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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Boylan -v- Governor and Company of Bank of Ireland [2012] IEHC 386 (01 October 2012)
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Cite as: [2012] IEHC 386
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Judgment Title: Boylan -v- Governor and Company of Bank of Ireland Neutral Citation: 2012 IEHC 386 High Court Record Number: 2010 709 COS Date of Delivery: 01/10/2012 Court: High Court Composition of Court: Judgment by: Laffoy J. Status of Judgment: Approved |
Neutral Citation 2012 [IEHC] 386 THE HIGH COURT [2010 No. 709 COS] IN THE MATTER OF KERR ALUMINIUM LIMITED (IN VOLUNTARY LIQUIDATION) AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 286 OF THE COMPANIES ACT 1963 BETWEEN DONAL BOYLAN APPLICANT AND
GOVERNOR AND COMPANY OF THE BANK OF IRELAND RESPONDENT Judgment of Ms. Justice Laffoy delivered on 1st day of October, 2012. The application Section 286
(a) to have been made with a view to giving such person a preference over the other creditors, and (b) to be a fraudulent preference, and be invalid accordingly.” The evidence
(b) a replying affidavit sworn on behalf of the respondent by Gavin Leech, the manager of the respondent’s branch at Main Street, Lucan, County Dublin; (c) a further affidavit of the applicant sworn on 18th March, 2011; and (d) a further affidavit of Mr. Leech sworn on 1st April, 2011. 5. On 26th May, 2010 at an extraordinary general meeting of the Company it was resolved that the Company be voluntarily wound up and that the applicant be appointed liquidator for the purposes of the winding up. At the meeting of the creditors of the Company which took place on the same day, 26th May, 2010, the appointment of the applicant as liquidator was confirmed. 6. Prior to its liquidation, the Company carried on the business of provider and fitter of alumium windows. As regards is banking arrangements, it maintained its only current account at the Lucan branch of the respondent. I think it is true to say that the only factual matters which the respondent divulged in the course of the application were the following:
(b) the respondent had personal letters of guarantee “totalling €111,737” from Anthony Kerr (Mr. Kerr) in relation to that account; and (c) the personal guarantees were “counter covered” by a first legal charge over a commercial unit and two apartments registered in the name of Mr. Kerr, and by the assignment of a Norwich Union life policy. 7. The evidence of the applicant, a Chartered Accountant, was that, prior to the resolution to wind up the Company, he had met Mr. Kerr on a number of occasions in April 2010 regarding the financial difficulties faced by the Company. He met Mr. Kerr on 27th April, 2010, and at that time Mr. Kerr was aware that there was little prospect of fresh investment and that the Company was insolvent. Mr. Kerr was considering the options available to the Company, including liquidation of the Company or examinership. The applicant has averred that, at all material times in April 2010, Mr. Kerr was aware of his personal exposure on foot of the guarantee and the security he had given to the respondent in respect of the Company’s overdraft facility. 8. The applicant has averred that he advised Mr. Kerr in writing on 27th April, 2010 that there was no alternative but to proceed and place the Company in liquidation. He exhibited a print of an e-mail he had sent to Mr. Kerr on that day, in which he gave that advice. He laid particular emphasis on the fact that in that e-mail he had indicated that all lodgments received from that day should be lodged to the credit of a separate account for the benefit of all creditors of the Company. 9. The applicant has also averred that, when the directors of the Company, including Mr. Kerr, signed off on an Audit Report dated 10th September, 2009 in relation to the accounts of the Company for the year ending 31st December, 2008, which were filed in the Companies Registration Office on 27th October, 2009, they were in a position to know, and did know, that the Company was in severe financial difficulties and unable to pay its debts as they fell due. The Company carried on its business from premises rented from Mr. Kerr and throughout 2009 the Company had been defaulting on payment of the full quarterly rent due to Mr. Kerr. In addition, Circuit Court proceedings had been initiated by a creditor in December 2009 claiming the sum of €8,797 and summary proceedings in this Court had been instituted by another creditor in April 2010 claiming the sum of €59,810.25. Nine employees of the Company had been made redundant in September 2009 and a further six were made redundant in January 2010. The Company had not been in a position to meet its redundancy payments to the staff and payments in respect of the redundancies were made by the Social Insurance Fund. The foregoing are the principal matters which the applicant averred to as pointing to the serious financial difficulties which the Company experienced from September 2009 onwards. 10. The applicant has exhibited the bank statements on the Company’s current account with the respondent from May 2008 until the commencement of the winding up of the Company, when the account was frozen. On the basis of the evidence before the Court it is only possible to conduct a superficial analysis of the movements on the current account, because there is no evidence as to the source of lodgments. Moreover, in most cases, there is no evidence of the destination of the payments made by cheque or by direct debit. 