The High Court, in a recent decision, applied new Company Law provisions governing how banks deal with corporate customers who are in the process of liquidation.
- Pursuant to section 218 of the Companies Act 1963, in a winding up by the court, any disposition of the property of a company which took place after the commencement of the winding up was void.
- The effect of this provision was that a bank would be liable to compensate the company’s liquidator for any monies paid out of that company’s account after the commencement of the winding up. This placed a heavy burden on banks to monitor newspapers and official publications to ensure that their customers were not in the process of winding up.
- By way of example, in 2001, the High Court in Re Industrial Services Company (Dublin) Ltd. held that all payments made either into or out of the bank account of the company were "dispositions" within the meaning of section 218 of the Companies Act 1963 and were consequently invalid.
- Section 602 of the Companies Act 2014 introduced a provision which removed this liability if the bank:
- Was carrying out any act at the request of the customer and
- Did not have actual notice that the company was being wound up.
The current case
- MB Refrigeration was wound up on foot of a petition that was presented on 13 August 2013. The presentation of the petition was advertised in two daily newspapers as well as in Iris Oifigiul on 22 August.
- Upon investigation, the liquidator discovered that AIB (along with other banks) had permitted numerous transactions to be carried out on MB Refrigeration’s bank accounts on dates subsequent to commencement of the winding up process.
- The liquidator then brought proceedings seeking:
- A declaration that the transactions were void and
- An order that AIB pay compensation to the liquidator for the sums paid out on foot of the transactions.
Application of new or old provision?
The court examined whether the new or old Companies Act should apply. Since the property dispositions were made in 2013 (prior to the new Act) the liquidator felt that the old provision should apply. AIB wanted to avail of the new provision.
The court held that the new provision should be applied. It noted that the new provision was introduced to resolve certain issues perceived to arise from the 2001 decision of the High Court in Re Industrial Services Company (Dublin) Ltd.
AIB was not aware, and thus did not have actual notice, of the winding up until 18 September 2013. The Court held that use of the phrase “actual notice” in the new provision “suggests notice of a more express variety than the mere use of the term notice by itself would have conveyed”.
It appears from the judgment that the new provision will be applied to similar scenarios in the future, even if the liquidator’s right to bring proceedings accrued prior to the commencement of the 2014 Companies Act.
MB Refrigeration and Air Conditioning Ltd (in liquidation) v Allied Irish Banks plc