Re Sarflax Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 1979 |
| Date | 1979 |
| Court | Chancery Division |
In re SARFLAX LTD.
Company - Fraudulent trading - Intent - Foreign company's pending claim for damages against company - Resolution to cease trading followed by collection and distribution of company's assets to other creditors, including parent company - Subsequent liquidation - Foreign company awarded damages and proof of debt admitted by liquidator - Whether collection and distribution of assets constituted carrying on of "any business" - Whether fraudulent to prefer one creditor over another - Companies Act 1948 (11 & 12 Geo. 6, c. 38), s. 332 (1)
In 1966 the company entered into a contract governed by the law of Italy, to supply to an Italian company, SAFE, a particular type of press. When delivered the press did not work satisfactorily, and a dispute arose between the parties. In October 1970 SAFE started proceedings in the Queen's Bench Division claiming some £80,000 damages, but these proceedings were allowed to lapse after the company had entered an appearance under protest and the question of jurisdiction was not determined. In October 1971 SAFE commenced proceedings for damages in the Italian courts at Turin. The company took no part in those proceedings and judgment was entered against it in November 1973 in the sum of 120,465,690 lire, i.e., about £86,000. In the meantime, the company, pursuant to a resolution passed in January 1971, had ceased to trade as from the close of business on April 30, 1971. The company was a wholly owned subsidiary of F Ltd. to which it had become substantially indebted. When the company ceased trading its fixed assets, stock-in-trade and work in progress were sold to F Ltd. at book value, the price paid by F Ltd. being set off against the company's indebtedness to F Ltd. There was no suggestion that the price paid was other than a proper one or that the company's indebtedness to the parent company was otherwise than bona fide incurred in the course of trade. Over the next two years the remaining assets of the company were got in and applied in discharging the company's established debts, but without taking account of the pending claim by SAFE. On September 23, 1973, a resolution was passed for a voluntary winding up and the applicant was appointed liquidator. After receipt of the judgment of the Italian court, the liquidator admitted SAFE's proof of debt in the liquidation.
By a summons, dated November 12, 1975, under section 332 (1) of the Companies Act 1948
1 Companies Act 1948, s. 322 (1): see post, p. 598C-E.
On the respondent's summons to strike out the liquidator's summons, and the points of claim served thereunder, on the ground that they disclosed no reasonable cause of action: -
Held, (1) that the expression "carrying on any business" was not necessarily synonymous with actively carrying on trade, and accordingly the collection of assets acquired in the course of business and the distribution of the proceeds thereof in payment of debts could constitute the carrying on of "any business" for the purpose of section 332 of the Companies Act 1948 (post, pp.
Theophile v. Solicitor-General [1950] A.C. 186, H.L.(E.) andIn re Bird, Ex parte The Debtor v. Inland Revenue Commissioners [1962] 1 W.L.R. 686, C.A. applied.
(2) That, apart from the provisions of the Bankruptcy Act 1914, a man might discharge his liabilities in any order that he pleased; that when the only allegation was the bare fact of preferring one creditor over another, it was impossible to hold that such preference per se constituted fraud within the meaning of section 332, and accordingly the liquidator's summons and points of claim must be struck out as disclosing no reasonable cause of action (post, pp.
Middleton v. Pollock (1876) 2 Ch.D. 104;Glegg v. Bromley[1912] 3 K.B. 474, C.A.; In re Lloyd's Furniture Palace Ltd.[1925] Ch. 853 and Tomkins v. Saffery (1877) 3 App.Cas. 213, H.L.(E.) applied.
The following cases are referred to in the judgment:
Alton v. Harrison (1869) 4 Ch.App. 622.
Bird, In re, Ex parte The Debtor v. Inland Revenue Commissioner[1962] 1 W.L.R. 686; [1962] 2 All E.R. 406, C.A.
Cooper (Gerald) Chemicals Ltd., In re [1978] Ch. 262; [1978] 2 W.L.R. 866; [1978] 2 All E.R. 49.
Darvill v. Terry (1861) 6 H. & N. 807.
Drummond-Jackson v. British Medical Association [1970] 1 W.L.R. 688; [1970] 1 All E.R. 1094, C.A.
Fasey, In re [1923] 2 Ch. 1, C.A.
Glegg v. Bromley [1912] 3 K.B. 474, C.A.
Holbird v. Anderson (1793) 5 Durn. & E. 235.
Hubbuck & Sons Ltd. v. Wilkinson, Heywood & Clark Ltd. [1899] 1 Q.B. 86, C.A.
Lloyd's Furniture Palace Ltd., In re [1925] Ch. 853.
Middleton v. Pollock (1876) 2 Ch.D. 104.
Murray-Watson Ltd. v. Lincomb Hall (Hartlebury) Ltd. (unreported), April 6, 1977.
Patrick and Lyon Ltd., In re [1933] Ch. 786.
