S Richards & Co Ltd v Lloyd

S. Richards & Co Ltd appealed from a decision of the Court of Bankruptcy which declared an assignment of moneys void as a preference. The appellant, a storekeeper, had received the assignment from a debtor, Stephen Vincent Walsh, as security for a long-standing debt. Walsh's estate was later sequestrated on his own petition. The Official Receiver, Charles Fairfax Waterloo Lloyd, counterclaimed that the assignment constituted a preference void under section 95 of the *Bankruptcy Act 1924-1930*.

The legal issues before the High Court were whether the assignment constituted a preference under section 95(1) of the *Bankruptcy Act*, and if so, whether the appellant, S. Richards & Co Ltd, was protected by section 95(2)(b) as a purchaser or encumbrancer in good faith and in the ordinary course of business. The Court was required to determine the proper interpretation of "preference" under the Act and the circumstances under which a creditor would be deemed to have acted in good faith and in the ordinary course of business.

The High Court affirmed the decision of the Court of Bankruptcy. The Court held, by a majority, that the assignment had the effect of giving the appellant a preference within the meaning of section 95(1) of the *Bankruptcy Act*, and that the debtor's intention was not a necessary element for the transaction to be considered a preference. Furthermore, a majority of the Court found that the evidence did not establish that the appellant had acted in good faith or in the ordinary course of business, as required by section 95(2)(b). Specifically, the Court noted that the appellant's manager knew the debtor was employing labour and purchasing materials for his work, and that the debtor owed substantial amounts to other creditors, yet no inquiries were made.

The appeal was dismissed. The Court found that the assignment was void as against the trustee in bankruptcy.