Companies - Winding up - Payments made after commencement of winding up - Application by liquidator that payments void - Prima facie such payments are void - Basis on which court will exercise discretion. Adelaide Truss and Frame Pty Ltd (in liq) v Bianco Hiring Services Pty Ltd (1993) 11 ACLC 192; Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 13 ACLR 64, applied.

Solicitors for applicant: Dobson Mitchell and Allport

Solicitors for respondent: Butler McIntyre and Butler

UNDERWOOD J The applicant's liquidator seeks a declaration that two payments made by the applicant to the respondent are void. The respondent seeks a cross-declaration that the payments are not void. The Corporations Law, s468(1) provides:

"Any disposition of property of the company, other than an

exempt disposition, 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 is, unless the

court otherwise orders, void."

2. The applicant was incorporated in Tasmania and carried on business (inter alia) as a fruit and vegetable wholesaler. On 1 December 1988, the applicant registered the business name of "Pappas and Co (Produce Merchants)" and thereafter continued to trade under that name until a winding up order was made. The respondent carries on business in Queensland and Tasmania. In Queensland it grows crops under the business name of "Steinhardt Family Farms". In Tasmania, the respondent sells fruit and vegetables to purchasers including the applicant. The business relationship between the parties began in about August 1990. The respondent dealt with a Mr Nick Pappas trading as Pappas and Co and was unaware of the applicant's corporate identity. There were no agreed terms of trade, but the practice grew up that the applicant paid the respondent for goods supplied within 30-60 days of the receipt of the goods. Payment was usually by telegraphic transfer or bank cheque credited to the respondent's account. Relevant to this application are the following transactions:

13/07/91 The Applicant ordered and was supplied eggplants

from the Respondent. Price - $1,170.

2/08/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $690.

10/08/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $496.

17/08/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $296.

30/08/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $420.

6/09/91 The Respondent received from the Applicant payment

for the invoice relating to the produce ordered July 13,

1991 for the amount of $1,170.

09/09/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $264.

13/09/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $570.

20/09/91 The Respondent received from the Applicant payment

for an amount of $1,382.00 in payment of invoices for the

produce ordered 2, 10 and 17 August 1991.

21/09/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $280.

28/09/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $1,834.

05/10/91 The Applicant ordered and was supplied zucchinis

from the Respondent. Price - $1,104.

A chronology relevant to the foregoing is:

21/08/91 An application for a winding up order is filed in

the Federal Court (Victorian Registry).

30/08/91 The application is served on the applicant.

07/10/91 An order is made winding up the applicant and appointing

the liquidator.

3. It follows, that by virtue of the Corporations Law, s468(1) the payments of $1,170 and $1,382 made on 6 and 20 September 1991 respectively, are void unless a declaration to the contrary is made.

4. On a previous application made by this applicant for a declaration in the same terms as that sought on this application, I held that the court had the power to make it on the application of the liquidator. See Tasmanian Primary Distributors Pty Ltd (in liq) v Banana Jack Pty Ltd, A83/1993. I said at 2:

"Prima facie, the Court is unlikely to make a declaration

that a disposition is void, as by virtue of the operation of

s486(1), it is void unless the court otherwise declares, and

no application for a declaration has been made. However, a

liquidator has a special relationship with the court which

has an inherent jurisdiction, reflected in the Corporations

Law s479(3), to assist a liquidator by determining any

question that arises on a winding up. See Re Reid Murray

Holdings Ltd [1969] VicRp 39; (1969) VR 315. In Craddock v Hopfner and Ors

(1986) 4 ACLC 421 a liquidator sought and obtained (inter

alia) a declaration that payments made after the winding up

were void. Legoe J held at 425 that there was jurisdiction

under s468(1) to make the order sought after a winding up

application had been filed, and that such jurisdiction

continued after a winding up order was made. Cf s468(3).

See also Re Transconsult Australia Pty Ltd (in liq) (1991) 9

ACLC 1,052. As the application is made by the liquidator

the Court should make the declaration if the circumstances

justify it, even if it has the effect of simply declaring

the existing law."

5. On behalf of the respondent, Mr Frankcom submitted that there was no disposition of the company's property to the respondent, as the payments were made by bank cheque. He submitted that there was a disposition of the company's property to the bank and thereafter the bank disposed of its own property to the respondent. Mr Frankcom submitted that support for his submission could be found in the statement of principle that bank cheques are cheques drawn by a banker either on itself or another bank. See Fabre v Ley and Ors [1972] HCA 65; (1971-1972) 127 CLR 665 at 671.

