TMI Blog1969 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as it originally appeared in the Act of 1862, he said, at page 446 : "The 153rd section no doubt provides that all dispositions of the property and effects of the company made between the commencement of the winding-up (that is the presentation of the petition) and the order for winding-up, shall, unless the court otherwise orders, be void. This is a wholesome and necessary provision, to prevent, during the period which must elapse before a petition can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is the interest of everyone to preserve, and ultimately to sell, as a going concern, is made the object of a winding-up petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary 'course of its current trade, bona fide entered into and completed, would be avoided, and would not, in the discretion given to the court, be maintained, the result would be that the presentation of a petition, groundless or well-founded, would, ipso facto, paralyze the trade of the company, and great injury, without any counterbalance of advantage, would be done to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership on the basis of the information that one Marjorie" Wall, a director of both the said companies, gave me concerning the company's liabilities." He then refers to the freezing of the bank account and continues : "I believed that it would be in the interest of all parties for the company to continue trading and after discussions with the said Marjorie Wall, I agreed to advance to the company funds to enable its day to day trading to continue upon the understanding that such advances would be repaid from daily receipts. Thereupon I attempted to find a purchaser for the shares of the company (which were all held beneficially by Belgravia Car Hire Ltd.) with a view to a sale thereof as a going concern, but I left the management of the company and the running of its business to the said Marjorie Wall." From December 24, 1966, to January 19, 1967, the receiver paid a total of 4,878 4s. 6d. to Clifton, 4,113 9s. 6d. being in respect of the price of petrol and oil supplied, and the rest being for trading stamps and as to a little over 600 for rent. Over the period December 28, 1966, to January 15, 1967, Clifton repaid the receiver a sum total of 4,024 10s. 7d, which was, in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Neither Mr. Heyman for the receiver nor Mr. Thomas for the liquidator supported the third test; and I agree with them. Of course, if in fact a benefit results, that is excellent evidence to demonstrate that the act was done, and was reasonably done, for the benefit of the company. Nothing succeeds like success. Actual success may thus in a sense establish an a fortiori case. I think that Park Ward and Co. Ltd. case ( supra ) must be read in that sense. There Romer J. said, at page 832 : "In the present case the business of the company was eventually sold as a going concern. Had it not been for the timely assistance given by Mr. Rowley I very much doubt whether this would have been possible. I think therefore that I ought to accede to his application." I do not read this passage as indicating, by reason of the " therefore," that an order will not be made unless there is eventual success. I have paused on this point because there are two passages in the judgment of the registrar which can be read as pointing to actual benefit as the criterion. I doubt very much whether they were so intended, but if they were I disagree. As regards the other two tests, Mr. Heyman conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. I cannot think that it is right to cast the canons of reasonableness out of the window in deciding whether or not to make an order taking acts done after the commencement of a winding up out of their ordinary course. In my judgment the correct test is the second test, or one to substantially the same effect. Now the contention that on an application made under section 227 the onus lies on the applicant has not been contested, and rightly so. It is for the applicant to establish a sufficient case for the court to make an order excluding the normal rule under the section. In this case, then, has the receiver shown that in securing the payment of the disputed sum he acted reasonably for the benefit of the company ? Very properly, his bona fides have not been questioned, and the one question is that of reasonableness. The receiver took office as receiver and manager of Belgravia at an awkward time, namely, on Christmas Eve. Yet how Clifton had been subsisting after the presentation of the petition on November 30 has not been made to appear, even though this might have thrown some light upon whether, as Mr. Heyman urged, the receiver was forced to make a speedy decision. