Topic 1 - Corporate Borrowing - Key Cases and Legislation Flashcards
Re Clare Textiles Ltd - Charge definition
Costello J - Charge is dependent on a contract.
Contract under the terms of which certain property is available as security to meet the performance of a liability, usually the payment of money and its creation is dependent on a contract
Levy v Abercorris Slate and Slab Co - Debenture definition
Chitty J = Debenture is a document that creates a loan and acknowledges the borrower’s obligation to repay it.
Welch v Bowmaker (Ireland) Ltd [1980] (SC)
- Subsequent charge must have actual or express notice of negative pledge clause because financial institutions don’t have any express obligation to seek out the precise terms of the debenture.
- Henchy J = Settled case law that there is not duty on the Bank in a situation such as this to seek out the precise terms of the debenture. See, for example, Re Standard Rotary Machine Co. Ltd.; Wilson v. Kelland; G. & T. Earle Ltd. v. Hemsworth R.D.C; Actual or express notice of the prohibition must be shown before the subsequent mortgagee can be said to be deprived of priority.
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd - Retention of Title Clauses
- Roskill J:
- Clause 13 – Sellers maintained ownership of goods until all owing to them had been paid
- Efforts by sellers to secure against the risk of non-payment by the purchaser – Unmanufactured goods remained property of seller until payment and mixed manufactured goods became property of seller until payment by the purchaser
- Two crucial facts – Defendants when selling goods which the plaintiffs owned at all material times; and secondly, that clause 13 as a whole is obviously designed to protect the plaintiffs, in the event of later insolvency, against the consequences of having parted with possession of, though not with legal title to, these goods before payment was received, 75 days’ credit being allowed.
- Agent/Principle – Fiduciary duty
- Goff J:
- In Re Hallett’s Estate – Plaintiffs allowed to trace their aluminium to the proceeds of sale
- Business efficacy question – Plaintiff’s POV = Not able selling power to frustrate the whole purpose of clause 13 (manifest intention to preserve the vendors from being left in the position of unsecured creditors)
- All going well, defendant could use the proceeds for their business, only when not going well couldn’t; avoid implying a term that defeats the purpose of the clause
Re Charles Dougherty [1983] (HC) - RoT only apply where goods in their original state and no RoT over future goods
- Carroll J:
- Goods had been supplied to the animal feed company – Good identifiable and had not become intermingled with other similar goods or been manufactured into feeding compound. Value agreed.
- Bridge LJ in Borden UK Ltd v Scottish Timber Products – A seller of goods to a manufacturer who knows his goods are to be used in the manufacturing process before they are paid for, wishes to reserve to himself an effective security for the payment of the price, he cannot rely on a simple reservation of title clause - Need express contractual stipulation not just simple RoT; Resin ceased to exist so no title to it
- Contracting dealing with the future title of the buyer – Fried Krupp Huttenwerke AG v Quitmann Products Ltd [1982] ILRM 551 – Gannon J = Buyer did not own steel the payment for which was one month overdue; Interest created was in the nature of a floating charge requiring registration;
- Carroll J interpretation – Seller can make an effective reservation of title to goods prior to manufacture but if he requires security over the manufactured goods the buyer will have to grant him this and this would require registration as a Bill of Sale.
Re Bond Worth Ltd
Romalpa clauses are still valid where beneficial (equitable) ownership
Somers v Allen
- A simple retention of title clause will have no effect once the goods are processed, used in manufacturing or mixed by the buyer with other goods, such that it is no longer possible to identify the original goods
Borden UK Ltd v Scottish Timber Products Ltd
- Possible to retain title over goods used in manufacturing etc by the insertion of an aggregation of title clause into the contract for sale.
