Rose v AIB Group (UK) Plc and another
| Jurisdiction | England & Wales |
| Judgment Date | 09 June 2003 |
| Neutral Citation | [2003] EWHC 1737 (Ch) |
| Date | 09 June 2003 |
| Court | Chancery Division |
Insolvency - Winding up - Disposition of property - Company paying off bank overdraft between presentation and advertisement of winding up petition - Bank receiving payments in ignorance of existence of petition - Winding up order made and liquidator appointed - Bank subsequently releasing security for overdraft - Liquidator making restitutionary claim for return of payments on behalf of company - Whether payment into overdrawn bank account “disposition” of company's property - Whether void - Whether court to exercise discretion to validate payments - Whether change of position capable of affording defence to liquidator's claim - Whether bank acting on faith of validity of company's payments when releasing security such that defence of change of position available - Whether repayment to be ordered -
A creditor petitioned in February 1997 for a company to be wound up on the ground that it was unable to pay its debts. At the date of presentation of the petition the company's accounts with its bank were overdrawn. The bank's liability was secured by a legal charge over property belonging to the company's sole director and shareholder. The bank did not learn of the existence of the petition until it was advertised in September 1997, by which time the company had paid off its debts to the bank in what the bank believed to be the ordinary course of business. The court made a compulsory winding up order, and in December 1997 a liquidator was appointed. In March 1998 the liquidator stated that his investigation would be finished within three months and proceedings would follow within a year. In January 1999 the bank released the charge assuming that all the company's liabilities to it had been validly discharged. In September 2002 the liquidator applied for declarations that the company's payments to the bank and to another creditor, from the date of presentation up to the amount of its indebtedness to each of them at that date, were void pursuant to section 127 of the Insolvency Act 1986F1 and for orders that those amounts be repaid to the liquidator. The bank resisted the claim on the grounds that payment into an overdrawn bank account did not constitute a “disposition” for the purposes of section 127; that, by releasing the charge, the bank had changed its position and the court should therefore exercise its discretion under the section to validate the company's payments; and that even if a validation order could not be made, the bank nevertheless had a defence to the liquidator's claim as a result of its change of position.
On the application—
Held, granting the application, (1) that where payment was made into a bank account which was overdrawn there was a “disposition” of the customer's property in favour of the bank for the purposes of section 127 of the 1986 Act; and that, accordingly, section 127 rendered the payments void unless the court validated them (post, paras 11–12).
(2) That change of position could afford a defence to a liquidator's claim in restitution arising from dispositions having been rendered void by section 127; but that, since the bank had known when it released the charge that there was at least significant exposure to a restitutionary claim by the liquidator, its change of position in releasing the charge, albeit in good faith, had been made in reliance not on the initial validity of the credits to the overdrawn account but on an assumption that the liquidator would not make a claim to assert their invalidity and so, absent a clear representation by the liquidator sufficient to give rise to an estoppel that the company's debt to the bank had been validly discharged, did not give rise to a defence; that, alternatively, the bank had taken a risk that its assumption that no claim would be made was wrong and it could not complain when the risk became a reality; that any fault on the part of the liquidator in delaying making the application was immaterial; and that, accordingly, the bank's change of position did not afford a defence to the liquidator's restitutionary claim or justify making an order under section 127 validating the payments (post, paras 29, 41, 47, 51, 52, 55, 56–59).
(3) That, since the purpose underlying section 127 was to achieve pari passu distribution of the company's assets between creditors, dispositions which resulted in one or more creditors being paid in full while others only received a dividend would not be validated under section 127 unless either they were made in the ordinary course of business and likely to be for the benefit of creditors generally or they were carried out in good faith by parties unaware that a petition had been presented and did not involve an attempt to prefer the disponee; that the court's discretion under section 127 was not concerned with providing a remedy for mistakes on the part of the liquidator or creditor; that there was no requirement that a liquidator seeking recovery against one creditor by virtue of section 127 had to seek recovery of all other such payments made to other creditors; and that, accordingly, since there had been no real benefit to the company's creditors generally resulting from the payments to the bank and the consequent reduction of the company's overdraft, since the payments had been an attempt by the company to prefer the bank in order to benefit the director, and since neither the failure of the creditor to advertise the petition nor the liquidator's delay in making the application had caused any prejudice to the bank, a validation order should not be made in respect of those payments which had discharged the company's debt to the bank and the bank would be ordered to repay those sums to the liquidator (post, paras 14, 16, 18–20, 21, 24–26, 27, 29, 62).
Quaere. (i) Whether, after advertisement of a petition, a creditor could assert a change of position on the footing that he had not seen the advertisement and was ignorant of the petition, or had seen the advertisement but was nevertheless ignorant of the law, or had overlooked the petition and the effect of section 127 altogether (post, paras 45, 60).
(ii) Whether a recipient of money to which there was a valid restitutionary claim could rely on a change of position brought about by his own actions whenever he was aware that a claim might be made against him (post, para 59).
The following cases are referred to in the judgment:
Barn Crown Ltd, In re [
Coutts & Co v Stock [
Denney v John Hudson & Co Ltd [
Dextra Bank and Trust Co Ltd v Bank of Jamaica
Gray's Inn Construction Co Ltd, In re [
Hollicourt (Contracts) Ltd v Bank of Ireland [
Leslie (J) Engineers Co Ltd, In re [
Lipkin Gorman v Karpnale Ltd [
Niru Battery Manufacturing Co v Milestone Trading Ltd
Principal Group Ltd (Trustee of) v Anderson (
The following additional cases were cited in argument:
McGuinness Bros (UK) Ltd, In re (
Paramount Airways Ltd, In re [
The following additional case, although not cited, was referred to in the skeleton arguments:
Loteka Pty Ltd, In re [
APPLICATION
By a petition presented on 4 February 1997 HM Customs and Excise, a creditor of Tain Construction Ltd, sought the winding up of the company on the ground that it was unable to pay its debts. The court made a winding up order on 8 September 1997 and appointed a liquidator, Melvyn Laurence Rose, with effect from 8 December 1997.
By a notice of application dated 19 September 2002, the liquidator applied to the registrar in bankruptcy for (1) declarations that payments made by the company to two of its other creditors, AIB Group (UK) plc and Matilde Da Silva Assuncao, between 4 February 1997 and 29 August 1997, totalling £51,666.02 and £10,400 respectively, were void pursuant to section 127 of the Insolvency Act 1986; alternatively, (2) declarations that those payments constituted preferences within the meaning of section 239 of the Act and were voidable; and, in either event, (3) orders that those amounts be paid to the liquidator. On 16 December 2002, Mr Registrar Baister ordered that the application be adjourned for it to be heard by a High Court judge.
The facts are stated in the judgment.
Sebastian Prentis for the liquidator.
Nicholas Cherryman for the bank.
The second creditor did not appear and was not represented.
9 June. MR NICHOLAS WARREN QC handed down the following judgment.
1 By this application, Mr Rose, the liquidator of Tain Construction Ltd (“Tain”), seeks a declaration that payments totalling £51,666.02 made by Tain to the first respondent, AIB Group (UK) plc (“the bank”), between 4 February 1997 and 29 August 1997 are void pursuant to section 127 of the Insolvency Act 1986 and an order for payment accordingly. The bank seeks validation of the payments. There is a similar application by the liquidator against the second respondent, Matilde Da Silva Assuncao, in relation to the sum of £10,400: she does not appear and has, in...
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