A-Wear Ltd ((in Receivership)) v Taite

• Jurisdiction: Ireland
• Judge: Mr. Justice Tony O'Connor
• Judgment Date: 18 March 2016
• Neutral Citation: [2016] IEHC 141
• Docket Number: [2015/62 COS]
• Court: High Court
• Date: 18 March 2016

IN THE MATTER OF A-WEAR LIMITED (IN RECEIVERSHIP)

AND IN THE MATTER OF SECTION 316 OF THE COMPANIES ACTS

1963 – 2012

BETWEEN

THE REVENUE COMMISSIONERS

APPLICANTS

AND

DECLAN TAITE

RESPONDENT

HILCO CAPITAL IRELAND LIMITED

NOTICE PARTY

[2016] IEHC 141

[2015/62 COS]

THE HIGH COURT

Company – S. 316 of the Companies Acts 1963-2012 – Fixed versus floating charge – Construction of debenture – Onus of proof

Facts: The applicants sought an order under s. 316 of the Companies Act 1963 for directing the respondent/receiver to categorise the relevant assets of the company as the floating charge. The respondent contended that certain charge of the company was fixed while others were floating depending upon the restrictions on the disposal of assets.

Mr. Justice Tony O'Connor refused to grant the desired relief to the applicants. The Court, however, granted liberty to the applicants to present an appropriate application before the Court challenging the decision of the receiver. The Court held that it had wide discretion under said s. 316 for making a declaration affecting the rights of the parties; however, that discretion did not entitle the Court to alter the legal rights of the parties as determined by corporate insolvency law. The Court observed that in an application under s. 316 of the Act of 1963, it was incumbent upon the applicant to show that he was unfairly prejudiced by the actions or inactions of the receiver. The Court held that a charge in relation to the present and future asset of a company and which changed from time to time would be a floating charge. The Court, however, found that the evidence adduced by the applicants in the form of credit card receipts, categorization of debtors by the respondent, money accumulated in the Paypal account, gift vouchers, etc., were insufficient to determine whether the assets created floating versus fixed charge.

JUDGMENT of Mr. Justice Tony O'Connor delivered on the 18th day of March, 2016

Introduction

1 The notice of motion for this application sought directions pursuant to s.316 of the Companies Act 1963 (‘CA 1963’) to direct the respondent receiver to categorise as a floating charge assets described under eleven separate headings. The final affidavit for this application was filed in July, 2015, while written and oral submissions were completed in February, 2016.

Background

2 By composite debenture dated the 3rd June, 2007 (‘the debenture’), A-Wear Ltd. (‘A-Wear’), its parent and group companies of the parent charged and assigned their assets to Ulster Bank Ireland Ltd (‘Ulster’) as fixed or floating charges.

3 The respondent was appointed as receiver and manager over the then property and assets of A-Wear on the 13th February, 2013, after an earlier receiver (‘the first receiver’) had been discharged. The Court is not aware of any controversy about the discharge of that receiver.

4 By email dated the 16th April, 2014, the respondent's solicitor sent a schedule of realisations (‘the April, 2014 schedule’) to an officer of the applicants. The applicants responded to the effect that the April, 2014 schedule did not provide information to a sufficient degree for the applicants to agree or disagree with the categorisation of each asset being the subject of a fixed or floating charge.

5 A determination that an asset is the subject of a floating charge as opposed to a fixed charge is relevant to the applicants because s.98 of CA 1963 grants to the applicants priority to the assets over which a receiver is appointed pursuant to a floating charge provided the company is not in the course of being wound up.

6 Paragraph (i) of the notice of motion listed eleven categories of assets (‘the described assets’) in subparagraphs a – k which became the subject of the application ultimately and they are listed later in this judgment.

