John C. Parkes Sons Ltd v Hong Kong and Shanghai Banking Corporation

• Jurisdiction: Ireland
• Judge: Mr. Justice Blayney
• Judgment Date: 07 February 1990
• Neutral Citation: 1990 WJSC-HC 1130
• Docket Number: No. 4421P/1986 Court 6
• Court: High Court
• Date: 07 February 1990

PARKES & SONS LTD v. HONG KONG & SHANGHAI BANKING CORPORATIOH

IN THE MATTER OF JOHN C. PARKES

AND SONS LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES

ACT 1963 TO 1986

BETWEEN/

JOHN C. PARKES AND SONS LIMITED (IN LIQUIDATION)

CLAIMANT

AND

THE HONG KONG AND SHANGHAI BANKING CORPORATION

RESPONDENT

1990 WJSC-HC 1130

No. 4421P/1986 Court 6

THE HIGH COURT

Synopsis:

WINDING UP

Creditors

Preference - Fraud - Debt - Debt owed to bank by another corporation - Merger of the company and the corporation - Bank's threat to appoint receiver of other corporation - Company's interests threatened by such appointment - Payment of debt secured and guaranteed by deeds of mortgage and guarantee executed by company - Company insolvent at time deeds executed - Whether deeds invalid - Whether deeds executed ~ultra vires~ the company - Bankruptcy (Ireland) Amendment Act, 1872, s. 53 - Companies Act, 1963, s. 286 - (1986/4421 P - Blayney J. - 7/2/90)

|John C. Parkes & Sons Ltd. v. Hong Kong & Shanghai Banking Corporation|

CONTRACT

Guarantee

Existence - Effect - Debt - Creation - Debt of third party - Promisor guaranteed payment of debt - No debt owed by promisor to promisee - Promisee not made creditor of promisor by mere existence of guarantee - (1986/4421 P - Blayney J. - 7/2/90)

|John C. Parkes & Sons Ltd. v. Hong Kong & Shanghai Banking Corporation|

Citations:

COMPANIES ACT 1963 S286

BANKRUPTCY (IRL)(AMDT) ACT 1872 S53

COMPANIES ACT 1963 SCHED XI

WEST MERCIA SAFETYWARE LTD,(IN LIQ) V DODD & ANOR 1988 BCLC 250

KINSELA V RUSSELL KINSELA PTY LTD (IN LIQ) 1986 4 NSWLR 722

JOINT STOCK COMPANIES ACT 1856 S76

1 Judgment of Mr. Justice Blayney delivered the 7th day of February 1990.

2 By Order of the President of the High Court made on the 27th February 1989 it was directed that certain questions arising on a Motion in this winding-up should be tried as an issue between the Claimant Company and the Respondent. The questions are:

3 1. Whether a guarantee dated the 15th day of November 1985 whereby the Claimant Company guaranteed to the Respondent the indebtedness of Walshe Kavanagh and Company Limited (Walshe Kavanagh) to the extent of £250,000 was a fraudulent preference within Section 286 of the Companies Act 1963?

4 2. Whether an indenture of mortgage dated the 15th day of November 1985 created by the Claimant Company in favour of the Respondent constituted a fraudulent preference within the said Section 286?

5 3. Whether the creation of the said guarantee and mortgage was ultra vires the Claimant Company?

6 The facts giving rise to these issues are as follows. Mr. Garth Collier acquired control of the Claimant Company in July 1984. The Claimant Company was a long established company carrying on a wholesale business in hardware. It's business premises were situate in the Coombe. At the time he acquired the Claimant Company, Mr. Collier was the owner of another smaller wholesale hardware company Walshe Kavanagh. It was Mr. Collier's intention to merge the two companies.

7 In October 1984 the Claimant Company's premises in the Coombe, and it's entire stock, were destroyed in a fire. Mr. Collier immediately transferred the Claimant Company's business to Walshe Kavanagh's premises in Barrow Street, Ringsend, and it continued carrying on it's business from there. Walshe Kavanagh ceased to trade on the 31st December 1984 and it's entire stock was purchased by the Claimant Company, the purchase being spread over a number of months.

