Re Mal Bower's Macquarie Electrical Centre Pty. Ltd. (In Liq.) and the Companies Act

[1974] 1 NSWLR 254

---

(Decision by: Street C.J. in Eq.)

Re Mal Bower's Macquarie Electrical Centre Pty. Ltd. (In Liq.)
and the Companies Act

Court:

Judge:
Street C.J. in Eq.

Subject References:
Companies
Winding up
Payments by company's bank to third parties pursuant to cheques drawn by company after winding up order made
Such payments not a "disposition of the property of the company"

Legislative References:
Companies Act, 1961 - ss. 223(2); 227(1)

Case References:
London and Mediterranean Bank, Re (Bolognesi's case). - (1870) 5 Ch. App. 567
Oriental Bank Corporation, Re. - (1884) 28 Ch. D. 634
Tilley v. Official Receiver in Bankruptcy. - (1960) 103 C.L.R. 529
Wiltshire Iron Co., Re. - (1868) 3 Ch. App. 443

Hearing date: Feb. 26; 1974
Judgment date: 3 April 1974.

---

Decision by:
Street C.J. in Eq.

On 30th April, 1971, a petition was presented to this Court seeking the winding up of the company. A winding up order was made on that petition on 21st June, 1971. At all material times the company had conducted a bank account with the plaintiff, the Commercial Bank of Australia Ltd. It is common ground between the parties that this account is to be regarded as having been in credit throughout the period covered by the transactions under challenge. On 30th April, 1971, the account was in credit $2,434.25. On 21st June, 1971, it was in credit $274.76. There had been a number of deposits and withdrawals made to this account both between the date of the petition and the date of the order and between the date of the order and the date when the account was closed, namely, 26th August, 1971. It is not necessary for present purposes to analyse the dates, interrelation, or nature of these various transactions. It is sufficient to state that between 30th April, 1971, and 26th August, 1971, a total of $13,237.71 was paid out of the bank account on cheques drawn by the company. These payments were made some before and some after the date of the winding up order.

The liquidator has made a demand upon the bank for the amount of these payments. For reasons I need not recount the proceedings presently before the court are brought, not by the liquidator, but by the bank. The bank seeks a declaration that the payment made by it, as the company's banker, of the total sum of $13,237.71 between 30th April, 1971, and 26th August, 1971, being the total of the cheques drawn by the company upon its account with the bank, was not a disposition of the property of the company under s. 227 of the Companies Act, 1961. The liquidator, as defendant, has joined issue on this claim, and both parties agree that the point of substance is properly before the court for determination.

Section 227 (1) of the Companies Act is in the following terms:

"227 (1).

Any disposition of the property of the company including things in action and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void."

It is provided in s. 223 (2) that

"... the winding up shall be deemed to have commenced at the time of the presentation of the petition for the winding up."

The combined effect of s. 227 (1) and s. 223 (2) is that any disposition of the property of this company made after 30th April, 1971, shall, unless the court otherwise orders, be void.

It is contended by Mr. McLelland, who appears for the bank, that in a case such as the present the relevant dispositions avoided by s. 227 are the paying of the persons on whose behalf the cheques were presented to the bank for payment. The nature of the transactions covered by the cheques can be fairly summarized as including a substantial number of ordinary trading payments. Mr. McLelland contends that the giving of cheques by the company to such trading associates involved conditional dispositions of the property of the company to the trading associates: see per Dixon C.J. in Tilley v. Official Receiver in Bankruptcy ^[F1] : "Prima facie when a cheque is taken for the price of goods, or for that matter in respect of any other debt contracted, it operates as conditional payment. The condition is that the cheque be paid on presenta- tion: If it is dishonoured the debt upon the original consideration revives."

It is contended on behalf of the bank that it would be both disruptive to the ordinary flow of commerce, and destructive of the legislative policy evidenced by the safeguards in s. 227, to regard payments made by a bank during the pendency of a winding up petition as void unless the court otherwise orders. It is said that such a view of the law would, for practical purposes, result in the automatic freezing of bank accounts on the presentation of a winding up petition. In consequence the section would be given an effect far in excess of that intended by the legislature: see in Re Wiltshire Iron Co. ^[F2] per Lord Cairns:

"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 those interested in the assets of the company."

Mr. Gleeson, who appears for the liquidator, has placed reliance, firstly, upon the proposition that the section, in prescribing that any disposition of property shall be void, is not limited so as to protect any actions done by an agent of the company in the course of effectuating a disposition by it of any of its property. He contends that the disposition is void, and that this of necessity avoids the integral steps constituting the disposition, including, in a case such as the present, the payment out by the bank in response to the presentation to it of cheques drawn by the company. Mr. Gleeson also relies upon what he suggests to be the current view of the effect of s. 227 in connec- tion with bank accounts, reference in this regard being made to Paget's Law of Banking, 7th ed., pp. 299-301. The learned authors of that text-book state at the commencement of this section:

"Where a joint stock company is wound up, either compulsorily or voluntarily, cheques drawn by directors subsequently to the commencement of the winding-up are not the cheques of the company."