6. In Re Mal Bower's Macquarie Electrical Centre Pty Ltd (in liq) (1974) 1 NSWLR 254 consideration was given to the meaning of The Companies Act (NSW), s227(1), the then equivalent to the Corporations Law, s468(1). In that case, the bank of the company in liquidation sought a declaration that its payments of the company's cheques (its account being in credit at all material times) were not dispositions of property within the meaning of the subsection. Street CJ approached the matter, correctly in my respectful view, by saying at 257, that the "inquiry is ultimately cast back to the text of s227(1), and to a consideration of the legislative intent and policy as disclosed by the words used in that section." The learned Chief Justice held that the actions of the bank were merely that of an agency of the company, that its actions did not result in the disposition of any of the company's property and that disposition of the company's property only occurred when the money passed from the company into the hands of the payee of the cheque. He said at 258:

"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 s227, but the

carrier would not be placed in the position of a tortious

handling of the goods."

7. Re Mal Bower's Macquarie Electrical Centre Pty Ltd (in liq) (supra) was considered by McPherson J in Re Loteka Pty Ltd (in liq) (1989) 15 ACLR 620. McPherson J agreed with Street CJ saying at 623, that "in order to constitute a 'disposition' within the context of s368(1) (Companies (Queensland) Code), there must be some change that takes out of the company at least the beneficial ownership in a corporate asset and passes it to someone else".

8. In re Gray's Inn Construction Co Ltd (1980) 1 WLR 711, concerned cheques that were debited and credited to a company's account when the company was in debt to the bank. With respect to the latter transactions, Buckley LJ (with whose judgment the other members of the court agreed) appeared to accept that in collecting the amount due on the cheque, the bank was merely the agent of the company. However, his Lordship said that once the proceeds were credited to the customer's account the amount of the company's indebtedness to the bank was reduced pro tanto and that act amounted to a disposition of the company's property. Although not material for the purposes of the present application, the logic with respect to that proposition seems, with respect, to be faultless. The contractual relationship between the bank and the company was such that in the circumstances, the bank ceased to be an agent for the company and bound by its directions, upon the former's receipt of funds from the collected cheque. With respect to payments out of the company's account to third parties, Buckley LJ appears to have made no reference to either logic or principle. This aspect is dealt with entirely in the following passage taken from 716:

"Mr Heslop does not dispute that all payments out of the

company's account to third parties, not being payments to

agents of the company as such, are dispositions of the

company's property; but he contends (as I understand his

argument) that they are only relevant for the purposes of

section 227 to the extent that payments out during the

relevant period exceed payments in. That all such payments

out must be dispositions of the company's property is, I

think, indisputable, but I cannot accept Mr Heslop's

contention. The section must, in my judgment, invalidate

every transaction to which it applies at the instant at

which that transaction purports to have taken place. I

cannot see any ground for saying that the invalidation can

be negatived by any subsequent transaction."

9. In Re Operator Controlled Cabs Ltd (1970) 3 All ER 657 an order was made validating payments made, and to be made by a bank in paying company cheques drawn on it. However, the question of whether such payments constituted a disposition of company property to the bank was apparently not argued and the order made in vacation without opposition. In re Gray's Inn Construction Co Ltd (supra) was considered by the Full Court of Victoria in Ramsay v National Australia Bank Ltd [1989] VicRp 7; (1989) VR 59. The court expressly approved that part of the Court of Appeal's judgment concerning credits to the company's overdraft which reduced indebtedness to the bank. No view appears to have been expressed with respect to debits made to an account in credit to pay cheques drawn on the bank by the customer.

10. In my respectful view there is nothing in In re Gray's Inn Construction Co Ltd (supra) and Ramsay v National Australia Bank Ltd (supra) sufficiently persuasive to warrant rejection of the principles expressed in Re Mal Bower's Macquarie Electrical Centre Pty Ltd (in liq) (supra) as expounded in Re Loteka Pty Ltd (in liq) (supra).

11. In the case of the bank paying cheques drawn on it by the company I agree with the following analysis of McPherson J in Loteka at 626:

"In paying the customer's cheque, the bank debits the

customer's account with the amount of the cheque drawn in

favour of the stranger. In doing so, the bank, if the

customer's account is overdrawn, lends its own money to the

customer. That involves no disposition of the customer's

property to the bank. Equally, if the account is

sufficiently inc credit to meet the cheque, no disposition

of property of the customer takes place in favour of the

bank. The amount standing to the credit of the customer's

account is simply diminished thus reducing pro tanto the

indebtedness of the bank to the customer. It is the payee

of the cheque that receives the benefit of the proceeds of

the cheque. All that happens between the customer and

banker is an adjustment of the entries in the statement

recording the accounts between them."

