Governor and Company of The Bank of Ireland v Eteams International Ltd

JudgeMr Justice Keane
Judgment Date14 May 2019
Neutral Citation[2017] IEHC 393
CourtHigh Court
Docket Number[2015 No. 77 COS]
Date15 June 2017

[2017] IEHC 393


Keane J.

[2015 No. 77 COS]





Company – S. 280 of the Companies Act, 1963 – Nature of agreement whether sale-purchase or loan and charge – Interpretation of contractual documents – Legal assignment

Facts: The liquidator sought directions from the Court on the issue of proper construction of written contract entered between the respondent and the second applicant (‘bank’). The liquidator had asked the Court's assistance for deciding as to whether the said contract constituted a charge registrable under s. 99 of the Companies Act, 1963 and as to whether the agreement was void as against the liquidator.

Mr. Justice Keane made directions that the agreement in question effected a valid purchase of the company's debts by the bank and that the liquidator would pay the bank the proceeds of all the debts collected and received by him, and also that the liquidator would provide the relevant documents to the bank, which was required in relation with the collection of the debts. The Court observed that the words of the contract should be given plain and natural meanings, and the negotiations of the parties prior to the contract and their subjective intentions should not be taken into account except in exceptional circumstances.

JUDGMENT of Mr Justice Keane delivered on the 15th June 2017

This case presents the following mixed question of fact and law. What is the proper characterisation of the written contract (“the agreement”) that Eteams (International) Limited (“the company”), now in liquidation, entered with Bank of Ireland (“the bank”) on 5 July 2007?


The bank submits that the agreement is, as it states on its face, a debt purchase agreement, under which the bank acquired ownership of the company's book debts (“the debts”). The company submits that the agreement is a loan agreement, under which the bank merely took a charge over those debts.


What turns on the resolution of this controversy? Well, if the company assigned the debts due to it to the bank, then those debts - whether already collected by the company or the bank, or still outstanding - are the property of the bank and fall outside the liquidation, whereas if the company merely created a charge over those debts in favour of the bank, then they remain funds in the liquidation, and the bank ranks as an unsecured creditor in respect of the loan finance that it provided to the company, because that charge is void against the liquidator under s. 99 of the Companies Act 1963, as amended (“the 1963 Act”), as it was never registered in accordance with the requirements of that section.

The application

The liquidator raised the question in the guise of an application for directions brought by notice of motion dated 18 February 2015. In a pleonastic fashion, the liquidator seeks directions on: (i) whether the agreement constitutes a charge registrable pursuant to s. 99 of the 1963 Act; (ii) whether the agreement is void as against the liquidator; (iii) how to proceed in the liquidation in respect of the collection of monies from debtors in light of the agreement; (iv) whether the bank is entitled to retain the sum of €82,339.52, representing debts already collected and lodged in an account held by the company with the bank; (v) whether the bank is entitled to retain the monies it has collected pursuant to that agreement since the liquidation commenced; and (vi) whether the bank is obliged to repay the monies it has collected to the company.


By Order made on 8 June 2015, Costello J permitted the bank to take carriage of the application, so that the bank is now applicant and the company has become respondent.


By further Order made on 23 June 2015, Costello J permitted the bank to bring its own application for directions. The directions that the bank seeks are: first, one recognising that the agreement effects a valid purchase of the company's debts by the bank and does not constitute a registrable charge for the purpose of s. 99 of the 1963 Act; second, one directing that the liquidator pay to the bank forthwith the proceeds of all of the debts which he (or the company) has collected and received; and third, one directing the liquidator to provide the bank with all such documentation and information within his possession, power or procurement that the bank requires in connection with the collection of the debts.


The company was incorporated on 5 July 1994 and had its registered office at Bridge House, Main Street, Scariff, County Clare. Initially, it offered translation, research, IT training, and design and print services. From 2005 onwards, it focussed on the provision of translation services.


On 28 February 2013, the company's directors resolved to wind it up. A liquidator was appointed at a creditors' meeting on 27 March 2013.

The agreement

As already noted, the company and the bank entered into the agreement on 5 July 2007. The copy of the agreement exhibited for the purpose of the present application comprises two parts: the formal agreement itself, including the associated particulars of agreement; and the bank's standard terms and conditions for the purchase of debts (Edition A/2005) (“the conditions”). Each part identifies the agreement as a debt purchase agreement. The agreement is signed by two directors of the company and by two authorised signatories on behalf of the bank. The conditions are signed for identification by one of the company's directors.