The relevant charging sub-clauses

7 The following extract and sub-clauses of the debenture are the provisions which are most relevant to the Court's determination:-

‘3.1 Each Company as beneficial owner… as continuing security for the payment, performance and discharge of the ‘Secured Obligations’, hereby:-

(n) charges, assigns and agrees to assign to the Security Trustee as trustee for the Secured Parties all book and other debts, revenues and claims both present and future now or at any time hereafter due or owing or purchased or enjoyed by such Company (excluding for the purposes of this clause 3.1 (n) only, any debts or claims referred by, or in respect of, any monies standing to the credit of such Company's bank accounts) and the full benefit of all rights and remedies relating thereto, including, without limitation, all negotiable and non-negotiable instruments, guarantees, indemnities, rights of tracing and security interests, all things in action which may give rise to a debt, revenue or claim and all other rights and remedies of whatever nature in respect of the same;

(o)…

(p) charges, assigns and agrees to assign to the Security Trustee the Special Accounts and all other bank accounts of such Company (other than those referred to in paragraph (q) below) and all monies now or at any time hereafter standing to the credit thereof and all entitlements to interest and other rights and benefits accruing thereto or arising in connection with such monies;

(q) charges, assigns and agrees to assign to the Security Trustee all present and future trading and operational bank accounts of such Company (howsoever designated) with any bank or other financial institutions (including the Security Trustee), but excluding for the avoidance of doubt any account referred to in paragraph (p) above) and all monies now or at any time hereafter standing to the credit thereof and all entitlements to interest and other rights and benefits accruing thereto or arising in connection with any such monies, and;

(r) charges to the Security Trustee as trustee for the Secured Parties all of such Company's stock-in-trade, inventory and raw materials together with the whole of such Company's undertaking and property, assets and rights whatsoever and wheresoever both present and future other than any assets for the time being effectively charged to the Security Trustee as trustee for the Secured Parties by way of fixed charge or effectively assigned (whether at law or in equity) to the Security Trustee as trustee for Secured Parties or otherwise subject to an effective fixed security in favour of the Security Trustee as trustee for the Secured Parties’.

For ease of understanding the applicants accept that 3.1(n) and (p) appear to be fixed charges and that 3.1(q) and (r) are floating charges.

Negative pledge

8 Clause 8 of the debenture provided as follows and was relied upon by each of the parties when making submissions:-

‘8.1 Each company undertakes that at no time during the Security Period will such Company otherwise than:-

(i) as permitted under the Finance Documents,

(ii) in the Security Trustee's favour; or

(iii) with the Security Trustees prior written consent

create, grant, extend or permit to subsist or arise any encumbrance on or over all or any part of the Charged Property.

‘8.2 Each company undertakes that at no time during the Security Period will such Company except:-

(i) with the prior written consent of the Security Trustee; or

(ii) to the extent permitted under the Finance Documents

sell, convey, transfer, assign or otherwise dispose of all or any part of the Charged Property or agree to do any of the foregoing.

‘8.3 Notwithstanding Clause 8.2 but subject always to Clause 8.1, each company may sell, transfer or otherwise dispose of or deal with all or any part of its undertaking and assets for the time being subject to the Floating Charge in the ordinary and usual course of, and for the purposes of, such Company's business’.

Section 316 (1A) of CA 1963

9 The applicants, not being receivers, have a limited right to apply for directions by virtue of the operation of s.316(1A) of CA 1963. Clarke J. clarified In Re: HSS [2011] IEHC 497 that the Court does not have ‘general jurisdiction to consider whether things are fair or unfair’ in this type of application, and added:-

‘The court enjoys a wide discretion under s.316. It is true that the court is entitled to give directions or make orders declaring the rights of persons, as the court thinks just. However, it does not seem to me that that section confers on the court any entitlement to change the proper implementation of the regime for dealing with the assets of insolvent companies as set out in the Companies Acts. The reason why the court has been given a wide discretion is that the types of directions or orders that might be required may vary enormously depending on the facts with which the court is faced. The court is, therefore, given a very wide discretion as to the type of intervention which may be appropriate.

However, it does not seem to me that s.316 confers on the court any discretion to alter the legal rights of parties as determined by corporate insolvency law. The Companies Acts contain very many measures designed to determine who gets what out of the assets of insolvent companies. The court can, in an application under s.316, decide issues that arise as to who is to get what and make whatever directions or orders are appropriate to ensure that parties get what they are entitled to. The section does not, however, give the court carte blanche to reassess whether the carefully crafted provisions of corporate insolvency law ought to apply’.

10 This Court elaborates by stating that the burden is on the applicants to prove that there is an injustice, that that injustice stems from the misapplication of insolvency law and that the injustice is specific to an established right. In short, the burden is on the applicants to establish that actions or inactions of the...