Corporate borrowing

Companies can raise the money in different ways (profits, issuing shares, investment) - they can
borrow it as well;

Capital is typically acquired through the negotiation of finance internally, in the form of loans from
its controllers or members, or externally, from financial institutions.

 the company will owe the borrowing

 when the investor invests, there is the hope of getting dividends, not to get the money back
fully

Secured/unsecured creditors

Revenue - taxes (creditor)

Employees - wages owed

Secured - have some type of security that has been accrued to them by the company - if the company
becomes insolvent, the secured creditors are quite high in the priority; they have more enforcement
options, even before the company is liquidated:

 The debt is secured against the asset of the company; for instance, mortgage given by the
bank

Unsecured - do not have this fixed particular interest in assets; only get money back if the funds
owed to secured creditors have been paid

Remedies to unsecured creditors

 Sue the company for debt - seek enforcement of this judgment

 Petition to wind up the company as the creditor generally (over 20 000) - it doesn’t matter if
secured/unsecured

Remedies to secured creditors

(1) All of the above for unsecured creditors;

(2) to take possession of the charged property and, subsequently, sell it without the assistance of the
court;

(2) to apply for a court order to sell the charged property in their possession;

(3) to receive and apply the income from the possessed property to discharge the loan; or

(4) to appoint a receiver under the terms of the debenture, or apply to the court to appoint one.
Security for the loan

The commercial lending institutions usually require security for the loan firstly. Such security will
often take the form of personal guarantees from the controllers of the company and, where the
purpose of the loan is to acquire property with the funds provided, by the taking of a mortgage or
charge over that property.

Mortgages

Mortgagor – the borrower; Mortgagee – lender - bank

 In a mortgage, title in the mortgaged assets passes from the mortgagor to the mortgagee with
an obligation to re-transfer on payment of the secured obligation. Where legal title is
transferred to the mortgagee, the mortgage is a legal mortgage.
 The right to re-transfer will be enforced by equity, and is seen as an equitable interest in its

own right: the equity of redemption a proprietary interest in the assets, which the
mortgagor can encumber and even alienate, for example to a second mortgagee.
 The value of the equity of redemption will, of course, depend on the amount outstanding on
the secured obligation at any time.
 Arguably, if the mortgagee is undersecured, so that the amount of the loan is more than the
value of the mortgaged assets, the mortgagor has no interest in the assets. However, this
misstates the position as the mortgagor always has the ability to redeem the mortgage by
paying off the loan, and the better view is that, in equity, the mortgagor owns the assets
subject to the mortgage.

Advantages

 Its priority position is advantageous in that no subsequent interest can gain priority over it
without the agreement of the mortgagee, and the legal mortgagee can in theory enforce by
foreclosure and obtain full legal ownership of the assets.

However

 The legal mortgagee will still take subject to any prior legal interest and some prior equitable

interests any prior legal interest would have priority under the nemo dat rule (the purchase of
a possession from someone who has no ownership right to it also denies the purchaser any
ownership title), and the legal mortgagee would have constructive notice of any prior
registered equitable security interest and would therefore take subject to it;
 Foreclosure is only obtained by applying to court, which has various powers to enable the
mortgagee to take steps to protect its equity of redemption.
 Obtaining a legal mortgage can involve formal steps, depending on the nature of the asset
mortgaged, so that, for example, a legal mortgage of shares requires: a transfer to the
mortgagee in the issuer’s register or in the CREST register and a legal mortgage of debts
requires transfer by statutory assignment or novation.
 An equitable mortgage involves the transfer of equitable title to the mortgagee, subject,
again, to the mortgagor’s right to re-transfer, which is the mortgagor’s equity of redemption.
A mortgage will be equitable in the following situations:

1. If the mortgagor only has an equitable title in the first place (for example, as a beneficiary
under a trust);
2. If it is a second mortgage and legal title has already been transferred to the first mortgagee;
3. If the formalities required to create a legal mortgage have not been carried out.

 One significant advantage of an equitable mortgage over a legal mortgage is that the former
can be taken over future assets and the lack of formal requirements.

However, the concomitant disadvantage is that the equitable mortgagee is more likely to lose priority
to later interests than a legal mortgagee.

 Legal mortgage = conditional transfer of property to a lending institution which can become
absolute if default is made on then loan

1. Executed once company executes deed transferring ownership

2. Company retains equitable right to property and can recover property once loan is fully
repaid

 Equitable mortgage – deposit of title deeds with mortgagee

1. Just equitable interest in property

2. Interest can be defeated by subsequent bona fide purchaser

 Legal mortgages that are registered gain priority over equitable mortgages (on the CRO,
register what charges have been created, the date of priority)

Charges(formal security) - if the company gets insolvent

 A charge is a form of security for the repayment of a debt which endows the lending
institution with the right to receive payment out of a particular fund or out of the proceeds of
the realisation of a particular item of property.

Unlike a mortgage, a charge is a security interest which entails no transfer of title to the chargee.
Despite this, it is a proprietary interest and fully enforceable on insolvency. It is a ‘mere
encumbrance’, whereby the charged property is appropriated to the discharge of an obligation

 Charge = guarantee or security for a loan – specific company assets security

 Charges are equitable in nature

Re Clare Textiles Ltd [1993] 2 IR 213 – Costello J:

 [C]ontract under the terms of which certain property is available as security to meet the
performance of a liability, usually the payment of money. Its creation is dependent on
contract.
Mortgage vs charge

Difference between charge and mortgage = title to the asset does not pass to lending institution for
charges. Only equitable right passes with a charge.

