The High Court dismissed a liquidator’s application to have €245,855 paid into Kerr Aluminium Limited’s bank account declared invalid as fraudulent preferences. It found that the liquidator had not proved the payments were made with the dominant intention of preferring the bank or indirectly benefiting a director who guaranteed the company’s overdraft.
The application was brought by Donal Boylan, the company’s liquidator, against the Governor and Company of the Bank of Ireland under section 286(1) of the Companies Act 1963. The payments at issue were lodgments to the company’s current account from 8 April 2010 until its creditors’ voluntary winding up began on 26 May 2010.
The court accepted, for the purpose of the application, that the company could not pay its debts as they fell due from 8 April and was unable to pay its debts when the winding up began. The disputed issue was whether the payments had been made with a view to giving the bank, or Anthony Kerr as guarantor, a preference over other creditors. The liquidator bore the burden of proving that this was the payments’ dominant intention.
Kerr, one of the company’s two directors, had personally guaranteed the company’s €111,600 overdraft. The bank said his guarantees totalled €111,737 and were supported by a charge over a commercial unit and two apartments registered in his name, along with an assignment of a life policy.
The liquidator relied on the company’s financial difficulties, lodgments into the overdraft account and the reduction in Kerr’s potential exposure under the guarantee. He also said he had advised Kerr by email on 27 April 2010 that the company should be liquidated and that receipts from that day should go into a separate account for creditors. The court noted that the bank statements did not identify the source of lodgments or, in most cases, the destination of outgoing payments.
The court considered the account’s activity and Kerr’s explanation that the company routinely deposited receipts promptly to manage working capital and avoid holding cash or cheques at its premises. It found that explanation plausible. The company continued making payments to creditors, and the evidence did not show a significant change in the pattern of account activity after the 27 April email. The court concluded that the liquidator had not discharged the burden of proof.
The judge made additional observations about the bank’s fallback argument that any recovery, if the application succeeded, should be limited to the net reduction in the overdraft. The court expressed no definitive view on that argument because the application failed on the central issue. It also found that the rule in Clayton’s Case did not assist the liquidator. The order was to dismiss the application. The judgment expressed no view on the possible liability of Kerr under the guarantee because the bank had not sought to bring him into the proceedings as a third party.