Godefroy & Anor v Company Health Ltd & Ors

A creditor proving in the liquidation of a guarantor need not deduct payments received from co-sureties while less than the full debt has been recovered from that liquidation. Any excess ultimately received beyond 100 pence in the pound is held on trust for the guarantors. The distribution of surplus dividends between co-sureties is governed by equitable accounting rather than rigid rules. The court should seek, so far as the circumstances permit, to equalise the contributors’ burden and avoid unjust enrichment between their creditors.

The joint liquidators of four companies in creditors’ voluntary liquidation sought declarations and directions concerning dividends payable to three lenders. The lenders had been repaid in full through payments made by three subsidiary guarantors, but their proofs remained lodged in the guarantors’ liquidations. Further dividends were therefore notionally payable to them, although they could not retain any surplus.

The respondents did not oppose the application. The central issue was how the surplus should be held and apportioned between the guarantor companies so as to equalise their effective contributions as far as possible.

1. The application was granted. The court declared that the proposed dividends payable to the individual lenders were held on trust for the relevant subsidiary companies and directed payment of the specified sums to those companies.
2. While a creditor has not received 100 pence in the pound on its proof in each relevant guarantor’s liquidation, it need not reduce or withdraw the proof to reflect payments received from a co-surety. Once the creditor receives more than the full principal debt, the excess is held on trust for the surety or guarantor. The court accepted the reasoning in Westpac Banking Corporation v Gollin & Co Limited [1988] VR 397, supported by the discussion in Re Houlder [1929] 1 Ch 205 and Re Amalgamated Investment & Property Company Ltd [1985] Ch 349.
3. There are no hard and fast rules governing the treatment of the surplus. The appropriate approach is equitable accounting, assessed in the particular circumstances. The court should seek equality of contribution among guarantors that are able to contribute, to the maximum extent reasonably possible.
4. The approach illustrated by Brown v Cork [1985] BCLC 363 was applicable by analogy. The proposed allocation would equalise the effective payments of the three paying subsidiaries, so far as possible given the fourth subsidiary’s inability to pay its full rateable share, and would prevent its creditors being unjustly enriched at the expense of the other companies’ creditors.