Re Tullow Engineering (Holdings) Ltd ((in Receivership))

• Jurisdiction: Ireland
• Judgment Date: 01 January 1990
• Date: 01 January 1990
• Docket Number: [1988 No. 283 Sp. Ct. 6]
• Court: High Court

In re Tullow Engineering (Holdings) Ltd. (In Receivership)

In Re Tullow Engineering (Holdings) Ltd. (In Receivership), Tom Grace

Applicant

and

Tullow Investments Ltd.

Respondent

[1988 No. 283 Sp. Ct. 6]

High Court

Company law - Floating charge - Option to purchase shares - Appointment of receiver - Crystallisation of floating charge - Effect of crystallisation on option to purchase shares - Whether receiver bound by option - Companies Act, 1963 (No. 33) s. 316.

Tullow Engineering (Holdings) Limited ("Holdings") was one of a group of five companies owned and managed by six brothers. Holdings granted a number of debentures which, inter alia,created a floating charge over an asset of Holdings', namely 350,000 £1 shares in Tullow Oil plc ("the shares"). On the 27th March, 1987, Holdings granted to the respondent, another company within the same group, an irrevocable option to purchase the shares. The debentureholders appointed the applicant receiver of Holdings' assets under the debenture on the 14th August, 1987. The respondent purported to exercise the option in respect of the shares on the 4th March, 1988. The applicant sought the directions of the High Court pursuant to s. 316 of the Companies Act, 1963, as to the validity of the option agreement.

Held by Blayney J., in declaring the option agreement invalid, 1, that the debentureholders' floating charge constituted a present security which did not specifically affect the shares until the appointment of the receiver. The grant of an option to purchase the shares did not alter the debentureholders' present security in the shares.

Evans v. Rival Granite Quarries [1910] 2 K.B. 979 approved.

2. That the option constituted an irrevocable offer to sell the shares during the relevant period, which, if accepted, would have given rise to an ordinary contract for sale of the shares.

Mountford v. Scott [1975] Ch. 258 approved.

3. That the appointment of a receiver brought about the crystallisation of the debentureholders' floating charge and operated as an immediate equitable assignment of the shares to the debentureholders.

In Re Interview Ltd. [1975] I.R. 382 approved.

4. That once the equitable assignment of the shares to the debentureholders had taken place, Holdings was divested of ownership and no longer had capacity to sell the shares pursuant to the option agreement.

Robson v. Smith [1985] 2 Ch. 118 approved.

5. That there could be no remedy in specific performance as the against the receiver as the contract to purchase the shares pursuant to the option agreement had not been entered into prior to the appointment of the receiver.

Freevale Ltd. v. Metrostore (Holdings) Ltd. [1984] Ch. 199 distinguished.

Cases mentioned in this report:—

Evans v. Rival Granite Quarries [1910] 2 K.B. 979; (1910) 26 T.L.R. 509.

Freevale Ltd. v. Metrostore (Holdings) Ltd. [1984] Ch. 199; [1984] 2 W.L.R. 496; [1984] 1 All E.R. 495.

In Re Interview Ltd. [1975] I.R. 382.

Mountford v. Scott [1975] Ch. 258; [1975] 1 All E.R. 198.

Robson v. Smith [1895] 2 Ch. 118.

Special Summons.

The facts have been summarised in the headnote and are set out in full in the judgment of Blayney J., post. On the 29th March, 1988, the applicant issued a special summons seeking the directions of the High Court pursuant to s. 316 of the Companies Act, 1963, on the validity of the agreement granting the respondent an option in respect of the purchase of shares which were the subject matter of the debenture under which the receiver had been appointed. The parties consented to the matter being heard on oral evidence and the matter was heard by the High Court (Blayney J.) on the 15th, 19th, 20th and 21st July, 1988.

Section 316, sub-s. 1 of the Companies Act, 1963, provides:—

"A receiver of the property of a company appointed under the powers contained in any instrument may apply to the court for directions in relation to any particular matter arising in connection with the performance of his functions, and on any such application, the court may give such directions, or make such order declaring the rights of persons before the court or otherwise, as the court thinks just."

Cur. adv. vult.

Blayney J.

The purpose of this judgment is to give my reasons for the order which I made in the case following the hearing. That order was as follows:—

"1. Declare that the option to purchase dated the 27th April, 1987, granted by Tullow Engineering (Holdings) Limited to Tullow Investments Limited in respect of 350,000 £1 ordinary shares in Tullow Oil plc did not constitute a disposal of the said shares.

2. Declare that on the appointment of the receiver on the 14th August, 1987, the floating charge on the 350,000 £1 ordinary shares in Tullow Oil plc crystallised with the result that there was an equitable assignment of the said shares to Allied Irish Banks Limited pursuant to their debenture of the 21st January, 1974.

3. Declare that the purported exercise of the option by Tullow Investments Limited on the 4th March, 1988, did not affect the title to the said shares which had vested absolutely in Allied Irish Banks Limited on the appointment of the receiver.

4. Direct Tullow Investments Limited to hand over forthwith to the receiver the share certificate relating to the said 350,000 £1 ordinary shares in Tullow Oil plc.

5. The 350,000 £1 ordinary shares in Tullow Oil plc having been converted into 3,500,000 ordinary shares of 10p each, direct the receiver to retain in a separate account pending the final determination of these proceedings the aggregate of the amounts by which the price obtained for each share...