Re Charge Card Services Ltd [1986] 3 All ER 289

 No conveyance involved.
 Charge property can only be looked to if debt is not repaid

‘… the essence of an equitable charge is that, without any conveyance or assignment to the
chargees, specific property of the chargor is expressly or constructively appropriated to or made
answerable for payment of a debt, and the chargee is given the right to resort to the property for
the purpose of having it realised and applied in or towards payment of the debt. The availability
of equitable remedies has the effect of giving the chargee a proprietary interest by way of security in
the property charged’.

 The difference between a charge and an equitable mortgage is sometimes illusory and
difficult to draw, in that the law treats both in the same way for certain purposes.
 The chief practical difference arises on enforcement.

Even in the absence of specific words in the agreement creating the security agreement, a mortgagee,
by virtue of its ownership, can enforce the mortgage by foreclosure or by taking possession of, and
selling, the asset.

A chargee may not foreclose or take possession, and will only have a right of sale or to appoint a
receiver if the charge is made by deed or if it applies to the court for an order for sale or the
appointment of a receiver.

 It is no longer possible to create a legal mortgage over unregistered land by conveying title to
a mortgagee and now, one can only create a legal mortgage over unregistered land by giving
a charge by deed.

Section 89(1) of the Land and Conveyancing Law Reform Act 2009 provides:

A legal mortgage of land may only be created by a charge by deed and such a charge, unless the
context requires otherwise, is referred to in this Part as a ‘mortgage’; and ‘mortgagor’ and
‘mortgagee’ shall be read accordingly.

By contrast, however, the formal assignment or transfer of legal title to personal property that is
specifically identifiable at the time the mortgage is created will create a legal mortgage over such
personal property and the mortgagee becomes the legal owner of the mortgaged personal property.

📎 An equitable mortgage may also be created whereby the equitable mortgagee becomes the
equitable owner of the mortgaged property, and s 89(6) of the Land and Conveyancing Law Reform
Act 2009 expressly provides that nothing in that section affects the creation of equitable mortgages
of land. Equity will continue to protect the mortgagor by acknowledging his right to redeem the
mortgage.

An equitable mortgage may be created formally or informally; an informal equitable charge by the
deposit of the title deeds of unregistered land or of personal property that is specifically
identifiable from the title deeds deposited can still be created.

It has not, however, been possible to create an equitable charge in relation to registered land by the
deposit of the land certificate since the commencement of s 73 of the Registration of Deeds and
Title Act 2006.

Debenture (contract, physical document)

📎 an instrument by which a company acknowledges its indebtedness and which is secured by a

charge on the company’s assets and/or undertaking.

 Covenant by company to pay all sums due – may contain a charge

 Document that acknowledges debt by company/loan

Levy v Abercorris Slate and Slab Co [1887] 37 Ch D 260 – Chitty J:

 debenture as the document which “either creates a debt or acknowledges it”

The charge can be either a specific charge of a particular asset or assets - eg a mortgage of land or a
fixed charge over the book debts of the company - or a ‘floating’ charge over some or all of the
assets and undertaking which is not attached to any specific asset until needed.

CHARGES

Fixed charges (if it over the fixed assets)

📎 involves the vesting of an equitable interest in defined property of the company in the lender at the
time of the transaction. The charge attaches immediately to the specific property being offered as
security, and cannot thereafter be removed from the asset without the lender’s consent. The equitable
interest confers on the lender the usual remedies in the event of the borrower’s default, such
possession and sale, or appointment of a receiver, etc.

It is fundamental to a fixed charge that the charged property is specifically identifiable.

Illingworth v Houldsworth [1904] AC 355 – Lord Macnaghten:

 Charge that “fastens on ascertained and definite property or property capable of being
ascertained and defined . . . .”

It should be noted that a fixed charge may be created over future property, ie property which the
chargor company acquires after the charge is created.

o Endorsed by Kenny J in Welch v Bowmaker (Ireland) Ltd [1980] IR 251

A fixed charge is a charge that attaches to specified assets from the date upon which it is created.

o Once created, company usually cannot deal with asset to which charge is fixed.
o Suited to assets that amounts of do not fluctuate (land, buildings)
o Where the property charged is not properly identified, or where its identity is ambiguous,
then it is likely that the charge will prove to be void and unenforceable where it purports to be
fixed.

The basis for floating charges

It is vital for a company to be able to dispose of circulating assets such as raw materials and stock in
trade quickly and easily, and also to be able to use the proceeds of receivables (themselves the
proceeds of the disposition of the other circulating assets) to meet current expenses, such as wage
bills. Thus, in order to be able to give security over the entire undertaking of the company, the
floating charge developed.

Floating charges

📎 the floating charge also vests an equitable interest in the charged property in the lender at the time
of its creation, but the charge doesn’t attach to any specific asset covered by the charge at this point.

o The charge is said to attach to the class of assets to which it relates and it does not descend or
attach itself to any specific asset until certain specified events occur. At that stage, the floating
charge is said to crystallise.
o It is a central feature of a floating charge that the company remains free to deal with its property
in the ordinary course of business, despite the existence of the charge, until the charge
crystallises. In particular, it may sell, let, mortgage, or otherwise deal with its assets and may
pay dividends out of profits as if a floating charge had not been created.

In Illingworth v Houldsworth Lord Macnaghten in the House of Lords provided the following
definitions:

‘ A specific charge, I think, is one that without more fastens on ascertained and definite property or
property capable of being ascertained and defined; a floating charge, on the other hand, 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 grasp and reach.’

