Banker’s Liability for Post-Petition Dispositions

Extract

Once a petition to wind-up a company has been presented, a balance must be struck between two competing interests. On the one hand, the allegedly insolvent company must be allowed to continue trading until the court has had an opportunity to examine the bien-fondé of the petition; on the other hand, the company’s directors must be prevented from dealing with the corporate assets in a way detrimental to the interests of the general creditors. This balance is struck by the Insolvency Act 1986, s. 127, which provides that, upon the granting of a winding-up order, any “dispositions” of the company’s property in the period following the presentation of the petition are retrospectively avoided, unless the court orders otherwise. The courts have, however, had considerable difficulty in applying this provision to the post-petition operation of a company’s current account and, in particular, have failed to adopt a consistent approach to the potential liability of a bank for continuing to operate such an account. The Court of Appeal addressed this problem in Hollicourt (Contracts) Ltd. v. Bank of Ireland [2001] 2 W.L.R. 290.