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors if the payment were not sanctioned; that the receiver had acted bona fide and in the best interests of the company and that it was proper in all the circumstances to validate the payment. Allan Heyman Q.C. for the Receiver. D. A. Thomas for the Liquidator. Harman L.J. stated the facts and continued : [The question which arises here is the single and comparatively simple one, what is to happen to the 4,024 now in the receiver's hands ? The liquidator says that it is due to him, and he says it on quite a simple ground. He says that this was a disposition of the money by the company, as indeed it was, after the date of the winding-up order, because that order dates back to the date of presentation of the petition, and that, therefore, the disposition is void ; and he relies on section 227 of the Companies Act, 1948, which states in these laconic terms : "In a winding up by the court, any disposition of the property of the company, . . . made after the commencement of the winding up, shall, unless the court otherwise orders, be void." This was undoubtedly a disposition made after the date of the presentation of the petition and is, therefore, a void disposition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by good faith. He had paid it on an agreement, and Vaisey J. held that he should have the charge which was the consideration. Looking at the present facts, how does the matter stand on general equitable principles ? Good faith is not in issue. There is no question of trying to obtain an undue advantage. The receiver thought that he was doing the best for all concerned, and that has been accepted by everybody. But it is said that there is no evidence that these payments did any good to the company at all. The liquidator says that he had nothing from it; and the court below seems to have thought that that was a very important consideration. Megarry J., ante p. 982, who concluded that he ought not to make the order asked for, went into the question whether in his view the receiver was reasonable in his hopes. He said that the receiver did not make any sufficient inquiry : he was too ready to accept the director's false asseveration : he was unjustified in spending money as he did, and he ought not to have it back. It is quite true that he did not prove that it did any good. On the other hand, there is no evidence whatever that it put the company's creditors in any worse position. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Steane's (Bournemouth) Ltd. case ( supra ) In particular, I have in mind what he said, at page 25 : ". . .each case must be dealt with on its own facts and particular circumstances (special regard being had to the question of the good faith and honest intention of the persons concerned), . . . the court is free to act according to the judge's opinion of what would be just and fair in each case." Moreover, a little later, he went on, at page 25 : " The legislature, by omitting to indicate any particular principles which should govern the exercise of the discretion vested in the court, must be deemed to have left it entirely at large, and controlled only by the general principles which apply to every kind of judicial discretion." In assessing what is just and fair, it is, inter alia, necessary to strike some balance upon looking at what is fair vis-a-vis the applicant as well as what is fair vis-a-vis the creditors of the relevant company. In the present case, there 'is fortunately no dispute whatsoever but that the receiver's action was entirely bona fide. From that starting point, it seem right to examine two facets of this matter. First, and most importantly, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the upshot successful in benefiting the creditors, nor even whether, months later, after analysis in the calmer atmosphere of a court, his decision appears correct in the light of after-acquired knowledge. The decision to be taken was a business decision. One has to try to place oneself in the same chair as the man who had to take it. to my mind, any such man would be pressed in his consideration of the matter by the fact that to keep a business of this type going for at any rate a short time is normally a better course than the usually irrevocable step of ordering a closure a closure which, to adopt the words of cairns L.J. in his classic Judgment in In re Willshire Iron Co. Ltd., Ex parte pearson case ( supra ), would, ipso facto, paralyse the trade of the company and would, without any counterbalance of advantage, do it great injury It is often very difficult, on the spur of the moment, to obtain all the material which an accountant would desire before coming to a quick decision. For my part, I have, however, no reason to doubt that the receiver did his best in the circumstances to obtain as much information as was practicable, and that that best was all that coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , although it will continue to accept receipts in its favour. It follows that, even in the case of a company where the court ultimately refuses the order, serious damage may have resulted from the petition. After all, one of the results of a petition and of such action of the bank is that a company may have great difficulty in paying its employees, and, if it does pay them, the payments if derived from the funds of the company are prima facie void. All this dates from the good old days when landlords and creditors came before anyone else. I am not suggesting that they should come after anyone else ; but, in my judgment, the court should extend indulgence to any disposition by a company honestly designed to ensure that its employees are paid their wages or which was made to enable it to carry on its business and perhaps turn the corner, provided always that it was a reasonable disposition and not dishonest or reckless. I question also whether this rigid practice of the banks in all cases is right, or whether, particularly if they were aware that the court would look with indulgence on such cases, it would not be possible, after proper inquiry, at any rate in some cases, to cash ch ..... 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