Re Salthill Properties Ltd

• Jurisdiction: Ireland
• Judge: Justice Laffoy
• Judgment Date: 30 July 2004
• Neutral Citation: [2004] IEHC 145
• Docket Number: RECORD NO. 23 Cos./2004
• Court: High Court
• Date: 30 July 2004

[2004] IEHC 145

THE HIGH COURT

RECORD NO. 23 Cos./2004

SALTHILL PROPERTIES LTD, RE

IN THE MATTER OF SALTHILL PROPERTIES LIMITED (IN RECEIVERSHIP) AND IN THE MATTER OF THE COMPANIES ACTS,1963–2001

Citations:

COMPANIES ACT 1963 S316

COMPANIES ACT 1963 S316(1)

COMPANIES ACT 1990

RSC O.75 r5

RSC O.75 r21

O'MALLEY V IRISH NATIONWIDE BUILDING SOCIETY UNREP COSTELLO 21.1.94 1994/6/1669

GOUGH COMPANY CHARGES 2ED 1996

WELCH V BOWMAKER (IRL) LTD 1980 IR 251

COMPANIES ACT 1963 S99

Abstract:

Company law - Receivership - Directions - Leases created by company - Impact of negative pledge clauses in prior mortgage debentures - Whether leases contravened negative pledge clause in mortgages - Whether plenary proceedings appropriate - Companies Act 1963, s. 316

This was an application by the receiver of the company pursuant to s. 316 of the Companies Act 1963 for directions in relation to leases which had been created by the company. Specifically, the receiver sought directions as to whether the leases contravened the negative pledge clause contained in certain mortgages between the company and a bank and whether the leases had been determined or surrendered. The receiver also sought an order staying proceedings brought by the lessee as plaintiff against the company for a declaration that the company (in receivership) had trespassed on and unlawfully interfered with its possession of the demised premises.

Held by Laffoy J. in giving directions that the lessee had not discharged the onus of establishing that it did not have actual notice of the negative pledge clause. The leases did contravene the negative pledge clauses contained in each of the prior mortgage debentures. It had not been established that the leases had been determined or surrendered. No determination had been made as to the validity or enforceability of the leasehold interests as between the company and the lessee. The bank’s interests were created by deed which predated and were registered in the registry of deeds before the leases. The application for a stay on the plenary proceedings was now redundant.

Reporter: R.W.

Judgment of Miss

Justice Laffoy

1 delivered on 30th day of July, 2004.

2 This is an application by Ray Jackson (the Receiver), the receiver of Salthill Properties Ltd. (the Company), pursuant to s. 316 of the Companies Act,1963for directions. The notice party is Porterridge Trading Ltd. (the Lessee), being the Lessee named in three leases created on 22^nd December, 1999 by the Company. The specific issues on which directions are sought are as follows:

3 (1) Whether the leases, which in the notice of motion are referred to as "purported" leases, are valid?

4 (2) Whether the leases contravene the negative pledge clause contained in certain mortgages between the Company and First Active Plc (the Bank)?

5 (3) Whether the leases were determined by reason of forfeiture notices served by the Company on the Lessees dated 20^thDecember, 2001?

6 (4) Whether the leases were surrendered by the Lessee in January, 2002?

7 (5) Whether the Lessee currently has any valid or enforceable leasehold or other interest in the lands thereby demised?

8 The Receiver also seeks an order staying plenary proceedings in this court by the Lessee, as plaintiff, against the Company (in receivership), as defendant (Record No. 2003/ 12328P). In the plenary proceedings the Lessee claims a declaration that the Company (in receivership) has trespassed on, and unlawfully interfered with, its possession of the premises demised by the leases and further claims injunctive relief and damages.

9 At the hearing of the application the Receiver did not pursue the issue as to the validity of the leases referred to at (1) above.

10 The Company was incorporated on 14^th January, 1998. It is one of a group of companies, which have been referred to as the Cunningham Group, of which Brian Cunningham and Marian Cunningham are directors, which the Receiver asserts are owned and controlled by Mr. and Mrs. Cunningham.

