Re JD Brian Ltd ((in Liquidation)) and Others

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 11 July 2011
• Neutral Citation: [2011] IEHC 283
• Date: 11 July 2011
• Court: High Court
• Docket Number: [2009 Nos. 719, 720 & 721 COS]

[2011] IEHC 283

THE HIGH COURT

[No. 719 COS/2009]

[No. 720 COS/2009]

[No. 721 COS/2009]

JD Brian Ltd (In liquidation) & Ors, In Re

IN THE MATTER OF J.D. BRIAN LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF J.D. BRIAN MOTORS LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF EAST COAST CAR PARTS LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF THE COMPANIES ACTS 1963TO 2009

KEENAN BROTHERS 1985 IR 401

WOGAN'S (DROGHEDA) LTD, IN RE 1993 1 IR 157

COMPANIES ACT 1963 S285(7)

COSSLETT (CONTRACTORS) LTD, IN RE 1998 CH 495

ANALOG DEVICES BV v ZURICH INSURANCE 2005 1 IR 274

INVESTORS COMPENSATION SCHEME v WEST BROMWICH BUILDING SOCIETY 1998 1 WLR 896

UPM KYMMENE CORPORATION & ORS v BWG LTD UNREP LAFFOY 11.6.1999 1999/24/7894

AGNEW v COMMISSIONER OF INLAND REVENUE 2001 2 AC 710

SPECTRUM PLUS LTD, IN RE 2005 2 AC 680

COMPANY LAW

Debenture

Fixed charges - Floating charges - Construction - Crystallisation of floating charge - Purported conversion of floating charge into first fixed charge - Whether restriction from dealing in or disposing of charged assets - Company able to collect and use proceeds in ordinary course of trading - Whether charge fixed or floating charge - Agnew v Commissioner of Inland Revenue [2001] UKPC 28, [2001] 2 AC 710, In re Keenan Bros. Ltd. [1985] IR 401, In re Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680 and In re Cosslett (Contractors) Ltd. [1998] 1 Ch 495 applied - Proirity determined (2009/719, 720 & 721Cos - Finlay Geoghegan J - 11/7/2011) [2011] IEHC 283

In re JD Brian Ltd (in liquidation)

1 SUPPLEMENTARY JUDGMENT of Ms. Justice Finlay Geoghegandelivered on the 11th day of July, 2011

2 1. This judgment is supplementary to the judgment delivered here on 25 ^th March, 2011. It should be read in conjunction with that judgment I do not propose repeating the background and facts.

3 2. In the first judgment, on a second issue in relation to a so-called "automatic crystallisation" of floating charges, I concluded, at paragraph 56, that:

"there is no rule of law which precludes parties to a debenture creating a floating charge agreeing, as a matter of contract, that the floating charge will crystallise upon the happening of an event or a particular step taken by the chargee. Whether the parties actually achieve their intention is a separate issue by reason inter alia of the Supreme Court decision in In re Keenan Brothers [1985] IR 401."

4 3. The background to the further issue and the necessity for a further hearing is set out at paragraphs 57 to 65 of the first judgment where I stated:

5 2 " 57. In In Re Keenan Brothers, the issue was whether or not the charge created by the debenture over book debts was a fixed charge or a floating charge. In the debenture, the charge was expressed to be a "fixed charge". McCarthy J. who gave a judgment with which the majority of the court agreed, states, at p. 421:

6 'It is not suggested that mere terminology itself, such as using the expression "fixed charge", achieves the purpose; one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements?'

