The Gazette 1994

GAZETTE

AUGUST/SEPTEMBER 1994

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

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. 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 Reported at [199411 ILRM 227

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

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