1933 (1) TMI 20 - DSC - Companies Law

Summary

Issues Involved:
1. Validity of the floating charge under section 266 of the Companies Act, 1929.
2. Interpretation of "cash paid to the company" under section 266.
3. Whether the payment to Arthur Tipper constituted a fraudulent preference.

Issue-wise Detailed Analysis:

1. Validity of the Floating Charge under Section 266 of the Companies Act, 1929:
The primary issue in this case was whether the floating charge created by the company in favor of Mr. Tipper was valid under section 266 of the Companies Act, 1929. The section stipulates that a floating charge created within six months of the commencement of winding-up is invalid except to the extent of any cash paid to the company. The court had to determine whether the sum of lb1,954 4s. paid to Arthur Tipper constituted "cash paid to the company."

2. Interpretation of "Cash Paid to the Company" under Section 266:
The court examined the facts to determine whether the payment of lb1,954 4s. to Arthur Tipper could be considered as "cash paid to the company." The court noted that the payment was part of a larger transaction where Mr. Tipper advanced lb3,000 to the company, and the company used part of this money to pay its debt to Arthur Tipper. The court emphasized that the transaction should be viewed as a whole and not split into parts. It was concluded that the payment was indeed a business transaction aimed at securing the continued supply of goods from Arthur Tipper, which was crucial for the company's business. Therefore, the payment was considered as "cash paid to the company."

3. Whether the Payment to Arthur Tipper Constituted a Fraudulent Preference:
The court also addressed the liquidator's alternative argument that the payment to Arthur Tipper was a fraudulent preference. It was noted that Eve, J. had found no fraudulent preference in this case. The payment was made as part of a business strategy to keep the company operational and was not intended to give Arthur Tipper an unfair advantage over other creditors. The court agreed with this finding, stating that the transaction was a legitimate business decision and not a fraudulent preference.

Judgment:
The court concluded that the floating charge created by the company in favor of Mr. Tipper was valid under section 266 of the Companies Act, 1929. The payment of lb1,954 4s. to Arthur Tipper was considered as "cash paid to the company," and there was no fraudulent preference. Therefore, the appeal was allowed, and the liquidator's application to declare the debenture invalid to the extent of lb1,954 was dismissed.

Separate Judgments:
Slesser, L.J.:
Slesser, L.J. concurred with the lead judgment, emphasizing that the payment of lb1,954 4s. was indeed cash paid to the company. He rejected the strict legal limitations proposed by Astbury, J., and Eve, J., stating that the plain language of the section should be followed. He agreed that the transaction should be viewed in its entirety and not split into parts.

Romer, L.J.:
Romer, L.J. also agreed with the lead judgment, stating that the words of section 266 were plain and should not be restricted. He emphasized that the payment of lb1,954 4s. was a substantial payment of cash to the company, and the transaction should be viewed as a whole. He concluded that the appeal should be allowed.