R. 756.

Sullivan v. Southern Health Board [1997] 3 I.R. 123.

Trollope and Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601; [1973] 2 All E.R. 260.

Ward v. Spivack Ltd. [1957] I.R. 40.

Motion on notice

The facts of the case have been summarised in the headnote and are more fully set out in the judgment of Murphy J., infra.

The applicant sought, by way of motion on notice dated the 2nd March, 2007, a declaration that the transfer of goods and cash to the respondent was a fraudulent preference under s. 286 of the Companies Act 1963, as amended by s. 135 of the Companies Act 1990 or, in the alternative, was a fraudulent disposition under s. 139 of the Companies Act 1990.

The application was heard by the High Court (Murphy J.) on the 8th, 9th and 10th October, 2008.

Cur. adv. vult.

Murphy J. 11th November, 2008

Facts underlying application

[1] This is an application by the liquidator of the applicant company for a declaration that a transfer of goods and cash to the respondent by the company constituted a fraudulent preference or, in the alternative, a fraudulent disposition. The background to that transaction is as follows. In 2001, the respondent engaged Mr. Thudichum, a South African national with extensive experience in the retail trade, to manage the franchised Spar outlet in the respondent's premises at Ratoath, Co. Meath. After more than a year in this capacity, Mr. Thudichum approached the respondent with a view to leasing the premises. The respondent agreed.

[2] The applicant company was incorporated on the 11th June, 2003, with Mr. Thudichum as its managing director, and went into occupation of the premises in October of that year. The respondent, in his own name and on behalf and with the agreement of the applicant company, continued to order some stock from the main supplier, BWG, which was associated with Spar. Invoices issued at the end of each week and were duly paid by the company. The respondent's accountant, Mr. Sweetman, became accountant to the company and oversaw these transactions.

[3] Between October, 2003, when the company went into occupation, and April, 2004 shortly after a competing new retailer opened in the area, the parties' solicitors were engaged in correspondence concerning a written lease agreement. The draft lease provided that rent was payable weekly and calculated as 8% of net turnover, excluding V.A.T. and disregarding what were termed "agency sales", which term covered bus tickets and phone cards among other items. The respondent suggested that once these exclusions were taken into account, only about 5.5% of total weekly net turnover was paid, but this was disputed. The evidence did not establish a precise figure, but it was in the region of EUR30,000 permonth, approximately.

[4] There was a dispute as to the effect of the correspondence to which I will return later in this judgment. Whether or not the written agreement came into effect however, the parties' commercial relationship carried...