Account activity void, court rules

The High Court has ruled that transactions on a company bank account subsequent to the commencement of the winding-up of the company can be declared void.

In a case of interest to bankers and liquidators, the court heard that, subsequent to the presentation of a petition to the High Court on January 16th, 1998, in relation to Industrial Service Co (Dublin) Ltd, there were lodgments to and withdrawals from the company's account with Ulster Bank, Coolock, Dublin.

Since January 16th, 1998 and before the freezing of the company's account on March 23rd, 1998, payments amounting to £16,003 (€20,320) were lodged to the account, and £16,784 withdrawn from the account.

The petition winding up Industrial Service was advertised on February 27th, 1998. Payments were made to and from the account both before and after this date.

The liquidator, Mr Simon Coyle, sought compensation from the bank in relation to the dispositions made. He asserted that each disposition was void under Section 218 of the Companies Act 1963. The bank's solicitors informed Mr Coyle that the bank "through inadvertence had failed to notice the advertisement in either Iris Oifigiuil or in the daily newspapers". The bank asserted there was no gain or benefit for the bank involved in the transactions which could result in any claim from the liquidator. The bank accepted, however, that it did allow the account become overdrawn between February 25th and March 6th.

The bank argued that a recent decision in the UK Court of Appeal meant payments involving the company's bank account should be regarded as dispositions only in the hands of the ultimate recipients.

The bank argued that it should be seen as merely facilitating such payments.

But Mr Justice Kearns found that the meaning of the section was plain and that had the legislature intended some sort of derogation would apply in the case of banks, it would have been easy to frame the section appropriately.