Kelly v McMahon Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Costello
• Judgment Date: 01 January 1980
• Neutral Citation: 1978 WJSC-HC 311
• Court: High Court
• Docket Number: No. 1582p/1978,[1978 No. 1582P]
• Date: 01 January 1980

1978 WJSC-HC 311

THE HIGH COURT

No. 1582p/1978

LAKEGLEN CONSTRUCTION LTD, IN RE

IN THE MATTER OF LAKEGLEN CONSTRUCTION LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF THE COMPANIES ACT 1963

1 Judgment of Mr. Justice Costello delivered the 20th day of December 1978 .

2 The Official Liquidator of Lakeglen Construction Limited ("the Company") has sought the assistance of the Court on a problem which has arisen in the course of the winding-up. It is this. The Company executed a Debenture on the 24th November 1977. The winding-up of the Company commenced some four months later on the 13th March 1978 . The Debenture was issued to a group of creditors referred to as "major creditors" in consideration of their forebearance in enforcing immediate payment of debts due to them. It is now admitted that the Company was seriously insolvent in November 1977 and it would follow, therefore, that in so far as the Debenture may have created a "floating charge" it would be invalid by virtue of the provisions of section 288 of the Companies Act 1963. No difficulties arise in respect of some of the charges created by the Debenture - clearly they are fixed charges and cannot be invalidated by the section. But a dispute has arisen between the preferential creditors and unsecured creditors on the one part and the Debenture holders on the other as to whether a purported charge in relation to the book debts of the Company in Clause 3(b) of the Debenture is to be construed as a floating charge or a fixed charge and the question which I am required to determine is whether the Debenture is invalid to the extent to which it purported to charge the book debts of the Company in favour of the "major creditors".

3 To answer this question it is relevant to outline the circumstances in which the Debenture came to be made. The Company is a fully owned subsidiary of another Company known as Catalyst limited ("the Holding Company"). Prior to executing the Debenture the Company entered into an agreement in writing with the major creditors. By this agreement the major creditors agreed not to enforce immediate payment of part of the sums due to them (described as "the frozen balances") and in consideration for this agreement the Company covenanted to execute a Debenture in favour of the major creditors, to procure a guarantee by the Holding Company in favour of the major creditors in respect of sums due by the Company to the major creditors, and to procure the granting of a Debenture by the Holding Company in favour of the major creditors. The Company also entered into certain express covenants with the major creditors in relation to certain debts owed to it by Companies registered in the United Kingdom, Northern Ireland, France and this country and in respect of such debts it covenanted to enforce them by whatever means the major creditors considered prudent for their recovery. It is clear that it was contemplated by the parties to the written agreement that the Company would continue to trade and provision was made by which the major creditors could inspect the Company's books and which required the Company to lodge immediately to the Company's bank account all money received by it.

4 In pursuance of this agreement both the Company and the Holding Company executed the Debenture of the 24th November 1977. Having recited the agreement to which I have just referred and the fact that it was in the best interests of the Holding Company that it should give security over its assets in the manner contained in the Debenture, and that by a guarantee of the 24th November 1977 the Holding Company guaranteed the due repayment to each of the major creditors of all moneys owing or to become owing by the Company to each of the major creditors with interest thereon, the Company and the Holding Company jointly and severally covenanted to pay the "frozen balances" with interest as therein specified in the manner set out in the First Schedule to the Debenture. There then followed a clause containing covenants entered into by the Company and the Holding Company in relation to the payment of interest. There then was a clause (Clause 3) which contained the security for the payment of the "frozen balances" and interest. I think I should quote this clause in full:

5 "3 As security for the payment of the frozen balances and interest thereon and all other moneys hereby agreed to be paid or intended to be hereby secured (including any expenses and charges arising out of or in connection with the acts or matters referred to in Clause 6 hereof) and so that the security hereby created shall be a continuing security:

6 (a) The Company and the Holding Company as beneficial owners hereby assign unto the Major Creditors all their respective fixed and moveable plant machinery equipment fixtures implements and utensils TO HOLD the same unto the Major Creditors absolutely;

7 (b) The Company and the Holding Company as beneficial owners hereby charge in favour of the Major Creditors all their respective book debts and all rights and powers of recovery in respect thereof TO HOLD the same unto the Major Creditors absolutely;

8 (c) The Company and the Holding Company as beneficial owners hereby charge by way of first fixed charge in favour of the Major Creditors their respective goodwill and uncalled capital for the time being;

9 (d) The Holding, Company as beneficial owner hereby charges by way of first fixed charge in favour of the Major Creditors:

10 (i) 49,999 shares of £1 each (numbered to inclusive) in the capital of the Company,

11 (ii) shares of £1 each (numbered to inclusive) in the capital of O'Sullivan Homes to Limited,

12 (iii) 19,995 "A" shares of £1 each (numbered to inclusive) and 4 Ordinary shares of £1 each (numbered to inclusive) in the capital of Pembroke Homes Limited, a limited liability Company registered in the U.K.

13 (iv) shares of £1 each (numbered to inclusive) in the capital of Catalyst Management Limited,

14 (v) and all rights and interests of the Holding Company therein or which may accrue in respect thereof and the Holding Company shall forthwith transfer the said shares to and procure them to be registered in the name of a nominee of the Major Creditor and shall duly deliver to the nominees the Certificates for such shares.

15 (e) The Company and the Holding Company as beneficial owners hereby charge by way of first floating charge in favour of the major Creditors all other their respective undertakings and assets whatsoever and wheresoever both present and future PROVIDED ALWAYS that neither the Company nor the Holding...