Station Motors Ltd v Allied Irish Banks Ltd

• Jurisdiction: Ireland
• Judgment Date: 01 January 1985
• Date: 01 January 1985
• Docket Number: [1983 No. 656Sp]
• Court: High Court

High Court

[1983 No. 656Sp]

Station Motors Ltd. v. A.I.B. Ltd.

Station Motors Limited, (In Voluntary Liquidation)

Plaintiff

and

Allied Irish Banks Limited

Defendant

Cases mentioned in this report:—

Clayton's Case (1816) 1 Mer. 572; [1814-23] Vol. 35 All E.R. 1; 8 L.J. Ch. 256.

Corran Construction Company Ltd. v. B.I.F. Ltd. (Unreported, High Court, McWilliam J., 8th September, 1976).

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.

Peat v. Gresham Trust Ltd. [1934] A.C. 252; [1934] All E.R. Rep. 82; (1934) 151 L.T. 63; 50 T.L.R. 345.

Re Patrick and Lyon Ltd. [1933] Ch. 786; [1933] All E.R. Rep. 590; (1933) 102 L.J. Ch. 300; 149 L.T. 231; 49 T.L.R. 372.

Re F.P. and C.H. Matthews Ltd. [1982] Ch. 257; [1982] 2 W.L.R. 495; [1982] 1 All E.R. 338.

Re Rampgill Mill Ltd. [1967] Ch. 1138; [1967] 2 W.L.R. 394; [1967] 1 All E.R. 56; [1966] 2 Lloyds Rep. 527.

Re Primrose Builders Ltd. [1950] Ch. 561; [1950] 2 All E.R. 334; (1950) 66 (Pt. 2) T.L.R. 99.

Re Eric Holmes Ltd. [1965] Ch. 1052; [1965] 2 W.L.R. 1269; [1965] 2 All E.R. 333.

Re M.I.G. Trust Ltd. [1934] A.C. 252; [1933] Ch. 542; (1933) 103 L.J. Ch. 173.

Company - Winding up - Creditors - Fraudulent preference - Bank account- Lodgments of £23,000 made by director between decision to wind up and date of winding up - Intention of director to prefer bank and reduce his guarantee liability - Whether bank entitled to priority in regard to company's wages payments made from overdrawn account - Whether monies advanced for the payment of wages - No wages account- Whether rule in Clayton's Case applied to lodgments - Bankruptcy (Ireland) Amendment Act, 1872, s. 53 - Companies Act, 1963, ss. 285, 286, 399.

Special Summons.

On the 15th December, 1983, the plaintiff issued a summons seeking,inter alia, a determination pursuant to s. 280 of the Companies Act, 1963, as to whether the crediting of the sum of £23,278.13 to the current account of the plaintiff with the defendant between the 15th September, 1980, (the date on which it was decided to wind up the plaintiff company), and the 3rd October, 1980, (the date of the winding up), constituted a fraudulent preference. The plaintiff also sought a determination as to whether the preferential claim made by the defendant against the plaintiff in the sum of£47,027.66 (representing monies paid by the company for wages during the four month period prior to liquidation), was a valid preferential claim either in whole or in part. On the 2nd April, 1984, the defendant was given liberty to join William and Marie Murphy (directors of the plaintiff company), as notice parties.

The summons was heard by Carroll J. on the 20th and 21st November, 1984.

The plaintiff company was effectively controlled by two directors; W.M. and his wife M.M. On the 16th June, 1980, by joint and several guarantee W.M. and M.M. guaranteed the obligations of the company to the defendant on foot of its current account up to £75,000 with interest.

On the 15th September, 1980, an extraordinary general meeting of the company was called for 3rd October, 1980, to consider a resolution to wind up the company as the company had become insolvent. The company went into liquidation on 3rd October, 1980. A wages account was opened with the defendant on 17th September, 1980. On the 30th September, 1980, the wages account was debited with the sum of £32,519.11 and the company's current account was credited in the same sum.

Between the 17th September and the 3rd October, a further sum of £4,348.72 was debited to the wages account. An additional sum of £23,278.13 was lodged to the company's current account between the 15th September, 1980, and the 3rd October, 1980. On the plaintiff's application for a determination, pursuant to s. 280 of the Companies Act, 1963, as to whether the crediting of the latter sum constituted a fraudulent preference and whether the preferential claim under s. 285, sub-s. 6 of the same Act made by the defendant against the plaintiff for £47,027.66 (for monies paid by the company for wages for four months prior to liquidation), was a valid one, it was

Held by Carroll J., 1, that the lodgments made to the current account after the 15th September, 1980, amounted to a fraudulent preference as they preferred the defendant directly and the guarantors indirectly as it was to be inferred from the circumstances that such was the dominant purpose of the lodgments.

Re M. Kushler Ltd. [1943] Ch. 248 considered.

2. That the defendant was entitled to the benefit of subrogation provided for in s. 285, sub-s. 6 of the Companies Act, 1963, which section should be given a benevolent construction.

Re Rampgill Mill Ltd. [1967] Ch. 1138 considered.

3. That subrogation could be claimed within the limits laid down by s. 285, sub-s. 3 in relation to any cheques debited to the bank account within the period prior to the passing of the resolution for the winding-up of the company to which priority is to be given in accordance with the provisions of that section.

The rule in Clayton's Case (1816) 1 Mer. 572 applied.

Cur. adv. vult.

Carroll J.

There are three issues arising in this case:—

• 1. Whether lodgments by the plaintiff ("the company") to its account with the defendant ("the bank") between the 15th September, 1980, (when the directors decided to call a creditors' meeting with a view to a creditors' voluntary winding-up) and the 3rd October, 1980, (when the company actually went into liquidation) constituted a fraudulent preference within the meaning of s. 286, sub-s. 1, of the Companies Act, 1963.

• 2. Whether the bank has a valid preferential claim under s. 285, sub-s. 6, in respect of monies paid by the company for wages during the four months prior to the 3rd October, 1980, out of its account with the bank which was on an overdraft sanctioned by the bank.

• 3. If so, whether the rule in Clayton's Case (1816) 1 Mer. 572 applies.

The facts are as follows. The company was incorporated on the 10th March, 1977. Mr. William Murphy together with his wife effectively controlled the operation and existence of the company. The company's bank account was guaranteed by Mr. Murphy. On the 24th January...