Re J.D. Brian Ltd ((in Liquidation))

JurisdictionIreland
JudgeMs. Justice Laffoy
Judgment Date09 July 2015
Neutral Citation[2015] IESC 62
CourtSupreme Court
Docket Number[Appeal No. 2011/361],[S.C. No. 361 of 2011]
Date09 July 2015
In the Matter of J.D. Brian Limited (In Liquidation) T/A East Coast Print and Publicity

and

In the Matter of J.D. Brian Motors Limited (In Liquidation) T/A Belgard Motors

and

In the matter of East Coast Car Parts Limited (In Liquidation)

and

In the Matter of the Companies Acts 1963 to 2009

[2015] IESC 62

Clarke J.

Laffoy J.

Charleton J.

[Appeal No. 2011/361]

THE SUPREME COURT

Company law – Winding up – Liquidation – Debenture – Floating charge – Fixed charge – Effect of service of Crystallisation Notice – Clause 10 of debenture – In re Keenan Bros. Ltd. [1985] I.R. 401 applied

Facts The three companies concerned were all part of the Belgard Motors Group. On 20th December 2005 each of the companies entered into a debenture with the Bank of Ireland, all in similar terms. The debenture contained covenants and obligations for repayment of monies due by the Company to the Bank and interest thereon. Clause 10 stated the Bank could, at any time, by notice in writing served on the Company, convert the floating charge into a first fixed charge?if the Bank considered the property, assets and rights referred to in the notice to be in jeopardy. Clause 10 was invoked by the Bank by a notice dated 28th October 2009. On 23rd June 2010 the Liquidator initiated an application for directions seeking to confirm whether the floating charge granted by each Company and held by the Bank had been validly crystallised; and that as a result of the crystallisation of the floating charges all assets of each Company fell outside of the liquidation and accordingly, no distribution or dividend would be payable to any other creditor of the Company.

The trial judge determined the debenture was silent as to any rights of the Bank and obligations of the Company in relation to the property subject to the floating charge. She said there was nothing in the debenture restricting the entitlement of the Company to deal with/ dispose of its stock-in-trade or use proceeds of its book debts/cash-at-bank. Accordingly, she found that service of the Crystallisation Notice did not have the effect of converting the property subject to the floating charge into a first fixed charge.

Held On appeal, the judge had to decide whether, on a once off basis, service of the Crystallisation Notice under Clause 10 converted the floating charge into a first fixed charge. Applying the principles in In re Keenan Bros. Ltd. [1985] I.R. 401, the judge said the intention of the parties was that, on service of the Crystallisation Notice, the company would thereafter be restricted in its use of the property, assets and rights which had been the subject of the floating charge. The judge submitted contrary to the views of the trial judge that the Company would cease to be entitled to use such property in carrying on its business without the consent of the Bank.

– Appeal allowed. Order setting aside portions of the High Court order and substituting the following directions: (a) that the floating charge of each of the debentures was converted into a fixed charge over the property of each Company by virtue of the service of the Crystallisation Notice by the Bank on 28th October 2009 and, accordingly, prior to the commencement of the winding up of each Company; and (b) that the claims of the Bank, as debenture holder, to the funds realised from the assets the subject of the floating charges created by the debenture and converted into fixed charges on 28th October 2009 shall rank in priority to the preferential debts due by the Company identified by reference to s. 285(1) to (6) of the Act of 1963.

Judgment of Ms. Justice Laffoy delivered on the 9th day of July, 2015
Factual and procedural background
1

The three companies mentioned in the title hereof, which were part of the Belgard Motors Group of companies, are being wound up by the Court. In the case of each of the companies the winding up order was made by the High Court on 7th December, 2009 on foot of a petition presented by the company on 13th November, 2009. The liquidator appointed by the Court in respect of each company in liquidation is Tom Kavanagh (the Liquidator). In the course of the liquidation in 2010 the liquidator applied to the High Court pursuant to s. 280 of the Companies Act 1963 (the Act of 1963) seeking directions against the following background.

2

On 20th December, 2005 each of the companies entered into a debenture with the Governor and Company of the Bank of Ireland (the Bank). The three debentures were in similar terms. Each of the companies will henceforth be referred to as ‘the Company’ and the related debenture will be referred to as ‘the Debenture’ and together they will be referred to as ‘the Companies’ and ‘the Debentures’.

