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

• Jurisdiction: Ireland
• Judge: Mr Justice Maurice Collins
• Judgment Date: 16 March 2023
• Neutral Citation: [2023] IECA 60
• Court: Court of Appeal (Ireland)
• Docket Number: Court of Appeal Record Number: 2021/53

In the Matter of Latzur Limited (In Receivership)

And in the Matter of the Companies Act 2014

[2023] IECA 60

Collins J.

Costello J.

Haughton J.

Court of Appeal Record Number: 2021/53

THE COURT OF APPEAL

CIVIL

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 (Latzur). Mr Fennell was appointed receiver and manager of Latzur’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 Latzur. 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. Sanfey J ([2020] IEHC 592) held 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. The Revenue Commissioners (Revenue) appealed to the Court of Appeal against the declarations granted by the High Court.

Held by Collins J that: (1) the floating charge created by Clause 3.3 of the debenture did not crystallise at any point prior to the appointment of the receiver; (2) the charge did not crystallise on 3 October 2013 because the decision taken by Vangas Management SA to petition for the appointment of an examiner to Latzur was not an automatic crystallisation event within the scope of Clause 3.4.2(5) of the debenture; (3) the charge did not crystallise on 8 October 2013 because it followed from In re Holidair [1994] 1 IR 416 that crystallisation of the floating charge at that point was inconsistent with the fact that Latzur was under the protection of the court and was excluded by s. 5(2)(d) of the Companies (Amendment) Act 1990; (4) for the same reasons, the charge did not crystallise on 23 November 2013; (5) even if the floating charge had crystallised on one of those dates, it was accepted by Chelsey (and by the judge) that it had subsequently de-crystallised and contrary to Chelsey’s contentions, and the Judge’s findings, the charge did not re-crystallise on the termination of court protection on 28 November 2013 – on the premise that the charge crystallised and de-crystallised (a premise which was not well-founded), it continued as a floating charge until the occurrence of a further crystallisation event, the appointment of the receiver; and (6) the receiver was, accordingly, appointed on foot of a floating charge and not a fixed charge.

Collins J held that the declarations granted by the High Court must be discharged. It appeared to Collins J that a declaration in the following terms was appropriate and sufficient: “A Declaration pursuant to section 438 of the Companies Act 2014 (as amended) that the applicant’s appointment on 28 November 2013 as receiver over the assets and undertaking of Latzur Limited was on foot of a floating charge”. Collins J held that Revenue ought to get its costs both in the High Court and in the Court of Appeal.

Appeal allowed.

Unapproved

No redaction required

JUDGMENT of Mr Justice Maurice Collins delivered on 16 March 2023

INTRODUCTION

1 This appeal raises a number of short but significant issues regarding the crystallisation, de-crystallisation and – so it is argued – re-crystallisation of floating charges in the context of an unsuccessful examinership under the Companies (Amendment) Act 1990 (as amended) (“ the 1990 Act”). Some ancillary issues also arise. These issues have been generated by a dispute between Chelsey Investissements SCA, a Luxembourg company (“ Chelsey”) on the one hand and the Revenue Commissioners (“ Revenue”) on the other as to the priority of their respective claims in the distribution of funds currently held by Ken Fennell in his capacity as receiver of the assets of Latzur Limited (in Receivership) (“ Latzur” or “ the Company”).

2 Mr Fennell was appointed receiver of the assets of Latzur by Chelsey on 28 November 2013. He had previously acted as interim examiner and then examiner to Latzur. Latzur and related companies had operated the well-known A-Wear retail chain. However, Mr Fennell was unable to formulate any proposal for a compromise or scheme of arrangement which might have secured the survival of the Company and, as a result, on 28 November 2013 the High Court (Charleton J) made an order pursuant to section 16 of the 1990 Act directing that court protection of the Company should cease, and the appointment of the examiner terminate, with effect from 12 noon that day. Chelsey moved immediately to appoint Mr Fennell as receiver (he was appointed at 12.10). I will refer to Mr Fennell as “ the Receiver”.

3 Revenue says that it is a substantial creditor of Latzur. That does not appear to be disputed. It says that a large proportion of the debts due to it rank as preferential debts pursuant to section 98 of the Companies Act 1963 (“ the 1963 Act”). As I understand it, Chelsey does not dispute Revenue's claim that some of the debts due to it rank as preferential debt vis a vis the general creditors of the Company. However, Chelsey disputes that Revenue has any entitlement to priority over its claims.

4 That dispute arises in the following circumstances. Part VI of the 1963 Act (now repealed), specifically section 285, identified a number of categories of debt, including various categories of rates and taxes, which were to be “ paid in priority to all other debts” in a winding-up (section 285(2)). Insofar as the assets of the company available for payment of general creditors were insufficient to discharge such preferential debts, section 285(7)(b) provided that they would “ have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge”. Section 98 of the 1963 Act applied the provisions of Part VI to a situation where a receiver was appointed to a company under a floating charge or possession was taken by or on behalf of the debenture holders of any property covered by such charge.

5 These provisions of the 1963 Act were repealed and re-enacted by the Companies Act 2014 (“ the 2014 Act”). Section 440 of the 2014 Act re-enacted section 98. Part 11 re-enacted Part VI. Section 621 (as enacted) re-enacted section 285, section 621(7)(b) being identical in its terms to section 285(7)(b) of the 1963 Act.

6 Chelsey says that, prior to the Receiver's appointment, its floating charge had crystallised into a fixed charge. Accordingly (so Chelsey says) the Receiver was not appointed under a floating charge and its claims are not claims “ under any floating charge created by the company” and are not statutorily subordinated to the preferential claims of Revenue.

7 In JD Brian Limited (in liquidation) [2015] IESC 62, [2016] 1 IR 131, the Supreme Court, reversing the decision of the High Court (Finlay-Geoghegan J) ( [2011] IEHC 113, [2011] 3 IR 244) held that the reference in section 285(7)(b) to “ the claims of holders of debentures under any floating charge created by the company” meant claims advanced on a charge that was a floating charge as at the commencement of the winding up and thus the provision did not capture claims secured by a previously floating charge that had been converted into a fixed charge prior to such commencement. It followed that Revenue had no entitlement to priority over the charge-holder in that case. The Oireachtas subsequently legislated to reverse the decision in JD Brian by enacting section 92 of the Companies (Accounting) Act 2017, which amended section 621(7)(b) of the 2014 Act. 1 However, it is common case that this amendment has no bearing on these proceedings.

8 The effect of the Supreme Court's decision in JD Brian is that Revenue's claim to priority vis a vis Chelsey is liable to be defeated if Chelsey's floating charge had crystallised prior to the appointment of the Receiver shortly after noon on 28 November 2013. 2 I do not understand that to be a matter of dispute. The battle line between the parties is as to the status and effect of Chelsey's charge as at the Receiver's appointment and whether, at/immediately prior to that appointment, it was a floating charge (as Revenue argues) or a fixed charge (as Chelsey says).

9 To better understand the parameters of this dispute, I need to say something more about the terms of the charge here and the circumstances in which it is said by Chelsey...