Re Clifton Place Garage Ltd

LOUD JUSTICE HARMAN: This appeal arises out of the affairs of a company which I shall call Cliftons. This was a company which ran a garage in the Harrow Road and was supported, more or less, by a so-called bank which it owed a considerable sum of money. It had a more normal bank to which receipts and payments were A paid. The company was wholly owned by another company, called Belgravia. That had a debenture over its assets, including its shares, and there was a considerable sum of that outstanding.

Now on the 30th November, 1966, the financiers who supported it called in their debt and presented a petition for the winding-up of the company. The debt was about £4,000.of course the result of that was that the company's bankers, Westminster Bank, drew a line and froze the account, and that left this business without means of carrying on. They carried on a cash business from day to day and must necessarily have current money so to do. As a result of this petition being put on the file, the debenture holders naturally took fright, and on the 24th December they appointed a certain Mr. Davies, a certified accountant, to be receiver and manager. He entered on his duties on the Christmas Eve, and immediately it appeared to him, and indeed to everybody else, that unless money was forthcoming to carry on the day-to-day business of the company the goodwill, such as it was, of Cliftons would be lost, the landlords would forfeit the lease, the rent being already apparently in arrear, and that would be the end of the business.

So Mr. Davies was presented with a rather agonising crisis. The only person he could turn to was the sole director of both these companies. He put some questions to her and she gave him apparently a fairly rosy account of Clifton's position. She omitted to mention its indebtedness to its petrol suppliers and the fact that it had not paid the rates on the filling station. Mr. Davies, as he says, and he is to be believed so far, concluded that it would be in everybody's interest to try to keep Clifton's trade going for the moment in order to see whether anything couldbe done with it. For that purpose he opened a special account. He put forward, out of Belgravia's assets I suppose, enough money day by day to pay for petrol, oil, rent and things called "stamps"; he made a bargain with this woman that all the takings of the filling station should be paid into the No. 2 account; and thereby, I suppose, the hope was that, the petrol being sold at rather more than was paid for it, there would be a surplus and time would be given for everybody to draw breath and see whether anything could be done.

Mr. Davies on making further enquiries came to the conclusion that he had been misinformed. He opposed the petition when it was first before the Court. On ascertaining something atleast of the true facts he withdrew that opposition, and the company was wound up. The period over which this experiment went on was from the 24th December to the 19th January. On the 19th January a winding-up order was made. During that time the receiver paid out to suppliers and to the landlords a sum of £4,878, and into the special account that he had opened the company, through its director, this same woman, paid £4,024. The receiver therefore got back some £800 less than he had paid out.

The question which arises here is the single and comparatively simple one, what is to happen to the £4,024 now in the receiver's hands? The liquidator says that it is due to him, and he says it on quite a simple ground. He says that this was a disposition of the money by Cliftons as indeed it was after the date of the winding-up order, because that order dates back to the date of presentation of the petition, and that therefore the disposition is void; and he relies on the section of the Companies Act which so states. Section 227 is in these laconic terms: "In a winding up by the court, any disposition of the property of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void".

Now this was undoubtedly a disposition made after the date of the presentation of the petition and is, therefore, a void disposition. It therefore is ineffective and the receiver cannothold on to the proceeds of the payments unless the Court otherwise orders. That is an extremely jejune direction to the Court, and it is not surprising that the cases do not seem to give very much help. The only one I can get any assistance from at all for this purpose is Re Steane's (Bournemouth) Ltd., which is reported in 1950 1 All England Reports at page 21. That was a considered A judgment of Mr. Justice Vaisey, who admitted that he was not given any great guidance and must do the best he could. The head-note says this: " Held: the legislature, having omitted to indicate any particular principles which should govern the exercise of the discretion vested in the court by section 227, must be deemed to have left such exercise entirely at large and con-trolled only by those general principles which applied to every kind of judicial discretion; in exercising its discretion the court must decide what would be just and fair in the circumstances of each case, having special regard to the question of the good faith and honest intention of the persons concerned; and, as the applicant had acted throughout in good faith, his object being merely to enable the company to fulfil its contracts, the court would make the order asked for". In that case a director had made I think four advances to the company with a view to keeping it going, as he said. It was a purely general idea that the money was spent in wages and things of that sort and in fact it was entirely useless expenditure: it did not result in any benefit to anybody except the workmen whose wages were paid. At least as regards the last of those four payments that director knew that there had been a winding up. As to the other three he did not know of the existence of the order because it had not been served; but as to the last he knew, so he made the payment with his eyes open. But he was actuated by the best motives, namely, to keep the company going in the hope of something turning up; and Mr. Justice Vaisey, reviewing the whole thing exaequoetbono, on general equitable principles came to the conclusion that he ought to make the "otherwise" order, namely, to validate the payments that that director had made by giving himthe charge for which he had bargained.

That, of course, is only an example. The most important consideration in Mr. Justice Vaisey's mind was, I think, that the payer of the money was actuated by good faith. He had paid it on an agreement, and Mr. Justice Vaisey held that he should have the charge which was the consideration.

Looking at the present facts, how does the matter stand on general equitable principles? Good faith is not in issue....