Romer LJ in the Court of Appeal in Re Yorkshire Woolcombers’ Association mentioned three

characteristics of a floating charge:

1) If it is a charge on a class of assets of a company present and future;

2) If that class is one which, in the ordinary course of the business of the company, would be
changing from time to time; and
3) If you find that by charge it is contemplated that, until some future steps is taken by or on
behalf of those interested in the charge, the company may carry on its business in the ordinary
way so far as concerns the particular class of assets I am dealing with.
! However, he also made it clear that a charge could still be a floating charge without having all three
of these characteristics.

Invalidity of floating charges under ss 597 and 598 of the Companies Act 2014

📎 Section 597 of the Companies Act 2014 provides that where a company is being wound up, a
floating charge on the undertaking or property of the company created within 12 months before the
date of commencement of the winding up shall be invalid unless it is proved that the company,
immediately after the creation of the charge, was solvent.

o The burden of proof that the company was solvent immediately after the creation of the charge
rests on the lender.
o In determining whether the company was solvent, the crucial factor is its ability to pay its debts
as they fall due. Accordingly, where a company carries on its business after the creation of a
charge, the value of its fixed and movable assets would have to be ignored in determining
whether it was solvent at the critical time, since such assets would not be regarded as available to
meet the company’s day-to-day liabilities.
o What if a company which is already running an overdraft increases its borrowing, as it hopes
trading its way out of financial problems, the bank will probably insist on a floating charge in
such circumstances; and if the company goes into liquidation within the year, problems may arise
as to whether the additional finance was ‘cash paid’ within the meaning of the provision to s 597

(a fresh advance)

In Re Daniel Murphy Ltd the company had an overdraft of 9759 with the bank on the security of an
equitable mortgage of its premises. It required additional accommodation of up to 15000 to finance
its operations and the bank agreed to give it the facility if it executed a floating charge. About a
fortnight after the executed deed was registered with the Registrar, the company went into
liquidation.

One of the questions that arose was whether the money lodged by the company after it had agreed to
execute the charge should be regarded as being in repayment exclusively of the 15000 which the
charge was intended to secure or in repayment first of the earlier borrowing.

Kenny J held that the rule in Clayton’s Case - that payments made on a running account should be
appropriated first in discharge of the debtor’s earliest liability - was applicable in such circumstances
and that accordingly the repayments in question should be treated as having been made first in
reduction of the pre-existing overdraft of 9759.

📎 Section 598 of the Companies Act 2014 provides that where a company is being wound up, and the
company was, within 12 months before the commencement of the winding up, indebted to any
officer of the company or a connected person, and the indebtedness was discharged wholly or partly
by the company or by any other person, and the company created a floating charge on any of its
assets or property within 12 months before the date of commencement of the winding up in favour of
the officer or connected person to whom such company was indebted, then the charge is invalid to
the extent of the repayment unless it is proved that the company immediately after the creation of the
charge was solvent.

*subsection (2) provides that ‘officer’ in this section includes a spouse, civil partner, child or
nominee of an officer and reference to a child of an officer includes a child of the officer’s civil
partner who is ordinarily resident with the officer and the civil partner.

The advantage of being a fixed charge holder is that if the chargor company becomes insolvent and
is placed into liquidation, the fixed chargee’s position is more favourable than that of a floating
chargee’s position.

 the floating charge, which usually crystallises only upon the receiver’s appointment, must
yield priority to the fixed charge and, as a result, the receiver will be unable to sell the
property without the consent and co-operation of the holder of the fixed charge.
 Unlike the holder of a floating charge, the holder of a fixed charge ordinarily ranks ahead of
the Revenue Commissioners and other preferential creditors.
 Although all securities are capable of being vitiated, unlike a floating charge, a fixed charge
is not liable to be set aside, per se, where the company goes into liquidation within 12 months
of its creation.

The traditionally superior position of fixed charges provoked credit institutions to be imaginative in
seeking to stretch the boundaries of the sort of assets that could be the subject of a fixed charge - it
has been recognised that a fixed charge can be created over the book debts of a company.

Book debts

Today, it is quite common for a company to create a charge, both fixed and floating, over its books
debts, whether present or future.

What are book debts?

 Books debts = debts owed to the company that arise out of the company’s trade or business.

Response Engineering Ltd v Caherconlish Treatment Plant Ltd [2011] 3 IR 406 – Hogan J:

 “refers to no more than future income which will accrue to the company by reason of goods
and services to third parties by that company in the course of its trade or business.”
 Book debts - different definitions

Book debts are primarily made up of sums owed for goods or services supplied or work carried out
on credit. Any sum due under a loan may also be treated as a book debt. Book debts in the balance
sheet are classified as assets (Nucleus Commercial Finance)
  Money that a company has not yet received from customers who owe it money, as recorded
in the company's accounts (Cambridge dictionary)
 Palmer defined book debts in the following terms:

… debts owing to the company concerned with and arising out of the company’s trade or business,
which are entered, or commonly would be entered in the ordinary course of business, in well-kept
books of such a trade or business.

Paul & Frank Ltd v Discount Bank (Overseas) Ltd

Pennycuick J said that the test for whether something was a book debt was: ‘is it the practice to enter
the debts in question in the ordinary course of business’ in the company’s books?

Re Lakeglen Construction Co Ltd [1980] IR 347

 an insolvent company had entered into a debenture which created a charge over its book
debts.

The issue on the case was whether it created a floating or fixed charge. Costello J held that it was a
floating charge as it was clear from the debenture that the charge was intended to remain dormant
until some future date and that the company was free to go on receiving book debts and using them
until that time.

