What you don’t know can’t hurt you

A recent decision of the High Court at Hamilton has proven that a bank’s lack of knowledge of a customer’s financial difficulties can help it in a liquidation situation.

In this case1, the liquidator submitted that payments into the company’s bank account, which were made at a time when the company was unable to pay its debts, were not in the ordinary course of business and should therefore be set aside.

The court decided that, looking at the payments from a commercial perspective, they were not abnormal. Evidence given by the company’s personal banker and the relationship manager proved that the bank had no knowledge of the company’s precarious financial position, or of any intention on the bank’s part to accept payments outside of the ordinary course of business.

The court ordered that the payments were not to be set aside under section 292 of the Companies Act 1993.

Bell Gully Senior Associate Murray Tingey appeared for the bank.

1 Thompson v ASB Bank Limited (Associate Judge Faire, High Court, Hamilton, CIV-2004-419-357, 2 August 2004)

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