The Merrow Ltd v Bank of Scotland Plc and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Gilligan
• Judgment Date: 22 March 2013
• Neutral Citation: [2013] IEHC 130
• Court: High Court
• Docket Number: [No. 695 COS/2012]
• Date: 22 March 2013

Merrow Ltd v Bank of Scotland PLC & O'Connor

No Redaction Needed

IN THE MATTER OF THE BELOHN LIMITED, AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 316 OF THE COMPANIES ACTS 1963 TO 2012

BETWEEN

THE MERROW LIMITED

APPLICANT

AND

BANK OF SCOTLAND PLC AND DAVID O'CONNOR

RESPONDENTS

[2013] IEHC 130

[No. 695 COS/2012]

THE HIGH COURT

Debt – Loan facilities - Mortgage debentures - Repayment - Appointment of receiver - Under seal - Creditor and borrower - Valid appointment - Companies Act 1963

Facts: The applicant was the sole member of Belohn Ltd (hereafter referred to as ‘the Company’) which had substantial loan facilities with the first named respondent (‘the Bank’) which was at an approximate balance of €4,000,000.00 owing to the Bank by the 3rd October 2012. In consideration of these facilities, the Bank held two mortgage debentures (created in 1981 and 2008 respectively) which gave charges over Company premises, undertakings and assets, uncalled capital, goodwill and moveable plant. On the 10^th October 2012, the Bank appointed the second named respondent as receiver. The applicant accepted it was in default in respect of repayments under the debentures.

The applicant brought a motion seeking an order pursuant to s. 316 of the Companies Act 1963 declaring that the second named respondent was not validly appointed as a receiver over all the property and assets referred to in both mortgage debentures. It was claimed that the appointment was not made under seal as specifically provided for in the 1981 debenture. Clause 7 of the 1981 debenture explained that the Bank could "…at any time after the mortgage debt shall have become payable appoint by writing under its Seal a Receiver of the mortgaged property of any part thereof’. However, the appointment of the receiver was clearly not made under seal which the applicant claimed was a breach of the clause. It was further claimed that due to the link between the property of the 1981 and 2008 debentures in running the business, the appointment of the receiver under the 2008 debenture should be declared valid by extension.

The Bank in turn claimed that the terms of the debenture could not be strictly applied. The original author of the 1981 debenture was Industrial Credit Company Limited who had went on to change its name to the Bank of Scotland (Ireland) Limited with the business of the Bank of Scotland (Ireland) Limited subsequently becoming vested in the Bank on 31st December 2010. However, under the Bank”s Memorandum and Articles of Association, it was not required to have a seal and therefore it was not possible for the Bank to have executed the Deed of Appointment of the Receiver under seal.

Held by Gilligan J that even if the bank would have been in breach of its Memorandum and Articles of Association by executing the Deed of Appointment of the Receiver under seal, that was of no consequence to the obligation owed to the applicant. The original author of the 1981 debenture had purposefully restricted the methods by which a receiver could be appointed and no effort was subsequently made by the Bank to adjust the terms. As such, the Bank's failure to follow the terms of the 1981 debenture rendered the receiver's appointment invalid over the property referred to therein.

It was further held that the property over which the 2008 debenture referred was strongly linked to that referred to in the 1981 debenture and both were interdependent in the running of the business. The consequence of this was that the property could not be differentiated for the purpose of appointing a receiver meaning the receiver's appointment over the property covered by the 2008 Debenture was also invalid.

Declaration made pursuant to s. 316(1) of the Companies Act 1963 that the second named respondent”s appointment as a receiver was void.

CONVEYANCING & LAW OF PROPERTY ACT 1881 S24(1)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S24(8)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S7

JAFFE (R) LTD (NO 2) 1932 NZLR 195

LYNCH-FANNON CORPORATE INSOLVENCY & RESCUE 2ED 2012

FORDE THE LAW OF COMPANY INSOLVENCY 2ED 2008

LIGHTMAN & MOSS THE LAW OF ADMINISTRATORS & RECEIVERS OF COMPANIES 4ED 2007

PICARDA THE LAW OF RELATING TO RECEIVERS, MANAGERS & ADMINISTRATORS 4ED 2006

WRIGHTS HARDWARE v EVANS 1998 13 ACLR 631

WINDSOR REFRIGERATOR CO LTD v BRANCH NOMINEES LTD 1961 1 AER 277 1961 CH 375

R (MERCURY TAX GROUP LTD) v H M REVENUE & CUSTOMS CMRS & ORS 2009 STC 743 2008 AER (D) 129 (NOV) 2008 EWHC 2721 (ADMIN)

TAXES MANAGEMENT ACT 1970 S20(C)(1) (UK)

LAND & CONVEYANCING LAW REFORM ACT 2009 S64(2)(B)(IV)