- This is a clause which dictates that where goods have been incorporated into a manufactured product, the vendor will still retain title provided the goods can be removed without damaging the manufactured product
- Bridge LJ:
- RoT clause effect – Resin used in manufacture, defendant held in trust for plaintiff as agent to principal – Title to resin disappeared
- Aluminium Industries – Roskill LJ = Obvious purpose of clause to give security to AIV including where goods used in manufacture; Agent and principal fiduciary relationship so allow tracing remedy
Goff LJ = Fiduciary relationship to give effect to the intention of clause 13
Megaw LJ = Avoid defeating intention, power to sell for account of the plaintiffs - Distinction between AIV and current case – CC = No bailment, mixed manufacture
- AIV – Not agents as using resin for manufacture of own product
- In Re Hallett’s Estate – Jessel MR = Where a trustee has mixed the money with his own, there is this distinction, that the cestui que trust, or beneficial owner, can no longer elect to take the property, because it is no longer bought with the trust-money simply and purely, but with a mixed fund. He is, however, still entitled to a charge on the property purchased, for the amount of the trust-money laid out in the purchase; and that charge is quite independent of the fact of the amount laid out by the trustee.
- Interpretation – In all cases the party entitled to trace is referred to as the beneficial owner of the property, be it money or goods, which the “trustee,” in the broad sense in which Sir George Jessel M.R. uses that word, including all fiduciary relationships, has disposed of.
- Beneficial ownership remaining in the plaintiffs after use in manufacture cannot be reconciled with the liberty which the plaintiffs gave to the defendants to use that resin in the manufacturing process for the defendants’ benefit, producing their own chipboard and in the process destroying the very existence of the resin
- Doesn’t contemplate mixed fund scenarios – Different where goods lose original character vs ten corns analogy
- Problem would arise in quantifying the proportion of the value of the manufactured product which the tracer could claim as properly attributable to his ingredient.
- Can’t use simple RoT clause. Need specific clause like AIV
Carroll Group Ltd v G & JF Bourke Ltd - Proceeds of sale clauses
Registration of Charges
- Section 409 of the 2014 Act – Ever charge registered after the commencement date has to be CRO registered to be enforceable.
- In a winding up, unregistered charge shall not take priority to registered charge (regardless of time) and neither the liquidator nor the other creditors are bound to abide by the charge first, even if it was created before other registered charges.
Charge definition - s408
“… ‘charge’, in relation to a company, means a mortgage or a charge, in an agreement (written or oral), that is created over an interest in any property of the company (and in section 409(8) and sections 414 to 421 includes a judgment mortgage) but does not include a mortgage or a charge in an agreement (written or oral), that is created over an interest in–
a) money credited to an account of a financial institution, or any other deposits;
b) (shares, bonds or debt instruments;
c) units in collective investment undertakings or money market instruments; or
d) claims and rights (such as dividends or interest) in respect of any thing referred to in any of the foregoing paragraphs (b) to (d).
Late registration and errors
s417
* Re International Retail Ltd (Unreported, High Court, 26th July 1974) – the practice is to extend registration once it has been shown that there is no evidence that the company is being wound up or that a winding up is pending/contemplated and that there are no unpaid registered judgements against company
Kenny J’s Rationale:
- S99 1963 Act purpose – Ensure that every creditor who dealt with the company would know that he was giving credit to a company which had given security for some of its debts and so the charge, if not registered, becomes void when the company goes into liquidation.
- Courts in Ireland and England require evidence that no winding up of the company is pending or contempleted and that no judgments have been recovered against it which are unpaid before extending the time for registration. (Re Bootie Cold Storage Company (1901) N.N. 39: Buckley on the Charles & Co, Ltd. (1933) W.R. 16.
- Re Bootie – Extension of time conditional on company abiding by court order to rescind the registration if a resolution for winding up became effective within a month from the date of the order and the liquidator within three weeks thereafter applied to discharges the order
Fixed charge definition
- Illingworth v Houldsworth [1904] AC 355 – Lord Macnaghten:
Charge that “fastens on ascertained and definite property or property capable of being ascertained and defined . . . .”