8 Walshe Kavanagh had it's bank account with the Respondent. At the date of the fire in the Claimant's premises in the Coombe in October 1984, Walshe Kavanagh owed the Respondent£200,000. From the time Walshe Kavanagh ceased trading at the end of 1984, Mr. James Deeny, the Respondent's Manager, had regular meetings with Mr. Collier in regard to the amount owing to the Respondent. Mr. Collier was constantly assuring Mr. Deeny that the Respondent would be paid.

9 In March 1985 Mr. Collier promised that Walshe Kavanagh would deposit with the Respondent the title deeds of it's office building in Barrow Street as soon as the existing charge of the Lombard and Ulster Bank Limited had been cleared off. He also promised that the Claimant Company would give a guarantee in respect of the amount due. At this time Mr. Collier was in negotiation with Dublin Corporation for the sale to the Corporation of the Claimant Company's site in the Coombe. The proceeds of the sale were to be the source from which the Respondent would be repaid. At a meeting with Mr. Deeny on the 16th April 1985 Mr. Collier confirmed that the Respondent would have the Coombe site as security pending it's sale. By letter to the Respondent dated the 3rd May 1985, written on behalf of Walshe Kavanagh and the Claimant Company, their Solicitors confirmed that, following the release of a charge in favour of the Lombard and Ulster Bank, which was to be paid off out of the insurance moneys in respect of the buildings destroyed in the fire, they were instructed that the deeds would be held in trust for the Respondent pending the sale of the site, after which the net proceeds would be forwarded in discharge of the Respondent's existing loan to Walshe Kavanagh. This was followed by a letter of the 21st May in which the Claimant Company's Solicitors undertook that, subject to discharging the existing mortgage in favour of Lombard and Ulster Banking (Ireland) Limited, they would hold the title deeds of the Coombe site in trust for the Respondent pending a sale of the site and, following a sale, they would forward to the Respondent the net proceeds in discharge of the Respondent's loan to Walshe Kavanagh.

10 The mortgage in favour of the Lombard and Ulster Bank was paid off and by letter of the 10th July 1985 the Claimant Company's Solicitors confirmed that they had received the title deeds of the Coombe site.

11 In late August or early September 1985 the Respondent's internal auditors were very critical of the state of the Walshe Kavanagh account. They recommended that the facility should be reviewed and that consideration be given to calling up Mr. Collier's guarantee if additional security were not forthcoming. By a guarantee dated the 21st November 1984, Mr. Collier had guaranteed Walshe Kavanagh's indebtedness to the Respondent up to a limit of £200,000.

12 The sale of the Coombe site was held up by a title difficulty and on the 12th November 1985 Mr. Deeny told Mr. Collier that the Respondent was not prepared to continue supporting Walshe Kavanagh unless they received the guarantee of the Claimant Company supported by a mortgage over the Coombe site. Three days later the guarantee and mortgage were duly executed. It was agreed by the Respondent that in consideration of the guarantee and mortgage it would not call in the loan until the 31st March 1986 provided interest continued to be paid and subject to no third party precipitative action.

13 On the 5th May 1986 a petition was presented for the winding-up of the Claimant Company on the ground that it was insolvent and on the 9th June 1986 the Claimant Company was duly wound-up and Mr. Ray Jackson was appointed official liquidator. The issues now before the Court are some of the issues requiring to be determined in the winding-up proceedings.

14 I am satisfied from Mr. Jackson's evidence and I find that at the date of the execution of the guarantee and mortgage on the 15th November 1985, the Claimant Company was already insolvent, and Walshe Kavanagh was also insolvent.

15 The first point to be considered in resolving the issues which have to be determined is the Respondent's submission that this cannot be a case of fraudulent conversion as the Respondent was not a creditor of the Claimant Company on the 15th November 1984, so that the Claimant Company, in giving the guarantee and mortgage to the Respondent, could not have been preferring one of it's creditors over it's other creditors.

16 It seems to me that the legal basis underlying this submission is correct. Under Section 286 of the Companies Act, every conveyance, mortgage, etc., made or done by or against a company within six months before the commencement of it's winding-up shall be deemed to be a fraudulent preference if it would have been such if...