7 58. Each of the judgments in the Supreme Court in In Re Keenan Brothers, notwithstanding the express terms of the debentures, considered whether or not the charges created, having regard to the other terms in the debentures, were, in reality, fixed or floating charges. There were two debentures at issue in the proceedings. Henchy J., at p. 419, epitomises what appears to be the proper approach of a court in determining whether or not a debenture, by its terms, creates a fixed or floating charge. In relation to the second debenture, he concluded:

8 'As to the debenture deed of the 5th May, 1983, the company professed to charge in favour of the Bank (A.I.I.B. Ltd.) its present and future debts as a first fixed legal charge. The extent to which this was to be in reality a fixed, rather than a floating charge, is shown by the following provisions in the deed:-

9 1. all moneys which were received by the company in respect of book debts were to be paid into a specified A.I.B. branch and no withdrawals or payments from that account were to be made without the prior consent of the Bank;

10 2. the company was not, without the consent of the Bank, to carry on its business otherwise than in the ordinary and normal course;

11 3. the company was not, without the consent in writing of the Bank, to diminish or dispose of its book debts otherwise than by collecting and lodging them in the specified account.

12 It seems to me that such a degree of sequestration of the book debts when collected made those monies incapable of being used in the ordinary course of business and meant that they were put, specifically and expressly, at the disposal of the Bank. I am satisfied that assets thus withdrawn from ordinary trade use, put in the keeping of the debenture holder, and sterilised and made undisposable save at the absolute discretion of the debenture holder, have the distinguishing features of a fixed charge. The charge was not intended to fasten in the future on the book debts; it was affixed forthwith and without further ado to those debts as they were collected; so it did not in any sense float over those moneys. As I understand the law, assets the subject matter of a floating charge may be disposed of, at least in the ordinary course of business, by the maker of the charge without the consent of the chargee. That was not the case here. I would allow this appeal and declare that the charge created by each of the two instruments of charge was a fixed charge'.

13 59. The Supreme Court in In Re Wogan's (Drogheda) Ltd. [1993] 1 I.R. 157 followed In Re Keenan Brothers and made clear that where a court is required to determine whether or not a debenture creates a fixed or floating charge, that it must be done by construction of the debentures concerned and that the subsequent conduct of the parties is not a relevant evidential factor. See Finlay C.J. at p. 169. In that decision, the Supreme Court again construed the relevant debenture and concluded that, having regard to several terms of the debentures, the parties did, in reality, create a fixed charge over the book debts.

14 60. It appears to me, similarly, where a debenture expressly provides that a chargee may, by service of a notice, effect a crystallisation of a floating charge over all the assets or specified assets, the mere fact that the debenture so provides does not of itself mean that the service of the notice, has the intended effect i.e. that the floating charge crystallises. In the words of McCarthy J. 'mere terminology' used by the parties is not determinative of achieving the stated purpose but rather 'one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements'.

15 61. The issue is not, of course, whether the charge created by the debenture was a fixed or floating charge but, rather, whether the service of the notice provided for in Clause 10 of the Debenture does, in reality, what it purports to do, namely, 'convert the floating charge contained in this deed into a first fixed charge over all the property, assets and rights for thetime being, subject to the said floating charge'. Similar to the approach of the Supreme Court in the above decisions, this Court must determine whether or not the effect of the service of the notice, pursuant to Clause 10, achieved what the parties intended it to achieve, namely, the conversion of the then floating charge into a first fixed charge over all the relevant property i.e. over all of the property specified in the notice. Further, in accordance with the decision in In Re Wogan's (Drogheda) Ltd., it appears that this issue must be determined by a construction of the terms of the Debenture and the notice served, rather than any subsequent actions by either party.

16 62. In accordance with Clause 5 of the Debenture, the property subject to the floating charge in October 2009 appears to have been all the property of the Companies other than land and related rights, proceeds from insurance, goodwill and uncalled capital. Certain of the Companies were trading companies in the motor business. The assets, therefore, included, inevitably, stock in trade, book debts and possibly monies deposited at the Bank.

17 63. If the service of the notice, pursuant to Clause 10, in reality had the effect of converting the floating charge over the book debts and stock in trade of the Companies into a first fixed charge on such assets, then it must also have effected an equitable assignment of such assets to the Bank. As a consequence, the Companies would have lost the ability to deal in or dispose of those assets, save to the extent permitted by the Bank. The Court appears obliged, in accordance with the judgments in In Re Keenan Brothers, to determine whether, in reality, such was the effect of theservice of the notice, pursuant to Clause 10 having regard to the other...