Re Matthews (F P and C H) Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date11 November 1981
Judgment citation (vLex)[1981] EWCA Civ J1111-1
Docket Number81/0429
Date11 November 1981
In the Matter of F.P. & C.H. Matthews Limited
In the Matter of the Companies Act 1948

[1981] EWCA Civ J1111-1


Lord Justice Lawton,

Lord Justice Brightman


Lord Justice Fox


No. 00494 of 1978


COURT OF APPEAL (Civil Division)

(On appeal from Mr. Justice Nourse sitting in the Companies Court)

Royal Courts of Justice

Mr. WILLIAM BLACKBURNE (instructed by Messrs. Wm. F. Prior & Co.) appeared on behalf of the Liquidator (Appellant).

Mr. ALLAN HEYMAN, QC, and Mr. EDWARD BANNISTER (instructed by Messrs. Durrant Piesse) appeared on behalf Barclays Bank Ltd. (Respondent).

Mr. HEDLEY MARTEN (instructed by Messrs. Clarkson Wright & Jakes, Orpington) appeared on behalf of Mr. F.C. and Mrs. E.L. Matthews (Respondent Third Parties).


The judgment I am about to read is the judgment of the court.


This is an appeal by the liquidator of F.P. and C.H. Matthews Ltd. (to whom we will refer as "the company"), in a creditors' voluntary winding-up, against the order of Mr. Justice Nourse made on 15th April 1981, whereby he adjudged that certain payments totalling £11,300.32 made by Mr. F.C. Matthews to Barclays Bank Ltd. to the credit of the company's current account with that bank did not constitute fraudulent preference under the joint operation of section 320 of the Companies Act 1948 and section 44 of the Bankruptcy Act 1914.


The company was incorporated in 1940 and took over and carried on a small family building business which had been started in 1876. The 1,000 issued ordinary shares of £1 each were divided between Mr. Matthews as to 600 and his wife as to 400. Until 1975 the company had traded successfully in a modest way. During that year and the following year it took on more building work than it could do with the financial resources it had. It began to have cash flow problems.


It turned to the branch of Barclays Bank at 24 High Street, Islington, for help. In September 1975 the bank advanced the sum of £1,400 on loan account repayable as to capital at the rate of £58.50 per month; interest was charged to the company's current account. In November 1975 the bank agreed to a 12 month overdraft facility of £1,500. By May 1976 the overdraft had reached a figure in excess of £5,000. On 13th May 1976 Mr. and Mrs. Matthews executed in favour of the bank a joint and several unlimited guarantee of the company's borrowings. On 25th May 1976 they gave the bank a legal charge on their home, No. 7, Merton Gardens, Petts Wood. The company's financial troubles got worse. By the close of business on 2nd November 1976, the company's overdraft stood at £10,702.30. That night Mr. Matthews decided that the company would have to stop trading. On 3rd November 1976 the company received two cheques, one for £1,492.37 and the other for £16,622.25. He paid them into the bank the same day, thereby clearing the company's overdraft. On 5th November 1976 the company stopped trading. On 9th November 1976 Mr. and Mrs. Matthews gave the bank three months notice to terminate the guarantee. On 15th November 1976 the company's loan account was cleared by a transfer of £598.02 from the company's current account. On 10th January 1977 a declaration of solvency was made and five days later the company went into members voluntary liquidation, a Mr. Cheeseman being appointed its liquidator. By June 1977 it was clear to Mr. Cheeseman that the company was insolvent so he summoned a meeting of creditors. The winding-up became a creditors' voluntary winding-up and Mr. Cheeseman was confirmed in his office as liquidator. There is a deficiency as regards unsecured creditors of about £130,000.


On the hearing of the liquidator's summons to have the payments to the bank treated as fraudulent preference much evidence was called and the trial judge had to make a number of findings of fact. The material ones are these:


First, Mr. Matthews when he paid the cheques into the bank on the 3rd and 15th November "did indeed intend to pay off the bank ahead of the company's other creditors" (see the judgment of Mr. Justice Nourse at p. 16 C).


Secondly, the company was not able to pay its debts as they became due either on the 3rd or 15th November.


Thirdly, Mr. Matthews was, on those dates, aware that the company was not able to pay its debts as they became due. The judge did not make any express finding to that effect but we think it follows from his finding that Mr. Matthews when he paid the two cheques into the company's current account (I quote from the judgment) "genuinely and honestly believed that the company would in due course, that is to say, within a period of 3 to 6 months, be able to pay all its creditors in full".


Fourthly, there was no pressure for payment by the bank (see page 8 B of the judgment).


The question then is whether, in the language of section 44 of the Bankruptcy Act 1914 the payments to the bank were made "with a view of giving such creditor…a preference over the other creditors".


Mr. Heyman, on behalf of the bank, contends first that the essential matter for determination is whether Mr. Matthews when he made the payments into the bank intended to avoid an equal distribution of the company's assets to the company's creditors and so to defeat the operation of the bankruptcy law. He referred us to the decision of the Court of Queen's Bench in Bills v. Smith 43 LJ QB 68 at p. 70, where Chief Justice Cockburn said: "…the court from the time of Lord Mansfield held that if a trader in contemplation of bankruptcy, with a view to evade the bankruptcy law, preferred a particular creditor to the detriment of the rest such a preference was a fraud on the law…" Then, after a reference to some observations of Lord Ellenborough, he says: "Be that as it may the intention of the party making the payment to defeat the law was always considered as the cardinal point on which the whole question turned".


Mr. Heyman says that, in the present case, there cannot have been any intention by Mr. Matthews to disturb the operation of the bankruptcy law because the judge found that Mr. Matthews genuinely believed that in 3 to 6 months the company would be able to pay its debts in full. Taking into account the time scale of a liquidation, all the creditors would, therefore, in the belief of Mr. Matthews, have been paid in full in the due course of the winding-up of the company. We do not feel able to accept that approach. Section 44 of the Bankruptcy Act 1914 substantially re-enacts section 92 of the Bankruptcy Act 1869. That statute was enacted after the decision in Bills v. Smith and made a substantial alteration in the law. In Butcher v. Stead (1875) LR 7 HL at p. 846Lord Cairns (in a passage cited with approval by Lord Halsbury, LC, in Sharp v. Jackson (1899) AC 419 at p. 423) said: The Act, however, did not profess to express the existing law without making considerable changes in it. In the case of fraudulent preference, for example, in place of raising an inquiry whether it was done in contemplation of bankruptcy, the Act provided certain definite tests, namely, that the bankrupt should have been at the time unable to pay his debts, as they became due, from his own monies and that he should become bankrupt within 3 months from the date of payment".


It seems to us that, at a time when the law approached the question of fraudulent preference from the point of view whether the payment was made in contemplation of bankruptcy, the question whether the creditor made the payment with the intention of avoiding the operation of the bankruptcy law may have had a direct relevance. The two questions are, at least, quite closely inter-related. In Morgan v. Brundrett (1832) 2 B & Ad 798 at p.801, Mr. Justice Parke said: "There was very slight evidence that it was made in contemplation of bankruptcy. The meaning of those words I take to be, that the payment or delivery must be with intent to defeat the...

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