Latzur Ltd ((in Receivership)) v Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Mark Sanfey
• Judgment Date: 20 November 2020
• Neutral Citation: [2020] IEHC 592
• Docket Number: [Record No. 2019/235 COS]
• Court: High Court
• Date: 20 November 2020

IN THE MATTER OF LATZUR LIMITED (IN RECEIVERSHIP)

AND

IN THE MATTER OF THE COMPANIES ACT 2014

[2020] IEHC 592

Mark Sanfey

[Record No. 2019/235 COS]

THE HIGH COURT

Directions – Receivership – Companies Act 2014 s. 438 – Receiver seeking an order pursuant to s. 438 of the Companies Act 2014 giving directions – Whether the receiver’s appointment was pursuant to a fixed charge or a floating charge

Facts: Mr Fennell (the receiver), by originating notice of motion of 24th June, 2019, applied to the High Court for an order pursuant to s. 438 of the Companies Act 2014 giving directions in relation to certain matters arising in the course of the receivership of Latzur Ltd (the company). Mr Fennell was appointed receiver and manager of the company’s assets by a Deed of Appointment of 28th November, 2013 by Chelsey Investissements SA (Chelsey), a limited company incorporated under the laws of Luxembourg, on foot of a debenture of 24th May, 2012 between Chelsey and the company. In his grounding affidavit of 29th May, 2019, the receiver averred that, as of that date, there was approximately €1,405,660 before deduction of receivership costs and expenses available for distribution. The receiver wished to distribute those funds, conclude the receivership and have himself discharged as receiver. However, he considered that, before he could do so, he required directions as to whether his appointment as receiver was pursuant to a fixed charge or a floating charge, as the resolution of that issue would determine who the appropriate recipient of the funds would be.

Held by Sanfey J that: (1) automatic conversion of the floating charge to a fixed charge was validly effected in accordance with Clause 3.4.2 (4) of the debenture; (2) automatic conversion of the floating charge to a fixed charge was not validly effected in accordance with Clause 3.4.2 (5) of the debenture; (3) if the finding at (1) above is incorrect, he was satisfied that crystallisation of the floating charge was effected by service of the notice of crystallisation on 23rd November, 2013; (4) the receiver was appointed under a fixed charge rather than a floating charge; and (5) given the law applicable at the material time, the funds available to the receiver would be distributed to Chelsey as holder of the fixed charge.

Sanfey J held that he would give the parties fourteen days from the date of this judgment to make brief written submissions to him concerning the orders to be made, and their precise terms.

Directions given.

JUDGMENT of Mr. Justice Mark Sanfey delivered on the 20th day of November, 2020

Introduction

1 By originating notice of motion of 24th June, 2019, Mr. Ken Fennell (‘the receiver’) applied to this Court for an order pursuant to s.438 of the Companies Act 2014 (‘the Act’) giving directions in relation to certain matters arising in the course of the receivership of Latzur Limited (‘Latzur’ or ‘the company’). Mr. Fennell was appointed receiver and manager of the company's assets by a Deed of Appointment of 28th November, 2013 by Chelsey Investissements SA (‘Chelsey’), a limited company incorporated under the laws of Luxembourg, on foot of a debenture of 24th May, 2012 between Chelsey and the company (hereafter referred to as ‘the debenture’).

2 In his grounding affidavit of 29th May, 2019, the receiver avers that, as of that date, there is approximately €1,405,660 before deduction of receivership costs and expenses available for distribution. The receiver wishes to distribute these funds, conclude the receivership and have himself discharged as receiver. However, he considers that, before he can do so, he requires directions as to whether his appointment as receiver is pursuant to a fixed charge or a floating charge, as the resolution of this issue will determine who the appropriate recipient of the funds will be.

3 The protagonists for this issue are Chelsey and the Revenue Commissioners (‘Revenue’). If the receiver is deemed to have been appointed pursuant to a crystallised floating charge – accordingly, a fixed charge – the funds in the receivership will be paid to Chelsey. Alternatively, if the receiver's appointment is deemed to be on foot of a floating charge, the funds will be distributed among the preferential creditors of the company, of which Revenue is by far the largest.