Examples of cases where a book debt was defined

Re Brian Tucker Ltd; Farrell v Equity Bank Ltd

a company sought a cash advance from a bank to enable it to pay its insurance brokers the premiums
due in respect of the company’s insurance policies. This was advanced to the company and the
company signed an irrevocable letter of authority to its brokers, authorising the brokers to pay over
to the bank any monies received by the brokers on foot of such policies pending the repayment of the
advance to the bank.

It was expressly agreed that if the company was wound up, the bank could terminate the policies of
insurance and take such part of the premium as may be refunded by the insurance company.

The company went into liquidation and the liquidator claimed, inter alia, that there was no charge in
favour of the bank, and in the alternative, that if there was a charge, it was void for want of
registration under the predecessor of s.409(1) of the Act.

Lynch J cited Paul & Frank Ltd v Discount Bank (Overseas) Ltd and quoted Pennycuick J who said:

It seems to me that, in order to ascertain whether any particular charge is a charge on book debts
within the meaning of the section, one must look at the items of property which form the subject-
matter of the charge at the date of creation. In the case of an existing item of property,… where the
item of property is the benefit of a contract and at the date of the charge the benefit of the contract
does not comprehend any book debt, I do not see how that contact can be brought within the section
as being a book debt merely by reason that the contract may ultimately result in a book debt.

Lynch J accepted this view of the law, saying:

The mere possibility that future refunds of premiums might become payable in amounts that were
wholly unascertainable and might never arise at the date of the creation of the charge does not make
that transaction a book debt which must be registered…

Fixed or floating charges over book debts

o Traditionally it was thought that you could not create a fixed charge over book debts because of
the fluctuating nature of the latter
o The subject matter presented the three characteristics referred to by Romer LJ, and even prior to
his judgment in the Yorkshire Woolcombers’ case, it had been held by the House of Lords in
Tailby v Official Receiver that a floating charge could be created over book debts, even though
the debts had not yet come into existence.
o Floating charges over book debts were considered to be disadvantageous to the lender of
monies due to the fact that they allowed the company to continue to deal with the book debts
and, in turn, dissipate them in the course of business. If this occurred, the lender would
essentially have no book debts to look to in discharge of the debt owed once the floating charge
crystallized.
o Another advantage of having a fixed charge over a company’s book debts is that it will rank in
priority to any floating charges over those book debts.
o However, the advantage of fixed charges over book debts has been significantly diluted by s
115 of the Finance Act 1986, as amended by s 174 of the Finance Act 1995. That provision
affords the Revenue Commissioners with “super-preferential” status in a winding up, ranking
them in priority to fixed charge holders. In fact, s 1001 of the Taxes Consolidation Act 1997
now empowers the Revenue Commissioners to demand payment of certain tax liabilities owed
by the chargor from the fixed charge holder.
o A fixed charge over book debts had, of course, the attraction for the lender that it would retain
its validity even if the winding up took place within 12 months, and it would not be postponed
to any preferential debts
o Case law has changed the way we think about creating fixed charges over book debts. Lending
institutions were naturally attracted to schemes under which charges over book debts combined
the advantages of both the fixed and the floating charge. It was sought to achieve this by
allowing the borrower to continue collecting the book debts but requiring it to keep the
proceeds in a special bank account which would then be frozen at a particular level.

Siebe Gorman v Barclays Bank Ltd [1979] 2 Lloyd’s Reports 142

In that case, a company created a debenture in favour of Barclays Bank, secured by way of legal
mortgage over all its freehold and leasehold property and all fixed plant and machinery, present and
future.

In addition, the company further charged ‘… by way of first fixed charge all book debts and other
debts now and from time to time due or owing to the company.’

During the continuance of this security the company … shall pay into the company’s account
with the bank all moneys which it may receive in respect of the book debts and other debts
hereby charged and shall not without the prior consent of the bank in writing purport to
charge or assign the same in favour of any other person and shall if called upon to do so by
the bank execute a legal assignment of such book debts and other debts to the bank
 o 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.

o Slade J held: two restrictions meant it was a fixed charge

Fixed charges over book debts:

whatever the contract says, it can be a fixed charge instead of a floating charge.

Siebe case: it was the first time it was established in the case law.

It is fundamental to the finding that a particular charge over book debts is a fixed charge, that it was
created as such.

📎The decision is now of little more than historical interest in the UK since it was formally
reversed by the House of Lords in Re Spectrum Plus Ltd. Just as the Irish Supreme Court
found in Re Keenan Brothers and Re Holidair Ltd, the *House of Lords in Re Spectrum
Plus Ltd also* found that the existence of actual restrictions, which limited the company’s
ability to deal with its book debts consistent with a fixed charge, was more important than the
mere intention of the parties.

The importance of restrictions

If a charge over book debts is to be found to be a fixed charge it is crucial that the debenture
should provide that the chargor company is restricted in its dealings with the collected book
debts.

Where, as in Re Armagh Shoes Ltd, the debenture provides for no restrictions, the court will
not imply restrictions and the charge will fall to be deemed a floating charge.

Similarly, in Re Brightlife Ltd, although there was a prohibition on the chargor company
selling, factoring or discounting the book debts in question, the absence of the positive
requirement that the monies collected be paid into a separate bank account meant that the
charge could only be a floating charge. This was because of the absence of such a restriction
meant that the company could use the assets as it wished, a freedom which is intrinsic to a
floating charge, but anathema to a fixed charge.