11. It is the position of the applicant that at the commencement of the winding up the Company was unable to pay its debts within the meaning of s. 214 and s. 286 of the Act of 1963. That fact cannot be disputed. He has also averred that he is satisfied that the Company was not in a position to pay its debts as they fell due in the six month period leading to 26th May, 2010. That is not disputed by the respondent and, for present purposes, insofar as it is relevant, I think the proper course is to assume that such was the case. 12. The applicant has also averred that during the six month period prior to 26th May, 2010, the Company made significant lodgments to the current account “unbeknownst to its creditors”. However, it is not clear from the grounding affidavit why the applicant, in framing the relief he is seeking against the respondent, focused on payments commencing on 8th April, 2010, although it is reasonable to infer that it was because on that day the current account was overdrawn in the greatest amount over approximately the previous two months, and was at its highest amount prior to the commencement of the winding up, at €106,155.88. The factual basis of the applicant’s claim for relief, as set out in the grounding affidavit, is that following 8th April 2010 the Company made lodgments to the current account aggregating €115,576 in April 2010 and aggregating €130,279 in May 2010 prior to the commencement of the winding up. At the commencement of the winding up the amount overdrawn on the current account was €32,663. The consequence, it was averred, was that the payments conferred a significant personal benefit on Mr. Kerr by reducing his personal liability under the guarantee and the security supporting the same. As I understand the applicant’s claim it is that the aggregate amount of those payments should be declared invalid, without netting off payments actually made from the account by the respondent to third parties in the same period. 13. Finally, the applicant has also averred that payments were made by the Company to “a select number of trade creditors” in the period between 8th April, 2010 and the commencement of the winding up. However, apart from the fact that the sum of €5,000 in respect of rent was paid by the Company to Mr. Kerr on 17th May, 2010, there are no details of the payments in question before the Court. The applicant has sought no relief in respect of any of those payments, although it was contended that they are of relevance in relation to the inferences which the Court has to draw on this application. 14. Mr. Kerr is not a party to this application. However, a letter dated 7th October, 2010 from him to the applicant, in response to a letter from the applicant dated 17th August, 2010, has been exhibited. In that letter, Mr. Kerr stated:
For security and health & safety reasons cheques and cash are not to be held at the company premises. As a result of the on-going deterioration in general economic conditions there were concerns that cheques may bounce. Adherence to this policy was therefore crucial and considered a key control in managing the company’s working capita (sic). The level of activity in the company account is similar to that in the months leading up to management’s decision to cease trading. There was no intention by management to reduce the overdraft balance.” 16. In his final affidavit Mr. Leech has averred that, in the event that the applicant’s application succeeds in full or in part, the respondent will request the Court to invoke its jurisdiction under s. 287(3) of the Act of 1963 to make orders in these proceedings in respect of the liability of Mr. Kerr under the personal guarantee given by him to the respondent. Sub-section (3) of s. 287 provides:
The law 18. In relation to subs. (1) of s. 286, while it is more user-friendly than its predecessor, which necessitated applying s. 53 of the Bankruptcy (Ireland) Amendment Act 1872, which, as amended by the Act of 1963, was set out in the Eleventh Schedule to the Act of 1963, I am satisfied that there is no difference of substance between it and its predecessor. In relation to its application to the facts underlying this application, the principal ingredients of subs. (1) in its current form and their application are as follows:
(b) That the Company was unable to pay its debts as they became due, when the payment was made. As I have already indicated, I am assuming that from 8th April, 2010 onwards the Company was not able to pay its debts as they became due. (c) That the payment was made with a view to giving the creditor, that is to say, the respondent, or any surety or guarantor of the debt due to the creditor, that is to say, Mr. Kerr, a preference over other creditors. That is the crucial ingredient in this case. It is well settled that the onus of proof of a dominant intention to prefer under subs. (1) lies on the liquidator, that is to say, in this case, on the applicant. The jurisprudence on establishing an intention to prefer is succinctly summarised in the following passage from the annotation on s. 286 in MacCann and Courtney Companies Act 1963 – 2009) (2010 E Book, Bloomsbury): “In order to prove that a transaction is a preference, it is not sufficient to show that the effect of the transaction was to give a preference; rather the phrase ‘with a view to giving . . .’ has been interpreted as meaning that the transaction must have been entered into with a dominant intention to prefer. It is not enough to prove that there was actual preferment from which an intention to prefer can, with hindsight, be inferred. The liquidator must prove an intention to prefer at the time the payment is made. Where there is no direct evidence of intention, the court can draw an inference of an intention to prefer in a case where some other possible explanation is open. The method of ascertaining the state of mind of the payer is the ordinary method of evidence and inference, to be dealt with on the same principles which are commonly employed in drawing inferences of fact.” (d) That the winding up of the Company must have commenced within six months of the making of the payment. That requirement is complied with in relation to all the payments made after 8th April, 2010. (e) That at the commencement of the winding up the Company is unable to pay its debts. I am satisfied that that requirement is complied with. 20. As regards the crucial ingredient, the requirement that the applicant prove, on the balance of probabilities that the dominant intention, when the payments were made by the Company to the respondent was to prefer the respondent, and, indirectly, to prefer Mr. Kerr, the authorities which have been cited by the parties which, in my view, are of most relevance in determining whether the applicant has discharged that onus are the following: the decision of the Court of Appeal of England and Wales in Re M. Kushler Limited [1943] Ch. 248; and the decision of the High Court (Carroll J.) in Station Motors Ltd. v. AIB Ltd. [1985] I.R. 756. I propose considering each of those authorities, to which counsel for the applicant attached most weight, in detail. 21. A key feature of the legal submissions made on behalf of the applicant was reliance on the so called Rule in Clayton’s Case. The position adopted on behalf of the respondent is that the Rule is of no relevance to the issue before the Court. I will consider whether it is or is not of relevance later. Re M. Kushler Limited
(b) that a trade creditor had been pressing for payment of its February account of in excess of £88 since the beginning of April but at the request of Mr. Kushler had consented to wait if half the amount was paid by the end of April, but no part of it had been paid; (c) that the bank never pressed for reduction of the overdraft and up to 23rd May would have allowed the company to operate up to the limit of their permitted overdraft; (d) that, although on 14th May there was still an overdraft, no notice of the creditors’ meeting was sent to the bank; and (e) that at the meeting of creditors, in answer to a creditors’ question, Mr. Kushler falsely stated that the guarantors were third parties. 23. In his judgment, Lord Greene M.R., having stated that the period to which attention must be drawn was between 10th May and 23rd May and that the question was what inference ought to be drawn from the evidence, stated (at p. 251):
24. The judgment of Goddard L.J. in the Kushler case is also cited frequently. He stated (at p. 255):
25. There were a number of issues in the Station Motors case. However, the facts relevant to the issue which bears on the application of s. 286(1) were that Station Motors Ltd. was effectively controlled by two directors, William Murphy and his wife. On 16th June, 1980, by joint and several guarantee, Mr. Murphy and his wife guaranteed the obligations of the company to the defendant bank on foot of its current account up to £75,000 with interest. The company went into liquidation on 3rd October, 1980, the company being insolvent, on foot of notice to convene an extraordinary general meeting which issued on 15th September, 1980. Between 15th September, 1980 a sum in excess of £23,278 was lodged to the company’s current account. During the same period six cheques totalling in excess of £8,057 were honoured by the bank, of which one was payable to Mr. Murphy in the sum of £2,730 and was drawn on 16th September, and the other five were drawn prior to 15th September. The bank’s evidence was that those cheques were paid following representations from Mr. Murphy. During the same period four cheques totalling £2,321 were presented but were not honoured. 26. Against those facts, the first issue the Court had to decide was whether the lodgments made after 15th September, 1980 constituted a fraudulent preference within the meaning of s. 286(1). In addressing that issue, Carroll J., having stated that there was no direct evidence by Mr. Murphy as to what his intention was, continued (at p. 761):
1. The phrase “with a view to giving such creditor a preference’’ means that the intention to prefer must be the dominant intention which actuates the payment (per Lord Greene M.R. . . .). 2. It is not enough to prove that there was actual preferment from which an intention to prefer can, with hindsight, be inferred. The liquidator must prove an intention to prefer at the time the payment is made (per Goddard L.J. . . .). 3. Where there is no direct evidence of intention, there is no rule of law which precludes a court from drawing an inference of an intention to prefer, in a case where some other possible explanation is open (per Lord Greene M.R. . . ). . . . 4. The method of ascertaining the state of mind of the payer is the ordinary method of evidence and inference, to be dealt with on the same principles which are commonly employed in drawing inferences of fact (per Lord Greene M.R. . . ).”
