Transfers into an overdrawn account
What is the position on bank transfers into a company’s overdrawn current account when that company is about to be placed in liquidation?
In Tucon Process Installations Limited (In Voluntary Liquidation) -v- The Governor and Company of the Bank of Ireland  IECA 211 the Court of Appeal recently considered that question.
The appellant company had a current account with a Limerick branch of the respondent bank. On 20th April 2012, the board of the appellant company resolved to put the company into voluntary liquidation. They advertised a meeting of its creditors to be held on 4th May 2012. The respondent was aware on 23rd April 2012 that the company intended to go into voluntary liquidation. The date confirmed was the 4th May 2012.
On 4th May 2012 Anthony Fitzpatrick was appointed liquidator. The bank ruled off the company’s current account on 4th May 2012.
Between 25th and 30th April 2012, three electronic funds transfers were made. Sums of €1,947, €3,769 and €18,178.50 were made by company debtors. This was transferred to the company’s overdrawn current account. This reduced the company’s overdraft from €40,400 to €16,000 approx.
The appellant company instituted these proceedings in 2014. They sought an order that these monies were the property of the creditors of the appellant. It should be returned to the liquidator of the appellant. This is on the basis that the electronic transfers amounted to a disposition of company property into an overdrawn current account. Furthermore, it had the effect of preferring the bank over other creditors which were amounted to a fraud.
The respondent bank defended the proceedings on the basis that the appellant (the company in voluntary liquidation) did not have locus standi (the right or capacity to bring an action or to appear in a court) to bring proceedings under the Companies Acts and furthermore, that there was no disposal of company property which amounted to a fraud on the company, its creditors or members.
The High Court agreed with the bank on both counts and an appeal subsequently came before the Court of Appeal.
The Court of Appeal upheld the finding of the High Court. This was due to finding that the appellant did not have locus standi to maintain the proceedings. In particular, the Court found that the Companies Acts did not vest in the company a cause of action. In addition, where the “legislature has taken the trouble to specify the parties who may bring an application under s. 139 it is not open to this Court to extend locus standi to a party upon whom it has not been conferred by the express words of the statute”.
Although the finding on locus standi had the effect of making the second ground of the appeal a moot point, the Court of Appeal gave a decision on it nonetheless. The Court noted that “neither the company nor the respondent had any involvement whatsoever in the transfers by the company’s creditors into the company’s bank account” which were received in the “ordinary course of business” and could not have “amounted to a fraud on the part of the respondent”. The second ground of appeal was also dismissed.
Judgment available here.