The nature of restrictions placed on the chargor company was also found to be the decisive
test by Barron J in AH Masser Ltd v Revenue Commissioner, where he held that the
restrictions were consistent with the security being a fixed charge. Barron J held:

Nevertheless it seems to me that the essential provision is the restriction on the mortgagor
which prevents it from purporting to charge, assign or otherwise dispose of its book debts and
other debts. I regard this provision as acknowledging that the debts are in equity the property
of the mortgagee and so not available to the mortgagor in the ordinary course of its business.
Re Keenan Brothers Ltd [1985] IR 401:

o the SC pronounced upon the validity of a fixed charge over book debts, reversing the HC
judgment;
o Neither mere terminology nor the declared intention of the parties is sufficient to make a charge
properly construed as a floating charge, a fixed charge.

Supreme Court – McCarthy J:

o having regard to the restrictions, as well as the intention of the parties as displayed from the
face of the debenture (it referred to the charge as a specific or fixed charge), it was satisfied that
a fixed charge over the book debts existed. Payment of the monies into a separate bank would
conflict with the “ambulatory nature” of floating charges.
o the courts in interpreting debentures will “look not to the declared intent of the parties alone,
but to the effect of the instruments whereby they carried out that intention.”

Re Brightlife Ltd [1986] BCLC 418; [1987] Ch 200

o Distinguished from Siebe Gorman case and Re Keenan Bros Ltd because no part of the
debenture said that the book debts had to be paid into a special account when collected.
o In that case, Hoffmann J held that a charge over book debts described as a ‘first specific charge’
was a floating charge, although the borrower was precluded from selling, factoring or
discounting the debts without the lender’s permission.
o The absence of a restriction in the Siebe Gorman form requiring the proceeds to be paid into a
special bank account under the control of the lender was considered fatal to the lender’s
contention that it was a fixed charge.

In Ireland, different approach in Re Wogan’s (Drogheda) Ltd [1993] 1 IR 157:

o the debenture specified that the company could not deal in its book debts and that a separate
bank account had to be established into which the proceeds of all book debts had to be paid and
that any transactions regarding this account could only be carried out with the bank’s consent.
o However, the bank account was, in fact, never maintained.

Finlay CJ: it did not matter that account was not maintained. What mattered were the terms of the
debenture and the restrictions included therein – it was clear therefrom that the parties intended to
create a fixed charge.

📎 The requirement to have a designated bank account was held to be the decisive factor in
determining whether the debenture created a fixed or floating charge over the company’s book debts
and the subsequent conduct of the parties was held not to be relevant for the purpose of construing
the debenture.

Re Keenan case: there is a restriction on the asset. The intention behind the debenture was that it
was a fixed charge and not a floating one.

The company has the chance to deal with the asset or not. In Ireland there is another interpretation
since a case of 1993. What matter is the terms of debenture.
Re Holidair Ltd [1994] 1 ILRM 481

📎 the Kentz group of companies was placed under the protection of the court and an examiner was
appointed. A dispute arose between the examiner and the company’s main creditors who were
debenture holders, inter alia, on whether their debentures created fixed or floating charges over the
company’s book debts.

o In the High Court, Costello J had held that on its proper construction, the debenture created a
fixed charge over the company’s book debts.
o This was reversed in the Supreme Court by Blayney J, who held that, upon its true construction,
the debenture created a floating charge over the chargor company’s book debts. This was found
notwithstanding the existence of a clause which provided that the chargee could designate a
bank account into which the proceeds of book debts were to be paid.
o The clause in question provided, inter alia, that:

With reference to the book debts and any other debts hereby charged, the companies shall pay into
such accounts with the banks or any of them as the trustee [the banks] may from time to time select,
all monies which they may receive in respect of such debts and shall not without the prior consent in
writing of the trustee sell, factor, discount or otherwise charge, assign or dispose of the same in
favour of any other person or purport so to do and the companies shall if called upon to do so by the
trustees in such form as the trustee shall require and at the companies’ own expense.

o a debenture purporting to create a fixed charge restricted the company’s right to assign its book
debts and provided for the creation of a separate account into which the proceeds of all book
debts had to be paid upon a trustee’s direction.
o However, that direction was never given and the separate bank account never utilised.
o Blayney J rejected the notion that merely because the clause was described as a fixed charge it
should be accepted as such unless there were other indications in the debenture consistent with
this conclusion.
o Moreover, he found that the charge under consideration had the three characteristics of a
floating charge, as described by Romer J in Re Yorkshire Woolcombers’ Association Ltd. In
particular, he found that the charge on book debts in the bank’s debenture did not ‘prevent the
companies from using the book debts in the normal way for the purpose of carrying on their
business.’

📎 The only significant difference between the clauses in the current case and the one in Re Wogan’s
(Drogheda) Ltd was that the latter specifically prohibited the company from withdrawing monies
from the designated accounts.

It is within the power of the legal draftsman to ensure that such a fate will not befall all future fixed
charges over book debts.

The Revenue Commissioners v Taite [2016] IEHC 141 – O’Connor J: (it was said the nature of this
charge was to be fixed. Whatever the intention of the parties is)
 o the debenture in question purported to create a fixed charge over book debts in spite of the
absence of any clause requiring that the proceeds of the realisation of same be paid into a
specified and controlled bank account
o ... this Court feels that the following excerpt from the judgment of Barron J. in A.H. Masser Ltd
[1986] I.R. 455 resonates for this application:-“The restrictions imposed upon the borrower in
In re Keenan Bros. Ltd. [1985] I.R. 401 were clearly more extensive than those imposed here.
Nevertheless it seems to me that the essential provision is the restriction on the chargor which
prevents it from purporting to charge, assign or otherwise dispose of its book debts and other
debts. I regard this provision as acknowledging that the debts are in equity the property of the
chargee and so not available to the chargor in the ordinary course of its business.”
o the Court rejected the argument that a fixed charge only arises where the chargor is obliged to
pass to the chargee the proceeds of realisation or to place them in the full control of the chargee.