(b) Given that at a directors’ meeting of 15th September, 1980 it was resolved to convene the extraordinary general meeting and the creditors’ meeting for the purposes of a creditors’ voluntary winding up, the inference had to be drawn that, on and from 15th September, the directors knew that the company was insolvent. (c) Only six cheques were paid out of the company’s account on and after 15th September and then only as a result of special representations made by Mr. Murphy. It had been argued by the bank that the account was being operated normally in the ordinary course of business because of the payment of those six cheques. However, Carroll J. found exactly the opposite; the necessity to make a special case for those cheques inferred that the account was not being operated normally. The fact that one of the cheques was drawn after 16th September by Mr. Murphy did not weaken the inference of an intention to prefer the bank, which was coupled with an intention to prefer the guarantors. The payment of the cheque for £2,730 to Mr. Murphy was a direct preferment of him rather than an indirect preferment by reducing the amount payable on foot of the guarantee. (d) The payment of the five other cheques did not negative an intention to prefer the bank directly and the guarantors indirectly. In proportion to the lodgments, the amounts involved in the four cheques were very small. (e) Once the directors had decided on 15th September to hold the meetings for a creditors’ voluntary winding up, there could not be normal trading, as the company at that stage must have been unable to pay its debts. Application of the law to the facts of this case 28. On the basis of the facts of this case and, in particular, the conclusions which can be drawn from an analysis of the statements of account, it was submitted on behalf of the respondent that none of the impugned lodgments constituted a preference of the respondent and that the liquidator had failed to prove that the dominant intention of the Company or its directors was to prefer the respondent. 29. In embarking on an analysis of the bank statements in relation to the current account put in evidence, for the purpose of illustrating the factual distinctions between the Kushler and Station Motors cases and this case, it is appropriate to reiterate what has been observed earlier as to the necessarily superficial nature of the analysis, because in most cases it is not possible to identify the payee or purpose of a cheque or direct debit paid in the period in issue. Nonetheless, I consider that because of the overview of the operation of the current account which can be thereby ascertained, it is proper to draw inferences from the analysis. 30. It is not clear when the directors resolved to hold the members’ meeting and the creditors’ meeting on 26th May, 2010. However, having regard to the provisions of s. 266 of the Act of 1963, it must have been on 16th May, 2010 at the very latest. It appears from a letter dated 22nd October, 2010 from the respondent to the applicant, which is quoted in the grounding affidavit although not exhibited, that the respondent received information from the director of the Company, whom I assume to be Mr. Kerr, on 24th May, 2010 of the intention to wind up the Company. 31. Prior to 7th April, 2010 the overdraft on the current account had been at its highest on 4th February, 2010, when it reached €106,652.22. However, a large lodgment was made on the following day, which brought the overdraft down to €21,801.51. In the succeeding two months, the overdraft fluctuated. For instance, it was at its lowest on 8th February, 2010 at €11,112.37, whereas it increased thereafter and by 22nd March it had reached €94,957.67. It fluctuated again after that, the lowest point it reached before 7th April, 2010 being €68,963.17 on 31st March, 2010. An analysis of the statements on the current account from late November 2009 to 4th February, 2010 reveals a similar pattern of fluctuation. 32. The increase in the overdraft between 31st March, 2010 and 7th April, 2010 was a consequence of seven cheques and two direct debits having been paid on 1st April, 2010, which was obviously the Thursday before the Easter holidays, four cheques and two direct debits having been paid on 6th April, 2010 and three cheques and two direct debits having been paid on 7th April, 2010, during which period no lodgments were made. A small lodgment was made on 8th April, 2010 in the amount of €3,800. Between that date and the date on which the next lodgment was made, 15th April, 2010, five cheques and seven direct debits had been paid. While the credit for the lodgment on 15th April, 2010 was in the sum of €53,870.04 a portion of that credit amounting to €28,300 was reversed on the following day, although a lodgment in the sum of €28,800 was actually credited later on 20th April, 2010. Between the 20th April and the 30th April, seven cheques, seven direct debits and one standing order were paid. In the same period there were three amounts credited, two lodgments and one other credit. The overdraft fluctuated upwards from €55,603.83 on 20th April, 2010 to €62,131.92 on 30th April, 2010. 