Re Keenan Bros. Ltd

JurisdictionIreland
JudgeFINLAY C.J.,WALSH J.,Henchy J.,HEDERMAN J.,McCarthy J.
Judgment Date22 November 1985
Neutral Citation1985 WJSC-SC 2341
CourtSupreme Court
Docket Number[1983 No. 8329P]
Date22 November 1985
In Re KEENAN BROTHERS
IN THE MATTER OF KEENAN BROTHERS
LIMITED, In Liquidation
AND IN THE MATTER OF THE COMPANIES ACTS 1963TO 1983

BETWEEN

ALLIED IRISH BANKS LIMITED and ALLIED IRISH INVESTMENTBANK LIMITED
Appellants

and

BERNARD SOMERS
Respondent

1985 WJSC-SC 2341

Finlay C.J.

Walsh J.

Henchy J.

Hederman J.

McCarthy J.

272/84

THE SUPREME COURT

Synopsis:

WINDING UP

Charge

Debenture - Whether fixed or floating charge - Reference in deed to "first fixed legal charge" - Primary intention of parties - Fixed charge created - Book debts charged - Decision of High Court (5/10/84) reversed - (272/84 - Supreme Court - 22/11/85).

|Application of Keenan brothers Ltd.|

WORDS AND PHRASES

"Floating charge"

Company - Winding up - Debenture - Reference in deed to "first fixed legal charge" - Primary intention of parties - Fixed charge created - Decision of High Court (5/10/84) reversed - (272/84 - Supreme Court - 22/11/85).

|Application of Keenan Brothers Ltd.|

Citations:

ARMAGH SHOES LTD, IN RE 1982 NI 59

COLONIAL TRUST, IN RE 15 CH 465

COMPANIES ACT 1963

COVENEY V PERSSE 1910 1 IR 194

EVANS COLEMAN & EVANS LTD V R A NELSON CONSTRUCTION LTD 16 DLR(2ND)123

EVANS V RIVAL GRANITE QUARRIES LTD 1910 2 KB 979

FLORENCE LAND CO, IN RE 10 CH 530

HOULDSWORTH V YORKSHIRE WOOLCOMBERS ASSOC LTD, IN RE 1903 2 CH 284

ILLINGWORTH V HOULDSWORTH 1904 AC 355

JOINT STOCK COMPANIES ACT 1844

KEENAN BROTHERS, IN RE 1985 ILRM 641, 1985 IR 401

NAT PROVINCIAL BANK ENGLAND V UTD ELECTRIC THEATRES 1916 1 CH 132

PANAMA, NEW ZEALAND & AUSTRALIAN ROYAL MAIL CO, IN RE LR 5 CH APP 318

SIEBE GORMAN V BARCLAY'S BANK 1979 2 LlLR 142

STAVE FALLS LUMBER CO V WESTMINSTER TRUST CO 1940 4 DLR 382

TAILBY V OFFICIAL RECEIVER 13 AC 523

WHEATLEY V SILKSTONE & HAIGH MOOR COAL CO 29 CH 715

1

JUDGMENT delivered on the 22nd day of November 1985 by FINLAY C.J.

2

I agree with the judgments which are about to be delivered by Henchy J. and McCarthy J. in this case, and I would, accordingly allow thisappeal.

3

I also agree with the judgment which is about to be delivered by Walsh J. in so far as it concludes that the questions numbered 1 and 2 in the Notice of Motion of theOfficial Liquidator should be answered in the affirmative.

4

It would appear that in the High Court no question arose as to the monies or assets to which these charges might attach if they were found to be fixed charges. It is certain that on the hearing of the appeal this issue did not arise nor were any submissions made to this Court onit.

5

In those circumstances I express no opinion on those questions which may fall further to be determined by the High Court in the course of theliquidation.

6

JUDGMENT delivered on the 22nd day of November 1985 by WALSH J.

7

The facts of this case are so adequately set out in the judgment of Keane J. in the High Court that it is unnecessary for me to repeat them. This appeal was taken against his judgment to the effect that a deed of charge made the 3rd May 1983 and a debenture deed of 5th May 1983, both in favour of Allied Irish Banks and purporting to create fixed charges on present and future book debts of Keenan Brothers Limited were in law and in fact floating charges on the book debts.

8

The company was in serious financial difficulties on the dates already mentioned and the Bank was willing to give it financial assistance provided their loan could be so secured as to give them priority over other creditors including the Revenue Commissioners.In an endeavour to achieve that result the deed and debenture already mentioned were executed. They are described in greater detail in the High Court judgment. The deed charged all the booK debts and other debts present and future of the company and was expressed to constitute a first fixed charge. The debenture charged by way of a first fixed legal charge the present and future book debts of the company and all rights and powers in respect thereof.