📎 Since the House of Lords decision in Re Spectrum Plus Ltd, in the UK, the existence of real
restrictions on the operation of a specified bank account into which book debts are to be paid, is now
essential to a charge on book debts being found to be a fixed charge. Such restrictions include the
blocking of unrestricted access to debit the account by the company until the facility secured by the
charge has been repaid.

National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; [2005] 4 All ER 209:

o In this case a debenture provided for a fixed or specific charge over the company’s book debts
and other debts and provided:

With reference to the book debts and other debts hereby specifically charged the
Company shall pay into the Company’s account with the Bank all moneys which it
may receive in respect of such debts and shall not without the prior consent of the
Bank sell factor discount or otherwise charge or assign the same in favour of any
other person or purport to do so and the Company shall if called upon to do so by the
Bank from time to time execute legal assignments of such book debts and other debts
to the Bank.

o The company was, however, expressly permitted to draw on the account for its business
expenses provided that the overdraft limit was not exceeded. In practice, after receiving the
facility and entering into the debenture, the company opened the bank account and paid its book
debts into the account and drew on the account for business purposes.
o When the company went into liquidation, the bank sought a declaration that the debenture
created a fixed charge.
o The House of Lords overturned the High Court’s decision that the charge was floating and
overruled the decision in the Siebe Gorman case. It was satisfied that the essential characteristic
of a floating charge, distinguishing it from a fixed charge, was that the asset subject to the
charge was not finally appropriated as a security for the payment of the debt until the
occurrence of some future event. In the meantime the chargor was left free to use the charged
asset and to remove it from the security.
o Thus, there could be no difference in categorisation between the grant of a fixed charge
expressed to come into existence on a future event in relation to a specified class of assets
 owned by the chargor at that time and the grant of a floating charge over the specified class of
assets with crystallisation taking place on the occurrence of that event.

In truth, there was little new in this decision for Irish practitioners of company law who have
understood, since the Supreme Court decision in Re Holidair, that substance is everything as
is the need for real restrictions on the chargor’s use of property, if a fixed charge is to be
found to be capable of existing over book debts.

Hybrid charges

 The holder of the charge is often happy to allow the company to deal with its book debts in
the ordinary course of business - the real requirement being that in the event of the
company’s insolvency, its charge over those book debts that remain uncollected should have
priority over any claim by Revenue Commissioners.
 The best option for both companies and chargor is a fixed charge whilst the book debts are
outstanding and a floating charge when they have been collected.
 some companies have tried to create a hybrid charge whereby a fixed charge attaches to the
book debts while they remain uncollected; a floating charge will attach to the proceeds once
they are collected.
 Keane has argued that there are limitations on the “efficacy of this form of hybrid charge” as
it is arguable that the charge will not apply to book debts once they are collected as they are
at that point a different property (i.e. cash)

Re New Bullas Trading Ltd [1994] BCC 36 (allowed the creation of such a hybrid charge on book
debts)

 the debenture provided that as long as the book debts remained uncollected they were the
subject of a fixed charge and once they were collected they became the subject of a floating
charge.
 The charge had the following features:

1. the chargee could give instructions with respect to the manner in which the company dealt
with the book debts and could also demand that the company assign the book debts to it;
2. the chargor was obliged to pay the book debts into a designated bank account and the chargee
could give directions with respect to the operation of the account;
3. if the chargee failed to give directions in relation to the money in the designated account, then
the moneys became released from the fixed charge and became subject to a floating charge,
thereby permitting the company to deal with the money in the course of its ordinary business.

 Nourse LJ held that he could see no reason in law why such a charge could not be created.

… just as it is open to contracting parties to provide for a fixed charge on future book debts, so it is
open to them to provide that they shall be subject to a fixed charge while they are uncollected and a
floating charge on realisation. No authority to the contrary has been cited and, the principle being as
spacious as it has been expressed to be, no objection is on that account sustainable. For these reasons,
I would… hold that the charge over book debts of the company, as created by the debenture, was,
unless and until their proceeds were paid into the specified account, a valid fixed charge.
Critics: Royal Trust Bank v. National Westminster Bank plc [1996] 2 BCLC 682; [1996] BCC 61,
Millett LJ said it is not possible to “separate a debt or other receivable from the proceeds of its
realisation”. In other words a debt and the cash collected therefrom are one and the same.

The Privy Council declined to follow Nourse LJ’s approach in Re New Bullas Trading Ltd.

Millett LJ said of debts and their proceeds that:

 [T]he latter are merely the traceable proceeds of the former and represent its entire value, a
debt is a receivable; it is merely a right to receive payment from the debtor. Such a right
cannot be enjoyed in specie; its value can be exploited only by exercising the right or by
assigning it for value to a third party. An assignment or charge of a receivable which does not
carry with it the right to the receipt has no value. It is worthless as a security.
 They also disagreed with the manner in which Nourse LJ interpreted the clause creating the
charge – they said it was a two-step process.
 First, you must gather the intention of the parties in order to ascertain the nature of the rights
and obligations falling between them. Secondly, you must categorise these intentions – the
intentions must be consistent with the legal requirements of establishing a fixed/floating
charge. Applying this approach the Privy Council held that the book debts were not
sufficiently under the chargee’s control for a fixed charge to arise.