33. In the first week of May 2010, which was a four working day week, the overdraft increased to €83,528.12, during which period no lodgments were made. During the next week, which commenced on Monday, 10th May, 2010, there were five lodgments and one other credit. During the same period eight cheques and three direct debits were paid, in consequence of which the overdraft was reduced to €39,167.78. In the following week, which commenced on Monday, 17th May, there were two lodgments which totalled €18,500 and two other credits which totalled €6,134.40, whereas eleven cheques, four drafts and three direct debits were paid, which resulted in the overdraft going up to €43,458.03. Thereafter, the only movements on the current account were as follows: the payment of one cheque, one direct debit and cheque book stamp duty; one lodgment on 25th May, 2010 in the sum of €6,194; and one other credit in the sum of €5,000. Effectively the line was then drawn and the current account was overdrawn in the sum of €32,663.10. 34. After 8th April, 2010 there were five credits to the account (the source of which is not identifiable), which were not made by way of lodgment, which I assume were electronic payments from debtors, which aggregated €19,672. All of those credits post-dated 27th April, 2012. 35. Unlike the circumstances which prevailed in the Kushler case and in the Station Motors case, the foregoing analysis of the statements on the current account, and, in particular, the level of activity thereon, against the background of the totality of the evidence, in my view, does not give rise to the inference that Mr. Kerr made the lodgments to the Company’s current account with the dominant intention of preferring the respondent as creditor, with the objective of reducing his own liability on foot of the guarantee he had given the respondent and the security which supported it. The explanation given by Mr. Kerr in his letter of 7th October, 2010 to the applicant, which I have quoted earlier, in my view, is a plausible explanation as to why the Company continued to lodge all receipts into the current account promptly. There is no discernible significant disproportion between the lodgments and other credits between 28th April, 2012 and the ruling of the account, which covered approximately one month, and the lodgments and other credits in the corresponding period up to and including 27th April, 2012. The net effect of the failure on the part of the Company to make lodgments to the credit of a separate account after receipt of the applicant’s e-mail of 27th April, 2010, given that the Company continued to make payments to its creditors and was not advised to do otherwise, was that the overdraft on the current account had reduced by slightly less than €25,000. The five credits which were not made by way of lodgment, over which Mr. Kerr may not have had any direct control, contributed to that reduction to the extent of €19,672, although one credit is designated “Kerr 04”. 36. Accordingly, I find that the applicant has not discharged the onus of proof which he bears under s. 286(1) that the payments aggregating €245,855 made by the Company into its current account with the respondent were made with the dominant intention of preferring the respondent and, in consequence, indirectly preferring Mr. Kerr as surety and chargor. While that disposes of the matter and it is not strictly speaking necessary to consider the respondent’s fallback position, I make the following observations without expressing any definitive view on the argument advanced on behalf of the respondent. The respondent’s fallback position
(b) McPhersons Law of Company Líquidation (2nd Ed. by Andrew R. Keay, 2009) (at para. 11.030). 38. As is pointed out in McPherson (at para. 11.030), in Australia the courts have exempted payments made pursuant to a clear and bona fide running account from being attacked as preferences. At common law in Australia, if a creditor can establish the fact that the transaction sought to be impugned was not an isolated transaction but was part of a series of transactions which involved the creditor dealing with the debtor pursuant to a running account, then any payment will not be regarded as preferential. Further, it is pointed out that the common law has now been codified as far as liquidations are concerned in Australia. The editor of McPherson makes the following observation in relation to the Australian jurisprudence:
Rule in Clayton’s Case relevant?
42. On those facts, Kenny J., on the first question he considered, which is not of relevance for present purposes but gives perspective to the second question, held that monies advanced after an agreement to give a charge, but before the execution of the deed of charge, were advanced at the time of the charge within the meaning of s. 121 of the Act of 1908, provided that any delay in having the charge completed and registered was not intended to deceive creditors and was not unreasonable or culpable. On the facts before him, he held that there had been neither unreasonable delay nor intention to deceive. The second question arose out of the fact that, when the resolution to wind up was passed, the account was overdrawn in the sum of £14,475, whereas it had been overdrawn in the sum of £9,759 on 8th June, 1961, when the company agreed to give the charge. The question was whether the amount secured by the floating charge was the amount of the overdraft and interest when the winding up commenced or, alternatively, that amount less the amount due to the bank on 8th June, 1961. On this point, Kenny J. stated (at p. 13):
44. However, in my view, no question of appropriation of the payments into the account arises on the application of s. 286(1) to the facts here. Accordingly, I cannot see how either the rule in Clayton’s Case or the decision of Kenny J. in In Re Daniel Murphy Ltd. is of any relevance in the application of s. 286(1) to the facts of this case. In my view, the reliance by the applicant on those authorities is misconceived. Order |