9

The difference between floating and fixed charges are so fully explained in the judgments of Henchy J. and McCarthy J. which are to follow that I do not need to deal with that topic save to say that I agree with those explanations. I also agree that a fixed charge may be created in respect of book debts and other debts both present and future.

10

Book debts and other debts cease to be such the moment they are discharged by the debtors irrespective of whether the payment is made directly to the creditor or, on his order, to some other party on hisaccount.

11

From the dates of the execution of the charges until October 4th 1983 all monies received toy the company whether from book debts or other sources were lodged to the company's No. 1 current account withthe Bank. During that period the company also had four other accounts with the Bank, namely a creditors account, two wages accounts and a deposit account. During that period all these accounts were operated in the ordinary way and without any special restriction on any of them imposed by the Bank.

12

On October 4th 1983 a new bank account was opened by the company with the Bank under the name "Keenan Brothers Limited Allied Irish Banks Limited Book Debts RAC, "the letters RAC standing for Receivable Account. From that date until the commencement of the liquidation on 29th November 1983 all receipts of the company whether from debtors or otherwise were lodged to the receivable account. The total receipts from debtors lodged amounted to £665,948.53 and a further sum of £11,184.85 and £14,944.76 in respect of cash sales and sundries respectively were also lodged. No withdrawals or transfers or payments could be made from that account without the counter-signature of the Bank Manager who had in fact the sole discretion to permit withdrawals or transfers from that account. Some book debts paid into the No. 1 account were immediately transferred into m receivable account.

13

The company's day to day expenses and payments due by thecompany to its business creditors were paid out of the No. 1 account which was in effect an overdraft account and which from tine to time received transfers of funds from the receivable account. These payments were of course only possible with the consent of the Bank.

14

At all relevant times the receivable account was in credit. As the relationship between banker and customer is one of debtor and creditor all sums from time to time standing to credit in that account were owed by the Bank to the company and were not book debts due to the company or debts in the contemplation of the deed of charge or the debenture, even though the account was opened to receive the collected book and other debts due to the company, which of course ceased to be debts from the moment they were collected. According to the copy of the Bank's statement of the receivable account exhibited in this case the highest credit balance was pound;46,395.97 which stood to credit on November 24th 1983. On November 25th £42,000 was transferred to the No. 1 account. On November 28th the credit balance was £22,375.14. On November 29th 1983 £20,137 was transferred to the NO. 1 account leaving a balance of £2,238.14. November 29th was the date of the order of theHigh Court for the liquidation of the company. The material before the Court does not disclose whether this was effected before or after the order for liquidation. If it was the latter then it is for the Examiner to examine the legal effects of the transaction. No monies in that account are or ever were subject to the fixed charge. That is also a matter for the Examiner to look into. For the moment I am content to answer in the affirmative the questions numbered 1 and 2 in the notice of motion of the official liquidator. I do not find it necessary to identify what particular monies were or are the subject of the fixed charge beyond repeating my opinion that none of the monies in the receivable account were ever so subject after they were lodged to thataccount.

15

Judgment of Henchy J.delivered the 22 November 1985

16

One of the essential differences between a fixed charge and a floating charge given by a company is that a fixed charge takes effect, upon its creation, on the assets that are expressed to be subject to it, so that those assets, as they then exist, or, when the charge applied to future assets, as soon as they come into existence, will stand encumbered by the charge, and the company will be able to deal with those assets only to the extent permitted by the terms of the charge. On the other hand, in the case of a floating charge, while such charge is effective in law from the date of its creation, because it is of its nature dormant and hovering, it does not attach to the assets expressed to be subject to it so as to prevent the company from continuing to deal with those assetsinthe ordinary course of business, until the happening of sane event, such as the appointment of a liquidator, which shows that the company is no longer in business, or until the chargee intervenes. At that point, the floating charge is said to crystallise and the rights of the chargee become the same as if he had got a fixed charge; thereafter the company cannot deal with the assets in question except subject to the charge. A floating charge, so long as it remains floating, avoids the restricting (and in some cases, paralysing) effect on the use of the assets of the company resulting from a fixed charge. While a charge remains a floating one, the company may, unless there is agreement to the contrary, deal with its assets in the ordinary course of business just as if there were no floating charge.

17

Those conclusions would seem to be supported by the cases referred to in the judgment under appeal.

18

Apart from the fact that both of the instruments of charge in this case refer to a "fixed charge", thereby showing that such was the type of charge intended, I consider that the restricted use permitted...

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