Crystallisation of floating charges

What happens?

The rights enjoyed by the holder of a floating charge are rights which exist in equity, and up until the
moment of crystallisation are properly described as being ‘inchoate’ (just begun and so not fully
formed or developed)

After the occurance of a crystallising event the holder of the fc becomes entitled to fixed, tangible
equitable rights. Existing assets within the ambit of the floating charge’s net are said to be assigned
to the holder of the charge, as are future assets which come into the class of property which is subject
to the floating charge.

In Re JD Brian Ltd Finlay Geoghegan J said of what happens when a floating charge crystallises:

… as is sometimes said, the floating charge upon crystallisation becomes a fixed charge.
However, no new charge is created by the company. The existing charge, the floating charge,
created by the company, changes in nature and becomes a fixed charge. The nature of the
security held by the debenture holder under the floating charge created by the company upon
crystallisation changes, it ceases to float, and becomes a fixed charge over the charged
property.

In accordance with the general principles relating to fixed charges, upon the charge becoming
fixed, there is an equitable assignment of the relevant assets to the debenture holder.
 Nevertheless, the right of the debenture holder to the charged assets derives from the floating
charge created by the company. It is the nature of that right which is changed by the
crystallisation.

In Ireland, if a charge is created as a floating charge but crystallises prior to the commencement of
the chargor company’s winding up, it will be treated in the winding up as a fixed charge.

It was held by the Supreme Court in Re JD Brian Ltd that where a floating charge crystallises and
becomes a fixed charge before the commencement of a winding up, it should not be treated as being
a floating charge for the purposes of statutory provisions applicable to floating charges on the
commencement of the winding up.

Section 621(7)(b) of the Act provides that preferential debts described in s 621 shall:

so far as the assets of the company available for payment of general creditors are insufficient
to meet them, have priority over the claims of holders of debentures under any floating
charge created by the company, and be paid accordingly out of any property comprised in or
subject to that charge.

Laffoy J found that the identical predecessor of s 621 (7)(b) provided that the operative time for
assessment of entitlement to priority is after the winding-up order is made. In so holding, the
Supreme Court accepted the reasoning in both Re Griffin Hotel and Stein v Saywelli.

Laffoy J concluded:

… that on the application of [the predecessor of s 621(7)(b) of the Act], which occurs in the winding
up of a company, the reference to ‘the claims of holders of debentures under any floating charge
created by the company’ means a floating charge which exists at the commencement of the winding
up. It doesn’t mean a floating charge which has been converted into a fixed charge by virtue of
express crystallisation in accordance with the terms of the debenture prior to the commencement of
the winding up.

Accordingly, as, in this case, the floating charge of each Company in favour of the Bank had
crystallised by service of the Crystallisation Notice on 28th October, 2009 prior to the presentation of
the petition to wind up each company, the priority debts of the preferential creditors identified in the
Act do not have priority over the claims of the Bank under each of the Debentures and those priority
debts may not be paid out of the property comprised in and subject to the property which was the
subject of the floating charge before crystallisation.

📎 Laffoy J said the outcome gave rise to a number of concerns, for example, that a form of false
crystallisation might be contrived such that a company was allowed to continue in business as if the
security was a floating charge to defeat the claims of preferential creditors; another concern was that
there is no obligation to register the conversion of the floating charge into a fixed charge, contrary to
the principle of transparancy.

In Re JD Brian Ltd the floating charge crystallised on foot of an express crystallisation notice
clause in the debenture.
 ! It is important to note that where it is sought to rely on an automatic crystallisation clause which is
triggered by the commencement of the winding up, the natural consequence of the Supreme Court’s
decision is that it was a floating charge ‘at the commencement of the winding up’ and so would be
treated as a floating charge and its holder denied priority to the preferential creditors of the company.

 The causes of crystallisation

📎 In the beginning, only two events were firmly established as causing a floating charge to
crystallise: the appointment of a receiver to the chargor company, and the commencement of a
winding up. There is now a third, unequivocally established ground, namely where the debenture
creating the floating charge contains an express crystallisation clause, providing for
crystallisation by notice.

1. Appointment of a receiver

o Company defaults on debt it owes where a chargee causes a receiver to be appointed either by
relying on the terms of the debenture or by order of the court, this will cause a floating charge to
crystallise.
o Receiver’s appointment set out in DD creating the charge

Halpin v Cremlin

Where another debenture holder causes a receiver to be appointed to a company, this will usually
have the effect of causing all floating charges created by that company to crystallise. This is because
most debentures simply provide that the appointment of a receiver will cause the debenture holder’s
floating charge to crystallise and do not specify that the receiver must be appointed by them.

*that there can be an automatic crystallisation on the default of the company if the debenture is in
sufficiently explicit terms to permit of such a construction.

📎 Under s 440 of the Companies Act 2014, a receiver appointed under a floating charge must also pay
preferential debts out of assets coming into his or her hands before paying over any sums due to the
holder of the charge.

*This provision doesn’t apply where the company is in liquidation

2. Commencement of company’s winding up

A floating charge will crystallise where the chargor company goes into liquidation and the process of
winding up commences.

Warrington J in Re Crompton & Co Ltd said:

… I think there can be no question at all that according to ordinary principles the winding up puts an
end to the period of suspension; and the reason that it does that is that the effect of the winding is to
put an end to the floating nature of the security

o A floating charge will crystallise whether a company is wound up by its members or

creditors voluntarily, or compulsorily, by the court.