Part 1 of the agreement is headed “Summary”. It provides, at paragraph 1.1 that the bank was to purchase the debts owing to the company, then and in the future, and that the bank was to become the owner of those debts. The funds that the company was to receive in return are described as “payments”. As might be expected, this language is consistently used throughout the agreement and in the associated conditions. Nowhere in the agreement or the conditions is there any reference to the provision of funds by the bank as a “loan” or to the creation of a “charge” over the company's debts in favour or the bank in return, nor does any cognate term appear.


Michael Martin, a senior credit manager with the bank, swore an affidavit on its behalf on 12 March 2015 in support of its application for directions and in opposition to that of the company. Mr Martin avers that the agreement is an invoice discounting agreement of a type commonly used in the asset based finance industry. The bank is a member of the Asset Based Finance Association (“ABFA”), which is a UK-based trade association for the asset based finance industry in the UK and Ireland. Its members represent approximately 95 per cent of the UK and Irish market in the provision of such finance. The ABFA website includes a section providing an overview of asset based finance, defining and distinguishing “factoring”, “invoice discounting”, and “asset based lending”. Each of those expressions is a term of art within the industry but none is legally defined.


The ABFA website describes “invoice discounting” as an arrangement whereby a company obtains immediate cash to the value of 80/85% of its approved customer invoices, retaining responsibility for its sales ledger operation (which would normally be taken over by a factor), but lodging the payments that it receives into a bank account administered by the invoice discounter from which it is credited with the balance, less charges. The use of the service is not normally disclosed to the company's customers.

Sale or security?

The proper characterisation of such arrangements is the subject of a very substantial jurisprudence. In Donnelly, The Law of Credit and Security, (2nd edn), (Dublin, 2015), the author first identifies the problem (at para. 11-43) in a section headed “Quasi-Security Interests”:

“Irish (and English) law adopts a formal approach to the categorisation of interests in property. Thus, security over property is treated differently to interests in respect of property which fulfil a similar economic function, often described as quasi-security. The task of distinguishing between a security interest and a quasi-security can occasionally be difficult and, in these instances, can introduce unwelcome uncertainty into the law. This uncertainty creates a risk that a transaction will retrospectively be re-characterised as a security interest requiring registration (sometimes characterised as a ‘re-characterisation risk’).”


The problem is later addressed in a section of the text headed “The Re-Characterisation Risk: Sale or Security?” (at paras. 11-88 to 11-96), which considers the principles applied to determine whether an individual arrangement comprises a sale or a (registrable) security.


The company submits that the agreement at issue here properly characterised is one whereby, rather than selling its book debts to the bank, it provided the bank with a registrable security over them in the form of a charge, which the bank has failed to register, thus rendering it void.

The law

In Re George Inglefield Ltd [1933] Ch. 1, the Court of Appeal for England and Wales was required to consider whether various agreements by a furniture company, which later went into liquidation, for the sale to a finance house of various debts due to it from its customers under hire purchase agreements, represented the true sale or assignment of each of those book debts or instead amounted in substance to the creation of a mortgage and charge over each in exchange for loan finance. If it were the latter, or the...

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6 firm's commentaries
  • Securitisation Guide 2023
    • Ireland
    • Mondaq Ireland
    • 1 June 2023 interest. However, there is a recent upper Irish court decision (Re: Eteams (International) Limited (in voluntary liquidation) [2017] IEHC 393, affirmed on appeal Court of Appeal, 14 May 2019) that, in broad terms, endorsed established English case law and principles on questions o......
  • Securitisation 2023
    • Ireland
    • Mondaq Ireland
    • 3 March 2023
    ...and irrespective of any labels Recharacterisation was considered by the High Court in Bank of Ireland v ETeams International Limited [2017] IEHC 393 (subsequently upheld by the Court of Appeal in Bank of Ireland v ETeams (International Ltd) [2019] IECA 145), which endorsed the principles se......
  • Securitisation 2022
    • Ireland
    • Mondaq Ireland
    • 3 February 2022
    ...and irrespective of any labels. Recharacterisation was considered by the High Court in Bank of Ireland v ETeams International Limited [2017] IEHC 393 (subsequently upheld by the Court of Appeal in Bank of Ireland v ETeams (International Ltd) [2019] IECA 145), which endorsed the principles s......
  • Securitisation 2022
    • Ireland
    • Mondaq Ireland
    • 3 February 2022
    ...and irrespective of any labels. Recharacterisation was considered by the High Court in Bank of Ireland v ETeams International Limited [2017] IEHC 393 (subsequently upheld by the Court of Appeal in Bank of Ireland v ETeams (International Ltd) [2019] IECA 145), which endorsed the principles s......
  • Request a trial to view additional results

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