Facts
Halesowen Assembly & Pressworks Ltd was a small company based in Halesowen, West Midlands. They had an account with National Westminster Bank which in February 1968 was overdraw by £11,339. The bank was concerned, and a meeting was held. An agreement was reached whereby the bank account (which was to be called the "No. 1 account") would be frozen, and a new account (the "No. 2 account") would be opened. All of the company's business would go through the No. 2 account, which needed to kept in credit. The bank agreed that that arrangement should continue for four months "in the absence of materially changed circumstances in the meantime." [8]
On 20 May 1968 the company gave the bank notice of a meeting of creditors to be held on 12 June under sections 294 and 295 of the Companies Act 1948. The bank did not rely on that notice as constituting a material change of circumstances within the terms of their agreement. On 12 June the company paid into the No. 2 account a cheque for £8,611. Later that day, a resolution was passed at the creditors' meeting for the voluntary winding up of the company. The cheque was credited to the No. 2 account on 13 June and cleared on 14 June. In the liquidation, the bank claimed to be entitled to set off the £8,611 against the company's indebtedness on the No. 1 account. The liquidator did not accept that the bank was entitled to set-off in this manner, and the liquidator (through the company) brought an action against the bank. [9]
Decision
All four judges gave written opinions, and all agreed that the appeal should be allowed.
In relation to the nature of the banker's right to combine accounts, the judgments all confirmed that this was in the nature of set-off, and not a part of the law relating to a banker's lien. A party could not have a lien over their own property. A bank could agree not to exercise the right to combine accounts and that agreement would be binding upon the bank. However, that agreement was subject to termination if there was a change of circumstances. In this case the company's creditors voting to put the company into winding-up was such a change of circumstances.
On the question of whether insolvency set-off would prevail over other contractual arrangements, it was noted that there were conflicting prior authorities. In Rolls Razor Ltd v Cox [1967] 1 QB 552 and in In re City Life Assurance Co Ltd [1926] Ch 191 it had been held that a party could not contract out of the insolvency set-off regime. However, this appeared to conflict with decisions in Ex parte Fletcher, In re Vaughan (1877) 6 Ch D 350 and British Guiana Bank Ltd v Official Receiver (1911) 27 TLR 45. [10] However, the majority led by Viscount Dilhorne held that the operation of the insolvency set-off rules was automatic and mandatory upon the commencement of winding-up. [11] On this point Lord Cross of Chelsea dissented. [12]
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
In law, set-off or netting are legal techniques applied between persons or businesses with mutual rights and liabilities, replacing gross positions with net positions. It permits the rights to be used to discharge the liabilities where cross claims exist between a plaintiff and a respondent, the result being that the gross claims of mutual debt produce a single net claim. The net claim is known as a net position. In other words, a set-off is the right of a debtor to balance mutual debts with a creditor.
The Statute of Bankrupts or An Acte againste suche persones as doo make Bankrupte, was an Act passed by the Parliament of England in 1542. It was the first statute under English law dealing with bankruptcy or insolvency. It was repealed by section 1 of the Bankruptcy Act 1825.
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Modified universalism or modified universality is a legal concept relating to the general principle that in relation to corporate insolvency national courts should strive to administer the estate of insolvent companies in the spirit of international comity. The broad concept is that it is desirable for cross-border insolvencies to be managed by a single officeholder as a single estate rather than a series of piecemeal and unconnected proceedings in different countries, and that this should be recognised globally. In practice, whilst many countries will recognise foreign bankruptcy proceedings, in many instances the courts have set some limits on the recognition of insolvency proceedings, such that the courts apply this principle of modified universality whereby the courts retain a discretion to assess whether the overseas proceedings are consistent with their own principles of justice and public policy. But, subject to that safeguard, the courts will generally defer to the proceedings which are regarded as the "main proceedings" for the purposes of getting in and distributing assets of the insolvent company. The principal is referred as to modified universalism in that it strives to find a balance between purely territorial bankruptcy systems, and entirely universal international bankruptcy system.
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Hong Kong insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is now primarily governed by the Companies Ordinance and the Companies Rules. Prior to 2012 Cap 32 was called the Companies Ordinance, but when the Companies Ordinance came into force in 2014, most of the provisions of Cap 32 were repealed except for the provisions relating to insolvency, which were retained and the statute was renamed to reflect its new principal focus.
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Under English law, a bank has a general right to combine accounts where a customer has multiple accounts with the same bank. The right has been recognised since at least 1860. However it was not until 1975 in the House of Lords decision in National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 that it was finally determined that this was a type of set-off right rather than anything related to the banker's lien. Typically the right will be exercised where one account is overdrawn and the other is in credit so that the bank can secure full repayment of overdraft without the need to take any further action with respect to the customer. The broad rationale is that separate numbered accounts are set up for administrative convenience only, but the legal duty upon a bank to "account" to its customers for the sums held by it only extends to the net sum.
Stein v Blake[1995] UKHL 11 is a decision of the House of Lords in relation to the effect of automatic set-off in bankruptcy, and the power of a bankruptcy trustee to assign rights in action after the operation of such set-off under English law.
