Re Cyona Distributors Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RUSSELL,THE MASTER OF THE ROLLS |
| Judgment Date | 29 November 1966 |
| Judgment citation (vLex) | [1966] EWCA Civ J1129-1 |
| Date | 29 November 1966 |
| Court | Court of Appeal |
[1966] EWCA Civ J1129-1
The Master of the Rolls (Lord Denning)
Lord Justice Danckwerts and
Lord Justice Russell
In The Supreme Court of Judicature
Court of Appeal
From Mr. Justice Plowman
MR. J.L. ARNOLD, Q.C. and MR. J.P.F.E. WARNER (instructed by the Solicitor for the Customs and Excise) appeared as Counsel for the Appellants.
MR. T.P.E. CURRY, Q.C. and SIR MORRIS SMITH (instructed by Messrs Underwood & Co.) appeared as Counsel for the Respondent (Liquidator).
Mark Godfrey was a director of three Companies in the cosmetic trade called Cyona Company Ltd., Cyona Distributor Ltd., and Godfrey Ltd. They caught to have paid purchase tax: but evaded its Godfrey conspired with others to defraud the Commissioners of Customs of the purchase tax payable by the Companies: and he did in fact defraud them, Cyona & Company Ltd. underpaid £25,567. 10s.5d, Cyona Distributors Ltd, underpaid £25,767. 17s.3d. In 1956 the Commissioners of Customs presented a petition to wind up Cyona Distributors Ltd. and a winding-up order was made. In the course of the winding-up the Commissioners issued a summons under Section 332 of the Companies Act 1948 against Godfrey and others asking that they should be made personally responsible for the £25,767. 17s.3d. Purchase tax unpaid "by Cyona Distributors Ltd. and/or an order that they should pay that sum to the Commissioners".
In 1960 the summons under Section 332 was adjourned. The reason was because the Commissioners had instituted criminal proceedings against Godfrey, and a warrant had been issued for his arrest. When Godfrey got to know of the criminal proceedings, he fled the country. He went to Paris. Conspiracy is not an extraditable offence. So in Paris he was free. But he did not like it there. He wanted to get back to England. Yet he did not want to go to prison. He managed to achieve his desire. On the 13th June, 1960, whilst Godfrey was in Paris, his solicitors sent a check for £10,000 drawn by his wife to the Commissioners "generally on account of outstanding purchase tax". On the 17th June, 1960, Godfrey returned to England and surrendered to the police. He applied to the magistrates for bail. The prosecution did not object. He was granted bail. The Commissioners credited this £10,000 to the purchase tax unpaid by Cyona Company Ltd., thus leaving £15,567. 10s.5d, owing by that Company.
On the 8th March, 1961, Godfrey was brought before the Common Sergeant, together with Cyona Company Ltd, and GodfreyLtd., and charged with conspiring fraudulently to evade purchase tax. At the door of the Court Godfrey's solicitor handed to the solicitor for the Commissioners three banker drafts amounting in all to £34,000. This was the full amount stated in the depositions as purchase tax unpaid by the Godfrey Companies. The Commissioners accepted the drafts and regarded the purchase tax as paid up. Counsel so informed the Common Sergeant. The payment played a large part in mitigation of sentence. The Common Sergeant did not send Godfrey to prison, but fined him £22,000. The Commissioners appropriated the £34,000 in this way: - They appropriated the sun of £15,567. 10s, 5d. In discharge of the purchase tax unpaid by Cyona Company Ltd. That left £18,432. 9s.7d. Which they appropriated in part discharge of the purchase tax unpaid by Cyona Distributors Ltd. Now the total purchase tax unpaid by that Company amounted to £25,767. 17s, 3d. After crediting the £18,432. 9s.7d., there was £7,335. 7s.8d. unpaid. The Commissioners claim to prove in the liquidation for that sum.
The question now is whether the Commissioners can retain the £18,432. 9s.7d, which they appropriated in part discharge of the purchase tax unpaid by Cyona Distributors Ltd. The Liquidator says that they cannot retain it. He says that the Commissioners should hand it over to him, the Liquidator, so that he can use it to distribute amongst the whole body of creditors: and that the Commissioners should prove in the liquidation for this amount. The Judge has upheld the Liquidator's contention. The Commissioners appeal to this Court.
