9- Floating charges Flashcards
Order in a PQ?
- Use 245 if cannot prove a preference as a transaction at an undervalue or preference. It is a way to set aside a floating charge.
- State 245(2)(a) or (b)
- Re Yeovile Glove
- Re Fairway Magazines - ‘At the same time’ in (2)
- Power v Sharp Instruments - Does the creditor have a defence?
- Re Mathew Ellis - Was the FT made at a relevant time?
- s.234(3)(4) - Effect?
- Mace Builders
245(2)
A FT on the co’s undertaking or property, created at a relevant time is invalid, except to the extent that:
(a) new money, good or services were provided by the holder for its creation of the FT as consideration, at the same time or after the creation of the charge.
(b) there is a reduction or discharge of a debt owed by the co, at the same time or after the creation of the charge
(c) interest
Re Yeovile Glove
Case: In 1995 the co’s overdraft was at £67K. They granted a FT to the bank in order to secure this overdraft. A year later when co in liquidation the liquidator sought to have the FT set aside because no consideration had been provided for the FT under (2)(a).
Decision: Harman
1. The act of the bank in meeting the company’s cheques was equivalent to money provided in consideration under (2)(a).
- The logic in this reasoning is based on the rule in Clayton’s Case (new money into an account discharges the last debts first). The bank could claim the whole 67K was cash advanced by them subsequent to the creation of the charge, even though the amounts out and in the bank were almost the same over the course of the year.
- 245 could have been claimed and may have been successful in Bacon, but the liquidator did not claim. This may be due to Yeovile. The court committee have said it should be overturned by statute, since it prejudices unsecured creditors, without the bank really providing consideration for their FT.
BUT if a P remains an unsecured creditor for 12 months without getting his debt paid this could be seen as his own fault, so this may be why the case has not yet been overruled.
Re Fairway Magazines 1993
Case: F was a director and SH of co, and had personally guaranteed its bank overdraft.
F agreed to lend the co £75K in instalments, which was secured by a FT. As part of the loan F made two £10K deposits into the co’s overdrawn account.
Decision:
1. This could not be a fraudulent preference under s.239 because F had rebutted the presumption that as a connected person the FT had been granted to improve his position on liquidation.
- BUT the FT could be set aside under 245.
- The payment of the two 10K sums did not swell the co’s assets, they simply reduced F’s personal liability under his guarantee to the bank, so no money consideration had been provided within 245(2)(a).
- If this were allowed the effect would be for the loan to convert unsecured debt into secured debt.
Power v Sharp Instruments 1994
Case: Sharp had given the co £30K in April, £50K in May and £11K in July, but FT was granted to Sharp on July 24th.
Liquidator of the co sought a declaration that a FT given to Sharp, was invalid under the 245, because the payments were provided BEFORE the FT was granted. 245(2) requires it to be after or ‘at the same time’
Decision:
1. Hoffman- where the making of an advance preceded the formal execution of the FT by any time whatsoever, then unless the interval is so small that it can be regarded as minimal, it will not be considered ‘at the same time’.
- The question of whether a businessman, having knowledge of the kind of time limits imposed by Insolvency and Companies Acts and using ordinary language would say the payments had been made at the same time as execution of the debenture.
- Gibson- A delay of any substantial length (more than a coffee break) would be fatal.
Re Mothew Ellis
Defence against 245 claim for creditor.
Case: Chairman of co lent it £3K. The loan was secured by a FT.
BUT
£2K of the loan was used to pay off the co’s debts to a partnership in which the chairman was a partner. The co obtained most of its stock from this partnership.
In the liquidation the liquidator argued that (2)(a) was not satisfied because £2K of the money went straight back to the chairman, so consideration was not provided to the co for the FT.
Decision: The transaction is not to be served. it must be viewed as a whole, in substance, not merely in form.
245(3)
At time when a FT is created is a RT if it is created
(a) up to 2 years before the onset of insolvency, if the P is a connected P
(b) 12 months before onset of insolvency for any other person
(c) and (d) just read
249
Meaning of connected person.
245(4)
Where a FT is created at a time mentioned in 245(3)(b), that time is not a RT unless the co:
(a) is unable to pay its debts at the time;
(b) becomes unable as a consequence of the transaction
123
Meaning of unable to pay its debts.
245(5)
Definition of onset of insolvency for 245(3)
245(6)
For (2)(a), the value of any goods or services supplied by way of consideration for a FT is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms as those on which they were supplied to the co.
Re Yagerphone
Not part of 245.
Facts: Liquidator had challenged a payment made to a creditor by a co under s.239 as a preference made shortly before liquidation and the money was recovered.
Debenture holder claimed the money returned was subject to the debenture and should be paid to them in preference to the other creditors.
Held:
1. The sums did not fall within the debenture. The right of the liquidator to recover a sum from a creditor who has been prefered is conferred for the purpose of benefiting the general body of creditors and is vested in the liquidator alone (i.e. receivers and creditors cannot make these claims)
- At the time the debenture securities crystallised the preference money was not property of the compnay, so could not form part of the deneture assets.
- NB: This means that if there is a floating charge it makes a big difference whether it is tried under statute (i.e. preference or transaction at an undervalue) or co law doctrine, as would be able to get these proceeds if it was a co law doctrine.
