Liquidators seeking to recover alleged preferences must adduce evidence of actual payment or agreement by the alleged payee, and cannot rely solely on unilateral entries in the company's books of account.
Later decisions that cite Manzi v Smith
MANZI v. SMITH [1975] HCA 35; (1975) 132 CLR 671
Companies - Evidence
High Court of Australia
Barwick C.J.(1), Mason(2) and Jacobs(3) JJ.
CATCHWORDS
Companies - Liquidation - Preference - Company's books of account - Entries showing payments - Whether evidence against payee - Companies Act 1961 (W.A.), s. 293 - Bankruptcy Act 1966 (Cth), s. 122.Evidence - Company's books of account - Entries recording payment to creditor &which if made would be void as preference - Sufficiency of evidence in proceedings against creditor.
HEARING
Perth, 1975, September 5. 5:9:1975DECISION
September 5.
2. The only evidence before his Honour were entries in the company's books of
account. By several journal entries under date 22nd
February 1974 Domenico
Manzi and Mariana Manzi were said to be indebted to the company in the
respective sums of $16,496 and $19,363
and Antonio Natale Manzi and Maria
Diloreto were indebted to the company in the respective sums of $7,229 and
$1,933. (at p673)
3. By journal entry under the same date $35,859 was credited to Domenico
Manzi and Mariana Manzi and applied by the company through
journal entries to
discharge the several debts to which I have referred. It was not shown that
the appellants, or any of them, were
parties to, or agreed to, these journal
entries. (at p673)
4. The propriety of these entries was challenged by the respondents. A
bookkeeper who had earlier been instructed by the company
to make the journal
entries of 22nd February, 1974, and who had access to the company's books of
account, produced an account which
showed that the appellants, Domenico Manzi,
Mariana Manzi, Antonio Natale Manzi and Maria Diloreto, so far from having
been in debt
to the company on 22nd February 1974, were in credit with the
company in the respective amounts of $226, $3,152, $243 and $68. (at
p673)
5. To satisfy s. 293, so far as presently relevant, payment of money must
have been made to the appellants or for their account.
In fact no money was
paid on the 22nd February 1974, or for that matter at all, in the sum of
$35,859, but it was said that the entries
in the company's books of account
constituted payment of money by the company to the appellants on the 22nd
February 1974. (at p673)
6. As I have said, the appellants were not shown to be in any wise privy to
the said entries in the company's books, or for that
matter to have had any
knowledge of them. They had certainly not adopted them. (at p673)
7. His Honour found: "The fact is that the entries were the equivalent of
payment of the accounts referred to; their effect was
accordingly to
extinguish the obligations to which they referred". But whilst the entries
might in appropriate circumstances afford
evidence against the company, they
did not constitute evidence in favour of the company and against the
appellants; certainly they
did not constitute a payment of $35,859 on the 22nd
February 1974; nor evidence of such a payment. (at p674)
8. We were referred to cases in which a payment of money was held to have
been made by means of entries in books of account. But
in those cases the
entries represented the agreement of the appropriate parties e.g., Eyles v.
Ellis [1827] EngR 409; (1827) 4 Bing 112 (130 ER 710)
; In re Harmony and Montague Tin and
Copper Mining Company (Spargo's Case) (1873) 8 Ch App 407 .
These decisions,
quite clearly,
are not authority for the proposition for which they were
advanced, namely, that a payment of money
was made by the making by the
company of a journal entry in the books of account without reference to, or
without the agreement of,
the persons said to be the
recipients of the money.
The company's assertions in its books of account did not establish the
indebtedness
of the appellants or
any payment of money in discharge of that
indebtedness. (at p674)
9. I am content to allow this appeal and to set aside the declarations and
orders made on the liquidators' summons on the ground
that there was no
evidence before the Supreme Court of any payment of money by the company to
the appellants of the sum of $35,859
on or about the 22nd February 1974, not
was there any evidence that the appellants acknowledged any indebtedness to
the company in
the sums which his Honour has treated as having been
extinguished by the journal entries to which I have referred. (at p674)
10. Accordingly I have not had to consider whether the principle of mutual
dealing is applicable in the particular circumstances,
assuming the appellants
to have been indebted to the company and the company to have been indebted to
the appellants. (at p674)
11. The liquidators will need to investigate in fact the transactions which
are said to be reflected in the books of account. If
in that investigation it
should be found that a set-off on the part of the appellants was claimed after
insolvency and that the set-off
for that reason must be disallowed, to
disallow it would not amount to a payment under s. 293; to disregard the
set-off would leave
the accounts as they were prior to the attempted set-off.
(at p674)
12. In my opinion the appeal should be allowed. (at p674)
MASON J. I agree for the reasons given by the Chief Justice that the entry
in the company's books made by Miss Northey on the instructions
of the
company's secretary and accountant do not establish that the company made
payments within the meaning of s. 122 of the Bankruptcy
Act to the appellants
on 22nd February 1974 of the sums now sought to be recovered as preferences.
(at p674)
2. The appeal, therefore, should in my opinion be allowed. (at p674)
JACOBS J. I agree that the appeal should be allowed. The entries made
through the journal and the books of the company did nothing
except alter the
manner in which the internal accounts of the company were expressed. If there
were mutual credits, mutual debts
and mutual dealings before 22nd February
1974, there were the same credits, debits and dealings after that date. On the
one hand
there was no agreement at the time of the various dealings or
subsequently that only the balance on accounts should be owed from
day to day;
on the other hand there was no agreement that by the alterations in the
expression of the accounts made on 22nd February
1974 there should be any
alteration in legal rights. (at p675)
2. How far there were mutual debits, credits and dealings to which the
provisions of s. 86 of the Bankruptcy Act might be applied,
it is not for this
court on this appeal to say. (at p675)
ORDER
Appeal allowed with costs.
Declarations and orders of the Supreme Court of Western Australia set aside and in lieu thereof the liquidators' summons dismissed with costs.