Preferential wage-related indebtedness in winding up extends to account transfers treated as advances for paying wages.
A bank's claim in winding up could rank as preferential where cheques were met under an agreed wages-account arrangement, because the resulting indebtedness was treated as an advance made for paying wages. A debit to an overdrawn account did not, by itself, amount to payment by the company to the bank, and transferring debit entries from the current account to the wages account did not change the character of the debt. Later credits to the current account were applied under Clayton's case, reducing the sum transferable, but the two accounts were not treated as one amalgamated account. The preferential claim succeeded for the qualifying wage-related indebtedness.
Issues: Whether the bank's claim for preferential payment in the winding up extended to amounts transferred from the current account to the wages account, and whether those transfers retained their character as advances made for the purpose of paying wages.
Analysis: The bank met cheques drawn on an overdrawn wages account under an agreed arrangement, and the resulting indebtedness was treated as an advance for the payment of wages within the preferential provision. A mere debit to an overdrawn account did not amount to payment by the company to the bank, and the transfer of debit entries from one account to another did not alter the character of the indebtedness. The later credits to the current account were properly applied in accordance with Clayton's case, reducing the amount transferable to the wages account, but there was no basis for treating the two accounts as one amalgamated account on the facts.
Conclusion: The preferential claim succeeded to the extent of the amounts transferred from the current account to the wages account, as reduced by the application of Clayton's case, together with the admitted wages-account sum, and the bank was entitled to rank as a preferential creditor for the total allowed amount.
Final Conclusion: The bank's preferential claim was substantially upheld, and the order recognised priority for the qualifying wage-related indebtedness rather than confining preference to the narrower amount originally accepted by the liquidators.
Ratio Decidendi: A debit entry in an overdrawn account is not, by itself, payment; where funds are advanced through account transfers for the purpose of paying wages, the resulting indebtedness retains its preferential character under the winding-up provisions.
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