Rondel v. Worsley [1969] 1 A.C. 191; [1967] 3 W.L.R. 1666; [1967] 3 All E.R. 993, H.L.(E.).
Roy v. Prior [1971] A.C. 470; [1970] 3 W.L.R. 202; [1970] 2 All E.R. 729, H.L.(E.).
Saffery, Ex parte, In re Cooke (1876) 4 Ch.D. 555, C.A.
Schmidt v. Secretary of State for Home Affairs [1969] 2 Ch. 149; [1969] 2 W.L.R. 337; [1969] 1 All E.R. 904, Ungoed-Thomas J. and C.A.
Theophile v. Solicitor-General [1950] A.C. 186; [1950] 1 All E.R. 405, H.L.(E.).
Tomkins v. Saffery (1877) 3 App.Cas. 213, H.L.(E.).
Wiseman v. Borneman [1971] A.C. 297; [1969] 3 W.L.R. 706; [1969] 3 All E.R. 275, H.L.(E.).
Wood v. Dixie (1845) 7 Q.B. 892.
The following additional cases were cited in argument:
Charterbridge Corporation Ltd. v. Lloyds Bank Ltd. [1970] Ch. 62; [1969] 3 W.L.R. 122; [1969] 2 All E.R. 1185.
Daniels v. Daniels [1979] Ch. 406; [1978] 2 W.L.R. 73; [1978] 2 All E.R. 89.
Eichholz, decd., In re [1959] Ch. 708; [1959] 2 W.L.R. 200; [1959] 1 All E.R. 166.
Freeman v. Pope (1870) 5 Ch.App. 538.
Lee, Behrens & Co. Ltd., In re [1932] 2 Ch. 46.
Leitch (William C.) Brothers Ltd., In re [1932] 2 Ch. 71.
Lloyds Bank Ltd. v. Marcan [1973] 1 W.L.R. 339; [1973] 2 All E.R. 359, C.A.
Morgan v. Odhams Press Ltd. [1971] 1 W.L.R. 1239; [1971] 2 All E.R. 1156, H.L.(E.).
Parke v. Daily News Ltd. [1961] 1 W.L.R. 493; [1961] 1 All E.R. 695.
Rawlplug Co. Ltd. v. Kamvale Properties Ltd. (1968) 20 P. & C.R. 32.
Roith (W. & M.) Ltd., In re [1967] 1 W.L.R. 432; [1967] 1 All E.R. 427.
Wenlock v. Moloney [1965] 1 W.L.R. 1238; [1965] 2 All E.R. 871, C.A.
PROCEDURE SUMMONS
By their application dated September 22, 1977, John Savell Freeman and Anne Marie Freeman, formerly directors of Sarflax Ltd., and its parent company, Fine Blanking (Shoreham) Ltd., who were respondents to a summons by the liquidator of the company under section 332 of the Companies Act 1948, sought to strike out the summons and points of claim served thereunder on the grounds that the points of claim disclosed no cause of action and that the summons was an abuse of the process of the court.
The facts are stated in the judgment.
Leolin Price Q.C. and Robin Potts for the respondents.
John M. Chadwick for the liquidator.
The main submissions of counsel are indicated in the judgment (post, pp. 598E-F, 599D-G, 600B-C, 601C-D, G-H, 602F-G).
April 25.OLIVER J.read the following judgment. This is an application by the respondents to a summons under section 332 of the Companies Act 1948, to strike out the summons and the points of claim served thereunder pursuant to the registrar's directions for pleading, on the grounds (a) that the points of claim disclose no reasonable cause of action against the respondents and (b) that the summons is an abuse of the process of the court. Some evidence has been filed in support of the second ground directed to showing that the only creditor alleged to have been defrauded was not, at any material time, a creditor at all because its claim was statute-barred. I can, however, dispose of that ground
straight away without any detailed consideration of the contention because it emerged that, although no evidence in answer has been filed by the applicant - because it was considered inappropriate to do so on an application of this sort - some, at least, of the relevant facts are in dispute and an application of this type is, as Mr. Price on behalf of the respondents concedes, not an appropriate proceeding for trying disputed questions of fact. If, therefore, he fails on his first ground, those questions must be left to be disposed of at the trial and, in that event, he seeks leave to amend his points of defence to raise them.
I turn therefore to the only live issue now raised by the respondents' summons - namely, do the applicant's points of claim, assuming all the allegations of fact made in them to be proved, give rise to a claim against the respondents which has any reasonable prospect of success? Before I turn to the points of claim themselves, it is convenient to give a brief summary of the background against which the proceedings are brought. The applicant is the liquidator appointed in the voluntary winding up of Sarflax Ltd. (formerly called Fine Blanking Ltd.) to which I will refer as "the company." The first two respondents are individuals who were formerly directors both of the company and of Fine Blanking (Shoreham) Ltd., now the third respondent, to which I will refer as "the parent company," of which the company was a wholly owned subsidiary; and...
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