11 The Company was the developer of a complex known as The Bailey Point at Salthill in Galway. It financed the development by means of borrowings from the Bank, which were secured on the development site by the following instruments:

12 (1) a mortgage debenture dated 21^st October, 1999 made between the Company of the one part and the Bank of the other part, which was registered in the Registry of Deeds on 3^rdFebruary, 2000;

13 (2) a mortgage debenture dated 29^th October, 1999 made between the same parties, which was registered in the Registry of Deeds on 4^th April, 2000;

14 (3) a mortgage debenture dated 22^nd November, 1999 (incorrectly referred to in the notice of motion as dated 12^th November, 1999) made between the same parties, which was registered in the Registry of Deeds on 1^st March, 2000;

15 (4) a mortgage debenture dated 20^th December, 2001 made between the same parties, which was registered in the Registry of Deeds on 18^th January, 2002; and

16 (5) an assignment of receivables dated 9^th October, 2002 made between various companies in the Cunningham Group, including the Company, of the one part and the Bank of the other part.

17 The mortgage debenture dated 21^st October, 1999 was the first, and patently the primary, security obtained by the Bank from the Company over the development site at Salthill. It was not referred to in the notice of motion and it was not exhibited in the first grounding affidavit of the Receiver. However, it was exhibited in an affidavit sworn by the Receiver on 14^th July, 2004 and filed in court on the second day of the hearing of the application. Insofar as they are relevant for present purposes, the provisions of that mortgage debenture are as follows:

18 (a) It contained comprehensive charging provisions. First, fifteen parcels of land at Salthill then in the ownership of the Company were specifically mortgaged or charged in favour of the Bank — unregistered freehold in fee, unregistered leasehold by way of sub-demise and registered land by way of registered charge in the prescribed form. Secondly, there were various fixed charges on other assets, which are not relevant for present purposes. Thirdly, there was a first floating charge on all the undertaking, property, rights and assets of the Company whatsoever and wheresoever both present and future.

19 (b) The so-called negative pledge clause, clause 6, provided that the Company should not, except with the written consent of the Bank,inter alia, create, extend or permit to subsist any encumbrance (defined as including any mortgage, charge, pledge, lien and such like) over the secured assets for any sum ranking in priority to orpari passu with or after the security thereby created, or "part with, sell, transfer, lend, lease or otherwise dispose of" the whole or any part of the secured assets.

20 (c) A wide range of enforcement provisions was included, including power to appoint a receiver and manager over the secured assets whose powers were defined and included power to take possession of the secured assets, to carry on business, and to deal with the secured assets. It was provided that a receiver so appointed should at all times and for all purposes be the agent of the Company.

21 The other three mortgage debentures were in the same form as the mortgage debenture dated 21^st October, 1999 and contained provisions similar to the provisions set out above. They specifically mortgaged to the Bank parcels of land at Salthill to which the Company had acquired legal title after 21^st October, 1999. The mortgage debenture dated 29^th October, 1999 mortgaged a parcel of land the subject of a conveyance dated 28^thOctober, 1999 to the Company to the Bank in fee. The mortgage dated 22^nd November, 1999 mortgaged a property which the Company had acquired by conveyance dated 8^th November, 1999 to the Bank in fee. The mortgage debenture dated 20^th December, 2001 mortgaged to the Bank a property which the Company had acquired by a conveyance and assignment dated 27^th July, 2001, which was described as premises situate at the rear of the Bamba Hotel, Salthill.

22 The assignment of receivables dated 9^th October, 2002 charged by way of first fixed charge in favour of the Bank the Company's present and future right, title and interest in, inter alia, amounts payable pursuant to or in connection with "any lease" entered into in relation to the Salthill site. In my view, as regards the issues which fall for determination on this application, the security thereby created in favour of the Bank did not materially bear on the relationship of the Bank and the Lessee. The charging clause was a "catch-all" provision, not a provision specifically directed to the leases.

23 By deed dated 9^th April, 2003 the Bank appointed the Receiver to be Receiver and manager of and over all the undertaking property and assets of the Company referred to in the security documents listed in the schedule thereto, including the four mortgage debentures and the assignment of receivables referred to above.

24 Three leases were created by the Company on 22^nd December, 1999, each of which was made between the Company of the first part, Adaremount Management Company Ltd. of the second part and the Lessee of the third part. Each created a term of 25 years from the date thereof. The leases related to three commercial units, which were in the course of development, and were described as Unit 1 (a restaurant), Unit 2 (a cinema) and Unit 3 (a public house with nightclub), at The Bailey Point. The leases were registered in the Registry of Deeds on 14^thJune, 2000.

25 In his grounding affidavit the Receiver averred that the leases appear to have been created in order to avail of the double rent relief provisions of the Consolidated Taxes Acts. To achieve that objective they required to be at arm's length with an unconnected third party.

26 The...