In re Gray’s Inn Construction Co Ltd: CA 1980

After the presentation of a petition for the winding up of the company moneys were paid in and out of the company’s bank account which was overdrawn. The liquidator issued a summons for a declaration that the amounts credited and/or debited to the account by the bank during the relevant period constituted dispositions of the company’s property which were void under s.227 of the Companies Act 1948. The liquidator further sought an order that the bank pay those moneys to the liquidator as constituting dispositions of the property of the company.
Held: In the exercise of the court’s discretion whether to make a validation order, the overriding principle is that the court must always do its best to ensure that the interests of the unsecured creditors will not be prejudiced. On an application for a validation order in the period between the presentation of the petition and its hearing, the court will need to be satisfied that it is in the interests of the creditors generally that the transaction should be allowed to proceed.
Buckley LJ said: ‘When a customer’s account with his banker is overdrawn he is a debtor to his banker for the amount of the overdraft. When he pays a sum of money into the account, whether in cash or by payments in of a third party’s cheque, he discharges his indebtedness to the bank pro tanto. There is clearly in those circumstances, in my judgment, a disposition by the company to the bank of the amount of the cash or of the cheque.’
After stating that in the case before the court the company’s account with the bank was overdrawn, he said: ‘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; . . That all such payments out must be dispositions of the company’s property is, I think, indisputable . .’


Buckley, Goff LJJ and Sir David Cairns


[1980] 1 WLR 711


Companies Act 1948 227


England and Wales

Cited by:

CitedRose v AIB Group (UK) plc and Another ChD 9-Jun-2003
The bank had received and paid substantial sums from the company before the petition for insolvency had been presented, and had discharged the director’s charge on his house. The liquidator sought restitution under the Act. The bank replied that it . .
Lists of cited by and citing cases may be incomplete.

Equity, Insolvency, Banking

Updated: 31 July 2022; Ref: scu.184534