Endorsed by Kenny J in Welch v Bowmaker (Ireland) Ltd [1980] IR 251
Floating charge definition
- Illingworth v Houldsworth [1904] AC 355 – Lord Macnaghten:
“…is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.” - Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 – Romer J:
Floating charges have three characteristics:
1. Usually made re a class of company assets, present or future,
2. That class of assets is usually one that would change over the course of time as part of the course of business
3. Charge will usually contemplate that, until some event, the company will be able to continue to use the assets in the ordinary course of business
Preferential Debts
- Section 621, CA 2014 – Preferential debts (secured debts + RC and liquidator always have priority over floating charge) ; S621 7b) – Crystallised floating charge following winding up ranks below preferential debts
Fixed charge over book debts
- However, it it is crucial that the debenture purporting to create the fixed charge includes certain restrictions on the company’s use of the book debts. But can’t be so restrictive so as to prevent the company from doing business day to day
Siebe Gorman v Barclays Bank Ltd
a debenture purported to create a fixed charge over all book debts “and other debts now and from time to time due or owing to the company”. Another clause in the debenture stated that the company had to place all monies from book debts into the company account and it was not allowed to charge/assign the book debts in favour of any other person without the bank’s consent nor could it refuse to execute a legal assignment of the book debts to the bank if called upon to do so.
Slade J held: two restrictions meant it was a fixed charge
Key restriction is can’t give the book debts as security to anyone else
Re Keenan Brothers Ltd - Fixed charge over book debts
- Henchy J:
- Floating charge – Effective in law from the date of its creation but only attaches to the assets expressed to be subject to it so as to prevent the company from continuing to deal with those assets in the ordinary course of business, until the happening of sane event, such as the appointment of a liquidator, which shows that the company is no longer in business, or until the chargee intervenes; Crystallisation – Effect of a fixed charge but until crystallisation, the company may, unless there is agreement to the contrary, deal with its assets in the ordinary course of business just as if there were no floating charge.
- Current case – Fixed charge – “The book and other debts present and future”, segregated in a special account/frozen/Bank written consent.
- Debenture also a fixed charge – Deed = 1) All money received by the company in respect of book debts were to be paid into a specified A.I.B, branch and no withdrawals or payments from that account were to be made without the prior consent of the Bank; 2) the company was not, without the consent of the Bank, to carry on its business otherwise than in the ordinary and normal course; 3) the company was not, without the consent in writing of the Bank, to diminish or dispose of its book debts otherwise than by collecting and lodging them in the specified account
- Degree of sequestration of book debts when collected meant that money incapable of being used in the ordinary course of business and put at disposal of the Bank; charge fixed immediately to the book debts
- Floating charge – Assets the subject matter of a floating charge may be disposed of, at least in the ordinary course of business, by the maker of the charge without the consent of the chargee but not the case here
- McCarthy J:
- Houldsworth, Evans, Siebe Gorman – Need to look beyond terminology used in contracts and look to facts
- Fixed charge as “if it were a floating charge payment into such an account would be entirely inappropriate and, indeed, would conflict with the ambulatory nature of the floating charge to which Lord MacNaghten refers.
- Re Yorkshire Woolcombers Association Limited (1903) 2 Ch. 284, Romer L.J. three characteristics of a floating charge, the third being that “if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.”
- English authority for ability to create a fixed charge on future book debts (Tailby) and its adoption in Canada; Evans Coleman and Evans Ltd – Endorse Davey JA = A future book debt is quite as capable of being identified as a legacy; and in this case the identity of the debt, with the subjects assigned, is not a matter of dispute.”
Re Brightlife Ltd
Re Wogan’s Drogheda Ltd
Re Holidair Ltd
A floating charge which has crystallised would recrystallise on the appointment of an examiner to the company, so that it ceased to be a fixed charge and reverted to being a floating charge and left unchanged in Act; Applied in Re Latzur Ltd
The Revenue Commissioners v Taite
National Westminster Bank plc v Spectrum Plus Ltd
Halpin v Cremin