Let me say at once that the Commissioners acted with perfect propriety. They did not compound the offences committed by Godfrey. They prosecuted him and let the law take its course: but, properly enough, told the Court of the restitution which had been made. We do not know who provided the moneys, £10,000 and £34,000: but it must have been someone well disposed towards Godfrey. The payer did not appropriate it towards any particular indebtedness. So the Commissioners were entitled toappropriate it as they thought fit. And did so. They appropriated it in discharge of the indebtedness of Cyona Company Ltd. and in part discharge of Cyona Distributors Ltd.
If Cyona Distributors Ltd. had not been in the course of winding-up, no one could have complained of the appropriation. Even though that Company was in the course of winding-up, nevertheless if no application had been made under Section 332, no one could have complained. The appropriation made by the Commissioners would have been good. It could not have been challenged by anyone. But it is said that, because an application had been made under Section 332, the Commissioners were not entitled to appropriate the sum in discharge of unpaid purchase tax by Cyona Distributors Ltd. The part so appropriated, namely, £18,432. 9s.7d., was impressed, so it is said, with a trust for the general body of creditors? and in consequence the Commissioners were bound to hand it over to the Liquidator.
Section 332(1) is in these terms: "(1) If in the course of the winding-up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court, on the application of the official receiver, or the liquidator or any creditor or contributory of the company may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court may direct".
In my judgment, that section is deliberately phrased in wide terms so as to enable the Court to bring fraudulent persons to book. If a man has carried on the business of a Company fraudulently, the Court can make an order against him for the payment of a fixed sun, see Re William C. Leitch Bros. Ltd., 1932, 2 Chancery, p. 71. An order can be made eitherat the suit of the liquidator etc, or of a creditor. The sun may be compensatory. Or it may be punitive. The Court has full power to direct its destination. The words are quite generals "all or any of the debts or other liabilities of the Company as the Court shall direct". By virtue of these words the Court can order the sun to go in discharge of the debt of any particular creditor: or that it shall go to a particular class of creditors: or to the Liquidator so as to go into the general assets of the Company: so long as it does not exceed the total of the debts or liabilities. Of course, when an application is made by a Liquidator, the Court will usually order the sun to go into the general assets, as Mr. Justice Eve did in Re William C. Leitch. 1933 Chancery, p. 261: but I do not think it is bound to do so. Certainly when an application is made by a creditor who has been defrauded, the Court has power I think to order the sun to be paid to that creditor. In short, I think the words of the section are to be given their full width. When a creditor applies, as the Commissioners did here, he applies on his own account. He does nut apply as being under a trust for the other creditors or for anyone else He is the master of his own application. He can discontinue his application, if he likes, without getting the sanction of the Liquidator. But no doubt the Liquidator should always be made a party to the proceedings: so that the interests of the other creditors can be safeguarded.
Once the suggestion of a trust is discarded, this becomes a plain case. It cannot be suggested that the Commissioners were doing anything in breach of trust or anything wrong in any way. No fraudulent preference or anything of that sort. The Commissioners were entitled to accept this sun in part discharge of the indebtedness of the Company for purchase tax: and the Liquidator has no right to gainsay it.
Apart from this, it is plain that the payment of the money had nothing to do with the application under Section 332.It was not paid by Mr. Godfrey but by someone else. It was not paid so as to get rid of the application under Section 332, but so that he night be leniently treated in the criminal proceedings. I cannot see how the Liquidator can have any claim to moneys which had no concern with Section 332 at all.
I would allow the appeal accordingly.
LORD JUSTICE DANCKERTS: Cyona Distributors Ltd. is a company in compulsory winding-up, the winding-up order having been made on the 2nd July, 1956, on the petition of the Commissioners of Customs and Excise, who were creditors of the company in respect of unpaid purchase tax. The Commissioners had been deprived of sums due for purchase tax by the fraudulent trading of a director of the company, one Mark Godfrey.
In the course of the winding-up the Commissioners issued a summons under Section 332 of the Companies Act, 1948, against Godfrey and a company called Godfrey Limited asking that they should be made personally responsible for the sum of £25,767. 17s.3d, purchase tax unpaid by the company, and for an order that they should pay that sit to the Commissioners. The Commissioners also instituted criminal proceedings against...
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