David Hughes v Worldport Communications Inc.

• Jurisdiction: Ireland
• Judge: Mr Justice O'Leary,Mr. Justice Clarke
• Judgment Date: 16 June 2005
• Neutral Citation: [2005] IEHC 189,[2005] IEHC 467
• Court: High Court
• Docket Number: [Record No. 139 COS/2002],No. 139 COS/2002
• Date: 16 June 2005

Re Worldport Ireland Ltd

IN THE MATTER OF:

WORLDPORT IRELAND LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF SECTION 218 OF THE COMPANIES ACTS, 1963–2001.

AND IN THE MATTER OF AN APPLICATION BY

THE OFFICIAL LIQUIDATOR.

[2005] IEHC 189

No. 139 COS/2002

THE HIGH COURT

COMPANY LAW

Winding up

Insolvent company - Disposition of property - Bank allowed payments out of company's account to associated company after presentation of petition to wind up company - Whether dispositions voided as against bank and as against associated company - Companies Act 1963 (No 33), s 218 - Declaration that dispositions void granted (2002/139COS - Clarke J - 16/6/2005) [2005] IEHC 189

Re Worldport Ireland Ltd

Facts: Following the commencement of the winding-up of Worldport Ireland Limited (the Company) a transfer was made of funds from the Company’s account with the second named respondent (the Bank) in favour of the first named respondent, who was the parent company of the Company. At all material times the relevant account of the Company with the Bank was in credit sufficient to meet the sum transferred with a balance over. Subsequently, the liquidator of the Company sought a declaration as against both respondents that the aforementioned payment was a void disposition by the Company by virtue of s. 218 of the Companies Act 1963.

Held by Clarke J. in favour of the applicant:

1. That there was a disposition of the Company’s assets and that occurred subsequent to the commencement of the winding-up of the Company and accordingly the disposition was caught by the provisions of s. 218 of the Act of 1963.

2. That this was a case where there were dual disponees as both respondents came within the ambit of s. 218 of the Act of 1963. The transfer of funds in this case was a tripartite transaction involving the Company, the Bank and the Parent Company in a single set of arrangements that was indivisible.

Re Industrial Services Limited [2001] 2 I.R. 118 followed.

Reporter: L.O’S.

COMPANIES ACT 1963 S218

COMPANIES ACT 1963 S220(2)

COMPANIES ACT 1963 S28

INDUSTRIAL SERVICES CO (DUBLIN) LTD, IN RE 2001 2 IR 118 2001/12/3322

BRESLIN BANKING LAW IN THE REPUBLIC OF IRELAND 1ED 1998 386

HOLLICOURT (CONTRACTS) LTD (IN LIQUIDATION) v BANK OF IRELAND 2001 2 WLR 290 2001 CH 555 2001 1 AER 289

HUDDERSFIELD POLICE AUTHORITY v WATSON 1947 KB 842 1947 2 AER 193

HOWARDS WILL TRUSTS, IN RE 1961 CH 507 1961 2 WLR 821 1961 2 AER 413

Mr. Justice Clarke

1 In this application the liquidator of Worldport Ireland Limited ("the Company") seeks a declaration that a certain payment of Ç256,044.44 ("the Sum") is a void disposition by the Company by virtue of s. 218 of the Companies Act,1963 (as amended).

2 Initially the liquidator sought such a declaration as against the first named respondent, Worldport Communications Inc. ("Inc."). As a result of the position then adopted by Inc. it became necessary for the liquidator to join the second named respondent, ABN Amro Bank N.V. ("the Bank").

The Facts

3 An official liquidator was appointed to the Company by order of the court on 13th May, 2002. A change in the identity of the liquidator has occurred though that is not material to the issues which I have to decide in this case. It is, however, relevant to note that the petition on foot of which the winding-up order was made was presented in the Central Office of the court on 15th April, 2002. It is common case that by virtue of the operation of s. 220(2) of the Companies Act,1963 (as Amended) this date (i.e. the date of presentation) is the date upon which the winding-up of the Company is deemed to commence.

4 It is again common case that the books and records of the Company demonstrate that on 22nd April, 2002 (i.e. on a date which post-dated the presentation of the petition and therefore post-dated the commencement of the winding-up for the purposes of the Companies Acts) a transfer was made of funds from the Company's account with the Bank in favour of Inc. Inc. is the parent company of the Company. The amount involved was the Sum. It is accepted by Inc. that it received the Sum on 22nd April, 2002. It is also accepted that at all material times the relevant account of the Company with the Bank was in credit sufficient to meet the Sum with a balance over.

The Issues

5 The issues for consideration by the court are, therefore, as to whether the payment of the Sum is in breach of s. 28 of the Companies Acts,1963 to 2001 and if so, to whom was the disposition for the purposes of that section made. On the facts it is contended by Inc. that if a disposition was made same was in favour of the Bank. Equally the submission of the Bank is that any disposition made was made in favour of Inc. The liquidator, while primarily asserting that there was a disposition within the meaning of the section and that it was in favour of Inc., also contends as a fall-back position that there was a disposition either in favour of the Bank or, alternatively, that on a proper construction of the transactions involved, it may be said that a disposition in favour of both Inc. and the Bank in fact occurred.

The Section

6 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."

7 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 renderedprima facie void.

Analysis of Transaction

8 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:-

9 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;

10 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;

11 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.

12 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.

13 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

14 Inc. places significant reliance on the decision of Kearns J. in this court inRe Industrial Services Limited [2001] 2 I.R. 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...