Industrial Services Company (Section 218 application)

• Jurisdiction: Ireland
• Judge: Mr Justice Kearns
• Judgment Date: 23 March 2001
• Neutral Citation: [2001] IEHC 49
• Court: High Court
• Docket Number: [1998 No. 13 Cos]
• Date: 23 March 2001

INDUSTRIAL SERVICES CO (DUBLIN) LTD, RE

IN THE MATTER OF INDUSTRIAL SERVICES COMPANY (DUBLIN) LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF SECTION 218 OF THE COMPANIES ACTS, 1963– 1990

[2001] IEHC 49

No. 13COS/1998

THE HIGH COURT

Synopsis:

BANKING LAW

Validity of transactions

Company law - Liquidation - Meaning of "disposition" - Whether transactions occurring after winding-up order void (1998/13COS - Kearns J - 23/3/01) - [2001] 2 IR 118

In re Industrial Services Company

The liquidator of a company brought an application seeking to have certain transactions deemed void. The application was brought pursuant to section 218 of the Companies Act, 1963. Kearns J, delivering a judgment on the preliminary issue, held that the transactions in question were invalid.

Citations:

COMPANIES ACTS 1963–1990 S231(a)

COMPANIES ACT 1963 S202(2)

COMPANIES ACT 1963 S218

HOLLICOURT LTD V BANK OF IRELAND 2001 1 AER 289

BRESLIN BANKING IN THE REPUBLIC OF IRELAND 1998 385

PAT RUTH LTD, RE 1981 ILRM 51

GRAY'S INNS CONSTRUCTION CO LTD, RE 1980 1 AER 814

MAL BOWER'S MACQUARIE ELECTRICAL CENTRE LTD 1974 1 NSWL 245

BUTTERWORTHS WORDS & PHRASES LEGALLY DEFINED - DISPOSITION

MCGAIN V COMMISSIONER FOR TAXATION 1965 112 CLR 3

PAGET LAW OF BANKING 10 ED 161

JOACHIMSON V SWISS BANKING CORPORATION 1921 3 KB 110

HOLLICOURT, RE 2000 1 WLR 898

BANK OF EAST ASIA LTD V ROGERIO SOU FUNG LAMB 1988 1 HKLR 181

COUTTS & CO V STOCK 2000 2 AER 56

BRESLIN BANKING IN THE REPUBLIC OF IRELAND 1998 386

GOODE ON LEGAL PROBLEMS OF CREDIT AND SECURITY 2ED 1988

PMPA COACHES LTD UNREP MURPHY 15.6.1993 1994/6/1711

1 JUDGMENT of Mr Justice Kearns delivered the 23rd day of March, 2001

2 This matter comes before the Court by way of Notice of Motion seeking a declaration that the transactions both out of and into the Industrial Service Company (Dublin) Limited Account in the Ulster Bank Ltd., account number 74003067, made after the commencement of the winding up, are void. The Motion also seeks an Order requiring the Ulster Bank Ltd. to account for all such sums to the Company and for such other Orders as may be appropriate.

3 The Application is brought by Simon Coyle the Official Liquidator appointed by Order of the High Court dated the 23rd of March 1998. He was granted leave under Section 231(a) of the Companies Acts 1963– 1990to proceed against Ulster Bank in this matter on the 19th of April 1999.

4 The Petition in the case was presented on the 16th of January 1998 which is therefore deemed to be the date upon which the winding up of Industrial Services Company (Dublin) Limited (hereinafter called "the Company") under Section 202(2) of the Companies Act 1963occurred

5 This Application concerns the proper interpretation of Section 218 of the Companies Acts 1963which states 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."

6 The Application relates to the status of payments made in and out of the Company's account with Ulster Bank at their branch in Coolock Co. Dublin since the 16th of January 1998. Since that time, and prior to the freezing of the account by the Bank on the 23rd of March 1998, payments amounting to £16,003.53 were paid into the account, and payments amounting to £16,784.24 were paid out of the account.

7 The petition was advertised on the 27th of February 1998. Payments were, however, made in and out of the account both prior to and subsequent to the 27th of February 1998.

8 On the 21st of August 1998 the Liquidator wrote to the Bank pointing out the activity on the account and asserting that each such disposition was void under Section 218. He therefore required Ulster Bank to fully compensate the Company in respect of the dispositions made.

9 By letter dated 16th of October 1998, the Solicitors for Ulster Bank advised that the Bank through inadvertence had failed to notice the advertisement in either Iris Oifiguil or in the daily newspapers. The Bank's Solicitors further pointed out that the account in question was a credit account so that the Company was never indebted to the Bank. Any monies paid out were in the normal course of the Company's business and Ulster Bank had not applied any incoming lodgements for its own use or benefit. Thus, it was asserted on behalf of the Bank, there had been no gain or benefit for the Bank which could result in any claim by the Liquidator.

10 However, it was accepted by the Bank that it did allow the account to become overdrawn between 25th February and the 6th March, 1998, excess payments being allowed in respect of normal trade cheques and wages.

11 The matter comes before the Court in circumstances where, although Irish case law has hithereto recognised all such payments as "dispositions" within the meaning of Section 218, a recent decision of the Court of Appeal in Hollicourt (Contracts) Limited (in Liq) -v- Bank of Ireland (2001) 1A.E.R. 289 suggests that such payments should be regarded as dispositions only in the hands of the ultimate recipient, and not as regards a Bank, as the bank was, in facilitating such a payment, merely obeying as agent the order of its principal to pay out the principals money.

12 Before this Court, the parties agreed that the Court should limit its ruling to a consideration of the nature of a "disposition" within the Section and to defer consideration of any downstream consequential issues, including the retrospective validation of payments, to a later date.

13 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."

14 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.

15 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's Liquidator 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."

16 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's account, 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.

Counsel for the...