4 The receiver therefore notified Chelsey and Revenue of his application, and they have each taken the opportunity to submit affidavits and very detailed written submissions supporting their respective positions. When the matter came on for hearing on 17th September, 2020 before this Court, I was informed that the receiver, having put the matter before the court, did not intend to take an active part in the hearing. It is clear from the receiver's grounding affidavit that he has adopted a neutral position in relation to the matter, and will abide ultimately by the directions of this court.

5 A second issue was addressed in the affidavits and submissions before the court. In the event that the court decided that the floating charge in favour of Chelsey had not crystallised into a fixed charge in the manner claimed, it was maintained by Chelsey that certain of the company's assets were in any event subject to a fixed charge. The affidavits and submissions canvassed the respective viewpoints as to whether various of the assets could be considered the subject of a fixed charge. However, counsel for Chelsey and Revenue informed me at the commencement of the hearing that they were agreed, subject to the court, that this issue should await judgment as to the first issue. I agreed to this proposal, which seemed appropriate in all the circumstances.

6 This judgment, then, concerns the issue of whether the floating charge in the debenture was converted into a fixed charge by either automatic or express crystallisation in the manner in which I will set out in some detail below. Chelsey's contentions in this regard were strenuously resisted by Revenue, who submitted that any such purported crystallisation was wholly ineffective, so that the appointment of the receiver on 28th November, 2013 by Chelsey – immediately after the ending of a period of court protection as a result of the company being in examinership – must be deemed to have been pursuant to a floating charge.

Background

7 The company was incorporated on 6th February, 2012. The receiver avers in his grounding affidavit that the principal activities of the company were “the operation of textile retail outlets selling women's fashion under the A-Wear Brand”. The company acquired the business and assets of A-Wear Limited from the receiver appointed to that company on or about 16th February, 2012.

8 In the debenture, the company charged all of its assets and undertaking in favour of Chelsey. Clause 3.3 of the debenture creates a first floating charge over all of the company's assets “ whatsoever and wheresoever, both present and future”. Clause 3.4 deals with the circumstances in which the floating charge may be converted into a fixed charge, whether “ by notice” or by “ automatic conversion”. I will refer to the detail of these provisions later in this judgment.

9 The company does not appear to have fared well. The receiver avers that Chelsey advanced loans of some €6.1m to the company but eventually the company petitioned this Court for protection on or about 8th October, 2013. This step was taken pursuant to the “ decision” of 3rd October, 2013 of Vangas Management SA, the sole member of the company, “… pursuant to Regulation 9 paragraph 3 of the European Communities (Single Member Private Limited Companies) Regulations 1994… that Latzur Limited forthwith petition the High Court for the appointment of an Examiner, including on an interim basis…”, and that Mr. Jack Stein “ be authorised to swear the affidavit grounding the said petition and to execute any other documents and to take any others [sic] actions required in connection with the said petition”. The decision was signed by Mr. Stein “ as authorised attorney and proxy of Vangas Management SA”.

10 Mr. Fennell was appointed as interim examiner on 8th October, 2013, and was confirmed as examiner of the company by order of this Court of 21st October, 2013. Unfortunately, it did not prove possible to source the investment necessary to formulate proposals for a compromise or scheme of arrangement which would have ensured the survival of the company. Accordingly, court protection was terminated by the court as of 12 noon on 28th November, 2013 at Mr. Fennell's request. At 12.10pm on that date, Mr. Fennell accepted an appointment as receiver and manager of the company by Chelsey pursuant to its powers under the debenture.

The debenture

11 Clause 3 of the debenture contains the charging provisions at issue in this application. Clause 3.1 refers to the purported creation of fixed charges over a range of assets of the company. Chelsey and Revenue disagree as to whether any valid fixed charge is created under this section. They are however agreed that it only becomes necessary for this Court to form a view as to the operation of the clause if I am of the view that the floating charge held by Chelsey under the debenture has not crystallised into a fixed charge. I do not therefore require to consider this aspect of the matter in this judgment.

12 The floating charge is created by Clause 3.3 of the debenture as follows: -

“3.3 Floating charge

The Chargors hereby charge unto the Chargee by way of first floating charge, all of their assets and undertaking whatsoever and wheresoever, both present and future and the property and assets referred to in clauses 3.1 (Fixed charges) and 3.2 (Security Assignment) above (if and in so far as such mortgages, charges and/or assignments in this Deed shall be ineffective as fixed charges/security assignments).”

13 This clause is followed by the following...