3

The charging provisions in the Debenture are Clauses 4, 5 and 6. Clause 4 provides as follows:

‘The Company as Beneficial Owner hereby charges in favour of the Bank all its undertaking, property and assets, whatsoever and wheresoever both present and future including goodwill and its uncalled capital for the time being with the payment of all monies hereby secured including interest as aforesaid.’

Clause 5 then elaborates on the nature of the charge and provides as follows:

‘The Charge hereby created shall as regards the lands described in the Schedule hereto … (the “Scheduled Premises”) and all estate or interest legal or equitable in all freehold and leasehold property … which shall at any time hereafter during the continuance of this security become the property of the company all present and future proceeds of insurance receivable by the Company, and its goodwill and uncalled capital for the time being be a specific charge and shall as regards the other property hereby charged be a floating security but so that the Company shall not be at liberty to create any mortgage or charge ranking in priority to or pari passu with these presents.’

Clause 6 creates a mortgage by demise in favour of the Bank of the Scheduled Premises.

4

The Debenture also contains provisions of the type one would expect to find in such a security document, for example, covenants dealing with the obligations of the Company for repayment of the monies due by the Company to the Bank and interest thereon (Clauses 1, 2 and 3). Clause 8 contains covenants by the Company to do or refrain from doing certain actions ‘at all times during the continuance of this security’. For example, in paragraph (a) the Company covenants to ‘carry on and conduct its business in a proper and efficient manner’. In paragraph (d) it covenants to notify the Bank forthwith of its intention or any intention on the part of any person of which it should become aware to present a petition to appoint an examiner or a liquidator or similar officer to the Company. In paragraph (k) the Company covenants in the following terms:

‘not without the prior consent in writing of the Bank [to] sell, assign or otherwise dispose of any property hereby charged as a specific charge or any of its book debts and other receivables in favour of any person.’

5

Clause 10 is the provision of the Debenture which is at the core of the legal issues which arose on the Liquidator's application and which arise on this appeal. It provides:

‘The Bank, may, at any time, by notice in writing served on the Company, convert the floating charge contained in this Deed into a first fixed charge over all the property, assets, and rights for the time being subject to the said floating charge or over so much of the same as is specified in the notice. A notice under this Clause may be served by the Bank only if, in the sole judgement of the Bank, the Bank considers that the property, assets and rights described or referred to in the notice are in any way in jeopardy.’

Clause 11 also deals with the conversion of the floating charge into a fixed charge and provides as follows:

‘The floating charge contained in this Deed shall in any event stand converted into a fixed charge automatically upon:

(a) the filing of a petition for the winding up of the Company;

(b) the passing of a resolution for the winding up of the Company;

(c) the appointment of a Receiver on behalf of the holders of any debentures of the Company secured by a floating charge;

(d) possession being taken of any property by or on behalf of the holders of any debentures of the Company secured by a floating charge.’

Clause 12 deals with the circumstances in which it would be lawful for the Bank to appoint a Receiver and Manager, the circumstances being outlined in paras. (a) to (k) inclusive in Clause 12, the last two circumstances being the following:

‘(j) if any of the events set out in Clauses 10 and 11 occurs;

(k) if any circumstance shall occur which in the sole judgment of the Bank is prejudicial to or imperils or is likely to prejudice or imperil the security hereby created;’.

6

In the case of each Debenture Clause 10 was invoked by the Bank by a notice dated 28th October, 2009 (the Crystallisation Notice), which was addressed to the Company and which was headed ‘Notice of conversion of floating charge’. Having referred to the Debenture, which was described as having ‘created fixed and floating security in our favour over all your undertaking, property and assets, whatsoever and wheresoever both present and future as security for your present and future liabilities to us’, it then provided:

‘We now give you NOTICE that we now consider that the property, assets and rights which are subject to the floating charge contained in the Debenture are in jeopardy.

We further give you NOTICE that, pursuant to clause 10 of the Debenture, we hereby convert the floating charge contained in the Debenture into a first fixed charge with respect to all property, assets and rights which are subject to such floating charge.’

...

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1 firm's commentaries
3 books & journal articles
  • First Among Equals: The Revenue Commissioners as Preferential Creditors in Corporate Insolvency
    • Ireland
    • Hibernian Law Journal No. 20-2021, January 2021
    • 1 January 2021
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