The Gazette 1994

GAZETTE

In the Matter of Ashmark Ltd:

Ashmark Ltd v. Allied Irish Banks pic:

High Court (Lardner J) 29 July 1993

Company - Winding-up - Relationship of

debtor and creditor between banker and cus-

tomer - Liability of company in respect of

accrual of interest and bank fees on its cur-

rent account - Whether debiting of account

after commencement of winding-up consti-

tuted a disposition of company property -

Companies Act 1963 (No. 33), section 218

Facts

Ashmark Ltd ('the company') was

the main distributor in Ireland for

Zanussi electrical appliances. Follow-

ing a dispute Zanussi terminated the

distribution agreement and served no-

tice under section 214(a) of the

Companies Act 1963 demanding pay-

ment of a large debt. The company ob-

tained an interim injunction restraining

Zanussi from prosecuting winding- up

proceedings. A compromise was reach-

ed whereby the company ceased trad-

ing on 4 July 1988 and Zanussi pre-

sented its petition to wind up the com-

pany on 8 July. This petition was not

advertised until October 1988. The com-

pany was wound up on 27 October 1988

and a liquidator appointed. The wind-

ing-up was deemed to commence on 8

July 1988. The company's current ac-

count with the respondent bank in-

cluded an overdraft facility. On 8 July

1988 the account had a credit balance

but interest had accrued from day to

day on the overdraft for a period of time

after 16 March 1988. These sums were

debited to the account after 8 July 1988.

The liquidator claimed that these pay-

ments were made after the commence-

ment of the winding-up and were thus

void under section 218 of the Compa-

nies Act 1963.

Held

by Lardner J in refusing the orders

sought in the application: (1) Over a

period of time the company had in-

curred a liability to pay interest to the

respondent on its overdraft. This liabil-

ity accrued from day to day and

constituted a debt due by the company

to the respondent over and above the

amount of the overdraft. (2) When the

company paid money into the account

the overdraft was discharged and the

account went into credit. However, the

amount of the credit balance was not the

property of the company. The money

was the property of the respondent

which then became a debtor of the com-

pany in respect of this amount. (3) The

amount of each party's liability to the

other could only be ascertained by dis-

covering the ultimate balance of their

mutual dealings. In circumstances

where the interest which had accrued

was a liability of the company to the

respondent and at the same time the

respondent owed a debt to the company

in respect of the credit balance in the

current account, it was not correct to

treat the ascertainment of the ultimate

balance on a date after the commence-

ment of the winding-up as a disposition

of property by the company within the

meaning of section 218 of the Compa-

nies Act 1963.

Reported at [1994] 1ILRM 223

Lascomme Ltd t/a Ballyglass House

Hotel v. United Dominions Trust

(Ireland) Ltd and James Gilligan

(Notice Party):

High Court (Keane J) 22

October 1993

Company - Initiation of legal proceedings

by company against debenture holder - Ap-

pointment of receiver by debenture holder -

Motion to stay proceedings on grounds that

receiver had not authorised them - Powers

of directors to initiate legal proceedings fol-

lowing appointment

of receiver

Insolvency - Whether proceedings jeopard-

ised debenture

holder's security

Companies Act 1963, section 316(1)- Com-

panies (Amendment) Act 1990, section 171

Facts

In December 1989 the plaintiff

('the company') borrowed £170,000

from the defendant ('the bank') in order

to purchase a hotel costing £237,500. In

February 1990 the company sought a

further loan from the bank with a view

to improving facilities at the hotel. No

loan was made and the company's fi-

nancial position deteriorated. On 10

July 1991 the company commenced pro-

ceedings against the bank for breach of

contract and negligence in which it was

claimed that the bank had agreed to

lend money to the company or, in the

alternative, that it had made repre-

sentations which induced the company

to believe that a loan would be made.

The bank denied that any such agree-

ment or representations had been

made. On 2 September 1992 the bank

appointed the notice party as receiver in

respect of the assets and undertaking of

the company pursuant to a debenture

dated 21 December 1989. At this stage

there was a deficiency of £122,763 be-

tween the assets and liabilities of the

company. The hotel was the company's

only asset and it appeared that its sale

would not realise enough to discharge

the debt owed to the bank. On 13 Octo-

ber 1992 notice of trial was served on

behalf of the company and on 10 No-

vember 1992 a notice of motion seeking

an order of discovery was served on its

behalf. The bank brought a motion to

have the notice of trial and the notice of

motion seeking discovery set aside and

to have the proceedings brought by the

company stayed on the grounds that the

AUGUST/SEPTEMBER 1994

receiver had not authorised them. The

company brought a motion under sec-

tion 316(1) of the Companies Act 1963,

as substituted by section 171 of the

Companies (Amendment) Act 1990,

seeking an order to the effect that its

directors were entitled to maintain the

proceedings.

Held by Keane J in dismissing the

bank's application and ordering that

the company was entitled to maintain

the proceedings against the bank: (1)

The powers of directors are not termi-

nated on the appointment of a receiver

by a debenture holder and include the

power to maintain and institute pro-

ceedings in the name of the company

where to do so would be in the interests

of the company or its creditors. How-

ever, the directors' powers cannot be

used in a manner which interferes with

the receiver's ability to deal with or dis-

pose of the assets charged by the

debenture, or in a way which would

adversely affect the debenture holder

by threatening or imperilling the assets

which are subject to the charge. (2) If a

debenture holder's security would be

imperilled by a hostile order for costs

that could be a ground for staying the

proceedings at the instance of the de-

benture holder. However, here it was

likely that the hotel would be sold and

the proceeds paid to the bank well be-

fore the company's action against the

bank could be finally decided by the

High Court. (3) If the bank was success-

ful in the action it would be unable to

recover its costs from the company.

However, this was not a ground for

staying the proceedings because to do

so would mean that the directors of an

insolvent company would be unable to

maintain a claim against the very per-

sons who were alleged to have brought

about the insolvency. (4) The fact that

the bank was the debenture holder did

not render the action against it by the

company an academic exercise. If the

company's action was successful the

bank would be able to satisfy the bal-

ance of its debt out of the proceeds of

the action and the surplus, if any, would

be available to the other creditors and

the company.

Reported at [199411 ILRM 227

Rajah v. Royal College of Surgeons in

Ireland and Others:

High Court (Keane

J) 25 May 1993

judicial Review - Fair procedures - Scope

of judicial review as form of remedy - Col-

lege derived existence from charter -

Student sought to challenge decision of col-

lege to refuse her permission to re-sit

examination - Whether decision of appeals