This proposition leads into a discussion of the effect of s. 227 of the English statute, (which is in the same terms as s. 277 (1) of the New South Wales Act), and it is supported by reference to Re London and Mediterranean Bank (Bolognesi's case) ^[F3] . It is to be observed that Bolognesi's case ^[F4] was a voluntary winding up; as Chitty J. pointed out in Re Oriental Bank Corporation ^[F5] . Bolognesi's case ^[F6] was based upon a different statutory provision; the case has no bearing upon the position of the directors during the period after the presentation of a petition and prior to the making of a winding-up order. The text in Paget's Law of Banking proceeds with a number of statements unsupported by authority, and concludes in this section with a discussion of a case which was ultimately settled, and which would appear therefore to be of no value in reaching any conclusion upon questions arising under s. 227. The learned authors end this section on p. 301 with the statement:

"There is here a clear weakness in the provisions of the statute"

-a view which was no doubt shared by the legislature of this State when, in 1971, the present sub-s. (2) was added to s. 277 (at a point of time,

I should note in passing, after the events under challenge in the present litigation). There is a surprising absence of authority pointing out the answer to the present problem. I had been aware of the general impression upon which Mr. Gleeson relies, and which is reflected in Paget's Law of Banking. Similarly, it is common knowledge that banks, out of considerations of prudence, frequently refuse to allow any further transactions on accounts once they have knowledge of the pendency of a winding up petition. The point does not, however, so far as either counsels' or my own researches go, ever appear to have arisen directly for decision, as it now does in the present case.

I have given consideration to the analogous, but by no means corresponding, provisions in the bankruptcy legislation. Neither these, nor the principles applicable in windings up governing the avoidance of preferences and other antecedent transactions, throw significant light upon the matter. The inquiry is ultimately cast back to the text of s. 227 (1), and to a consideration of the legislative intent and policy as disclosed by the words used in that section. The phrase, "disposition of the property" in s. 227 has a statutory origin in England well back in the last century. I have been unable to trace the phrase to its source, but it seems likely to have originated from the word "dispone", used in Scottish law as a word meaning "to transfer or alienate". The Oxford Dictionary includes, as one of the meanings of "dispone"-"Sc.Law. To make over or convey officially or in legal form (1555)." The same work includes, in the definition of "disposition", "- spec. in Law, the action of disponing." The word "disposition" in one or other of its forms, and in varying contexts, is a commonplace in revenue statutes. There is, however, little guidance to be had from examining such other contexts, apart from noting that the concept associated with the use of such word involves the presence of both a disponor and a disponee.

There is, in my view, great force in Mr. McLelland's argument that the paying by a bank of a company's cheque, presented by a stranger, does not involve the bank in a disposition of the property of the company so as to disentitle the bank to debit the amount of the cheque to the company's account. The word "disposition" connotes in my view both a disponor and a disponee.

The section operates to render the disposition void so far as concerns the disponee. It does not operate to affect the agencies interposing between the company, as disponor, and the recipient of the property, as disponee. As was put in the course of argument, if a company, after presentation of the petition, delivered goods to a carrier consigned to a purchaser, the purchaser would face the avoidance of the transaction under s. 227, but the carrier would not be placed in the position of a tortious handling of the goods. Again, if a company were to send its wages clerk up to the bank to cash the weekly wages cheque and bring back the proceeds for making out the paypackets, the pay- ment of the cheque would involve no disposition of the company's property: the company's property belonged to it just as much when it was in the bank as when it was in the form of cash in the hands of the wages clerk. The element of disposition only enters into the situation when something passes out from the company to a disponee. It is the passing to the disponee which is the relevant disposition avoided by s. 227. Taking further the example of a wages cheque, the giving by a company to the employee of his wages out of the cash brought back by the wages clerk would be disposition of property of the company to the employee. Alternatively, if the company gave to the employee directly a cheque for him to present to collect for himself, the handing over of that cheque would be a conditional disposition within s. 227. The intermediary functions fulfilled by the bank in respect of paying cheques drawn by a company in favour of and presented on behalf of a third party do not implicate the bank in the consequences of the statutory avoidance prescribed by s. 227.

The conclusion I have reached is that s. 227 avoids in the hands of or as against a disponee any disposition of the property of the company made after the commencement of the winding up by the court. I do not regard this as reading additional words into the section that the legislature has not itself put there. Rather, I consider that the legislative intention, as disclosed by the terms of s. 227 (1), is such as to require an investigation of what happened to the property, that is to say, what was the disposition, and then to enable the liquidator to recover it upon the basis that the disposition was void. It is recovery from the disponee that forms the basic legislative purpose of s. 227.

For the foregoing reasons I shall grant to the bank the declaration that it seeks in the terms I have set out at the commencement of these reasons. It has not been suggested on behalf of the liquidator that there is any distinction to be drawn between the payments made before and after the making of the winding up order, and I shall not accordingly stay to note the relative size and number of these payments, or to analyse the significance, if any, attaching to the dates upon which the cheques passed hands and the dates when the cheques were presented for payment. The matter has been contested from both sides of the bar table as one involving the broad question of principle raised by payments having been made by the bank of these cheques in favour of third parties after the date of presentation of the petition.

Solicitors for the plaintiff (bank): Sly & Russell.

Solicitors for the defendant (liquidator): Grieve, Browne Partners.

P. W. YOUNG,

Barrister.