12. It follows from that I am persuaded by the following reasoning, also set out at 626:

"In my respectful opinion, however, the true reason for

concluding that there is a disposition of company property

in favour of the 'stranger' (who, for present purposes, I

will assume to be a creditor) is not that his acceptance of

the cheque amounts to a conditional payment of a debt due to

him, but that the drawing and delivery of the cheque

involves the transfer to him of ownership of a chattel that

until that moment was vested in the company. The form on

which the cheque is written is a piece of paper that belongs

to the company. It is drawn by completing and signing it,

and issued by delivering it to the creditor with the

intention of passing ownership in it. It may seem odd that

the law should view a cheque or other bill of exchange which

is a valuable instrument as a mere chattel; but there is no

doubt that it is so regarded. See Embiricos v Anglo-Austrian

Bank (1905) 1 KB 677 ...".

13. Is there any difference in the case of payment being made by bank cheque? I think not. Application of the reasoning and conclusion of McPherson J results in there being no disposition of the company's property by the debit of the company's account in order to draw the bank cheque, except in respect of any amount then taken by the bank for the costs of the service. On drawing each bank cheque the bank became the agent of the company for the disposition of the cheque. Until each bank cheque was passed to the respondent, the banker was a trustee for the applicant with respect to the funds and its agent with respect to the instrument itself. It had no beneficial interest in the amount of money represented by the value of the instruments. The bank was obliged to act in accordance with the directions of the applicant. See Perel v Australian Bank of Commerce (1924) 24 SR NSW 62 at 76. It was not until a cheque was delivered to the respondent, either by the company or the bank as its agent, was there a disposition of the company's property.

14. For the reasons expressed by McPherson J in Re Loteka at 627 there is nothing in the submission that the provisions of s468(2)(b) indicate a contrary statutory intention to that identified by Street CJ and expounded by McPherson J.

15. As to the general principles applicable to s468(1) I adopt what I said in Tasmanian Primary Distributors Pty Ltd (in liq) v Banana Jack Pty Ltd (supra) and venture to repeat a passage I cited from Adelaide Truss and Frame Pty Ltd (in liq) v Bianco Hiring Services Pty Ltd (1993) 11 ACLC 192 in which Legoe J applied the general guide to the exercise of the discretion as stated by the Court of Appeal in Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 13 ACLR 64 as being:

"(a) The Court would not make a validating order to

discharge an unsecured pre-liquidation debt except in

special circumstances; see Re Gray's Inn Construction Co Ltd

(1980) 1 WLR 711, doubted.

(b) A disposition carried out in good faith at a time when

the parties are not aware that winding-up has been commenced

will generally be validated.

(c) Generally, the Court should not look in isolation at the

transactions between the creditor and the company after the

commencement of winding-up; the effect of the whole series

of transactions between the creditor and the company before

and after commencement of the winding-up must be considered.

(d) the effect on a creditor of an order validating

dispositions to that creditor is not a relevant

consideration".

16. The principle underlying s486(1) is that from the time the application for winding up is filed, all the funds available for distribution between creditors should be rounded up and fairly distributed in accordance with law. However, that principle accepts that unless the court were given a discretion to exempt payments from the general proposition, "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 counter-balance of advantage, would be done to those interested in the assets of the company." Per Cairns LJ in Re Wiltshire Iron Co, ex parte Pearson (1867-8) 3 Ch App at 443.

17. The two payments in this case were ordinary payments for goods sold and delivered, made to a creditor in accordance with their practice. The payments were made after the application was filed in satisfaction of trading debts incurred before that date. The payments were made after the application was served on the applicant. Although the respondent did not know until after receipt of the payments that an application for winding up had been filed, that circumstance alone has consistently been held not to be a sufficient circumstance to warrant a declaration that payments are not void. There is nothing to distinguish the debts in respect of which the payments were made from all the other debts incurred in the regular course of trading between the applicant and its creditors. Unlike Tasmanian Primary Distributors Pty Ltd (in liq) v Banana Jack Pty Ltd (supra) this is not a case where the payment was made in order to acquire goods that gave the applicant an opportunity to add to its assets by increasing profits. See Adelaide Truss and Frame Pty Ltd (in liq) v Bianco Hiring Services Pty Ltd (supra). The payments did not give the applicant an actual or prospective advantage either to the applicant or the creditors in general, and accordingly there is no basis for declaring either disposition not void. The applicant is entitled to the orders sought. There will be a declaration that the payments of $1,170 made on 6 September 1991 and $1,382 made on 20 September 1991 are void and there will be an order that the respondent pay the applicant $2,552.