JENNINGS & ANOR v BANK OF SCOTLAND PLC & ORS UNREP MCGOVERN 5.12.2012 2012/19/5505 2012 IEHC 515

BYBLOS BANK SAL v AL-KHUDHAIRY 1987 1 BCLC 232 1987 1 FTLR 35

LYNCH-FANNON CORPORATE INSOLVENCY & RESCUE 2ED 2012 PARA 6.39

LINDSAY PETROLEUM CO v HURD 1874 LR 5 PC 239

ARCHBOLD v SCULLY 1861 11 ER 769 1861 9 HLC 360

BANK OF BARODA v PANESSAR & ORS 1986 3 AER 751 1987 WLR 208 1986 BCLC 497 1987 CH 335

COMPANIES ACT 1963 S316

COMPANIES ACT 1963 S316(1)

Mr. Justice Gilligan

1 The applicant is the sole member of Belohn Limited (hereinafter referred to as "the Company"). The common directors of the applicant and the company are Mr. Sean Foley and his wife, Ms. Sherry Yan. The Company was incorporated on 24^th July, 1973, and at all material times owned and operated licensed premises known as Foley's Bar and O'Reilly's Bar, premises situated at 1 Merrion Row, Dublin 2 and 17 Merrion Street, Dublin 2.

2 The Company has extensive loan facilities with Bank of Scotland Plc (hereinafter referred to as "the Bank"), and the balance due on the loan accounts attributable to these facilities as of 3^rd October, 2012, amounted to a sum in the region of €4,000.000.00.

3 The Company formerly banked with the Industrial Credit Company Limited who on 7^th August, 1981, created a charge over the premises known as No.1 Merrion Row, Dublin as well as all of the Company's undertakings and assets, uncalled capital, goodwill and moveable plant.

4 Further, Bank of Scotland (Ireland) Limited on 3^rd April, 2008, also created a charge over premises of the Company and more generally the dwelling house, shop and premises on the corner of Merrion Street and Merrion Row known as 17 Upper Merrion Street.

5 On 25^th March, 2002, the Industrial Credit Company Limited changed its name to Bank of Scotland (Ireland) Limited. Thereafter, the business of Bank of Scotland (Ireland) Limited became vested in the Bank on 31^st December, 2010, on foot of an order of the Scots Court of Session pursuant to the provisions of the Companies (Cross-Border Mergers) Regulations, 2007 United Kingdom.

6 Consequently, by virtue of the foregoing the Bank became entitled to all rights under the said charges, including the appointment of a receiver and manager over the Company and its business and indeed the Bank invoked this power on 10^th October, 2012, and appointed the second named respondent as receiver.

7 The 1981 debenture contains a clause at para. 7 as follows:-

"The lender may at any time after the mortgage debt shall have become payable appoint by writing under its seal a receiver of the mortgage property or any part thereof and remove any receiver so appointed and appoint another receiver in his stead and the following provisions shall have effect…"

8 There is a further provision at para. 10 of the mortgage debenture which provides that:-

"The provisions of s. 24 of the Conveyancing and Law of Property Act 1981, with the exception of subs. (1) and (8) thereof shall apply to this Deed and to any receiver appointed by the lender hereunder."

9 The interesting feature is that pursuant to para. 10 of the mortgage debenture the possibility of the respondent bank making an appointment "by writing under hand" under s. 24(1) of the Conveyancing and Law of Property Act 1881, is expressly excluded.

10 The 2008 mortgage debenture specifically provides at s. 7 that:-

"The respondent at any time after the power of sale has become exercisable, whether or not the Bank has entered into or taken possession of the secured assets, or at any time after the mortgagor so requests the Bank from time to time to appoint under seal or under hand a duly authorised officer or employee of the Bank any person or persons to be receiver and manager or receivers and managers…"

11 Accordingly, pursuant to the mortgage debenture of 3^rd April, 2008, the Bank is entitled to appoint a receiver either under seal or under hand of a duly authorised officer or employee of the Bank any person or persons to be receiver.

12 The applicant accepts that it is in default in respect of the payments due under both mortgage debentures.

13 Following the merger of Bank of Scotland (Ireland) into Bank of Scotland Plc on 27^th January, 2012, the respondent Bank appointed Derek Woodhead as director of Ireland Business Support Unit and, inter alia, gave him authority to "at any time in connection with any specific named transactions or proposed transaction appoint one or more persons to act as a delegate attorney for the Bank in his place with power to exercise all or any of the powers conferred on the attorney by this power of attorney other than the power to appoint a delegate attorney as are required for that specific transaction."

14 Subsequently, on 26^th April, 2012, Derek Woodhead, pursuant to the authority given under the power of attorney granted in his favour by Bank of Scotland Plc on 27^th January, 2012, confirmed that each of the directors of Credit Risk, heads of Credit Sanctions and senior managers of Ireland Business Support Unit is an authorised signatory of Bank of Scotland Plc authorised to sign the deeds and documents specified below in connection with the Ireland Business Support Unit including, inter...