In Re J D Brian Ltd t/a East Coast Print and Publicity and East Coast Car Parts Ltd the Supreme
Court held that the preferential status conferred in a winding up by s 285 of the Companies Act 1963
(now re-enacted in s 621 of the Companies Act 2014) does not extend over any floating charges
which, by their terms, have crystallised into a fixed charge.

Laffoy J held that the words ‘floating charge’ in that section refer to a floating charge which exists at
the commencement of the winding up and not to a charge which having begun life as a floating
charge had crystallised into a fixed charge prior to the commencement of the winding up.

In that case the bank served, prior to commencement of liquidation, a notice on the company which,
in accordance with the terms of the debenture, crystallised the floating charge into a fixed charge.

The Supreme Court held that the crystallisation notice was effective to convert the charge into a
fixed charge, particularly since the parties were agreed that the effect of the notice was to give the
chargee the same rights as a fixed charge holder and to preclude the company from dealing with the
assets in question except subject to the charge.

3. Crystallisation by notice: express crystallisation clauses

Re JD Brian Ltd

a floating charge will crystallise where the debenture creating it expressly provides that the giving of
notice will cause it to crystallise. The giving of notice can be seen as a withdrawal of the licence to
deal with the assets which are the subject of the floating charge.

In Re Wogan’s (Drogheda) Ltd clause 8 of the debenture in question provided, inter alia:

If the lender shall by notice in writing make a demand on the company as provided for in clause 8E
hereof then the floating charge created by clause 4E hereof shall immediately on service of such
notice on the company become crystallised and be a specific fixed charge on … [inter alia] all book
debts and other debts and securities due to the company….

📎 The reluctance to accept the effectiveness of express crystallisation clauses gave rise to two schools
of thought

o one takes the view that the floating charge is not an established phenomenon having fixed
characteristics, but is simply the creature of the draughtsman and that a creditor is free to
strengthen his security in this way if he wants to (Re JD Brian Motors Ltd)
o the other looks at the effect of such an arrangement on third parties and contends that it must be
against public policy to have a charge crystallise in circumstances which may be unknown (and
 perhaps even unknownable) at the time, so that a company could not give a buyer a good title
even though everyone was acting in good faith. (Keane; Hoffman J in Re Brightlife Ltd)

The company can continue to trade. There is no stock level that cannot be changed. The best option
between fixed and floating charges depends on the company and the lending. Because the stock
varies, we can have a floating charge. The company has the right to make the level of stock varies.

The result of crystallisation of Floating Charges (when a crystallisation is possible, it is

automatic, there is no need to ask for it, the charge becomes automatically fixed after
crystallisation)

 When a floating charge “crystallises” it will attach to the assets which fall within that class of
assets over which the charge was created, thus preventing the chargor company from
continuing to use them in the course of its business.
 Causes of crystallisation include the appointment of a receiver (the mere taking of steps to
appoint one are insufficient), the winding up of the chargor company and the giving of notice
to the chargor (where the debentures makes provision for it). Automatic crystallisation may
also occur with the occurrence of an event which is specified in the debenture to crystallise
the charge.
 Floating charges will also crystallise where the company ceases to carry on its business. This
is because one of the objects of a floating charge is to allow the company freedom to use the
assets in question and once the business ends so does the point of a floating charge – per
Nourse LJ in ***Re Woodruffes (Musical Instruments) Ltd [***1986] Ch 366.
 In Ireland, in Halpin v. Cremin [1954] IR 19 the issue was whether a floating charge over the
entire undertaking of a company had crystallised. Lavery J held that nothing had been done
by either the debenture holder or its successor or assigns to crystallise the charge and that
“the charge becomes specific on the appointment of a receiver or on a winding up.” As
neither of these events had occurred the floating charge was held not to have crystallised.

Negative Pledge Clauses

 In the absence of any express prohibition in the debenture, the company may create legal and
equitable mortgages or charges prior to the crystallisation of the floating charge and, if
created, they will have priority over the floating charge. Indeed, a subsequent floating charge
will also gain priority over a previous floating charge on the same basis, though a distinction
is made where the subsequent floating charge is identical to the first.
 It has accordingly become standard practice to insert a condition or ‘negative pledge’ clause
in modern debentures which prohibit the company from creating any mortgage or charge
ranking in priority to or pari passu with the floating charge.
 However, such a clause in a debenture is only a contractual promise between a floating
chargor and a floating chargee, and where the chargor acts in breach of it, eg by creating a
subsequent charge, the prior floating chargee will not, by virtue of the negative pledge clause,
automatically have priority ahead of a subsequently created charge.
Creditors can add clauses in the contract. The debenture can contain clauses about the clause.

The question became: the supreme court approach was to determine whether a creditor with negative
pledge clause has priority.

 A negative pledge clause is an express undertaking by company that it will not create any
further charges on its assets (or the particular asset covered by the charge), without the
chargee’s permission.
 Subject to s s 412 of the Act, the question of priorities between charges will be determined by
whether or not the subsequent chargee had notice of the existence of the negative pledge

clause where a subsequent chargee (or purchaser) has actual notice of the existence of the
negative pledge, it is settled law that they will be bound by it.
 In Welch v Bowmaker (Ireland) Ltd [1980] IR 251, Henchy J held in the Supreme Court that
subsequent chargees must have actual or express notice of the negative pledge clause as there
is no duty on financial institutions to “seek out the precise terms of the debenture”.
 Prior to the enactment of the 2014 Act, chargees were entitled to include the details of a
negative pledge clause in the particulars listed in the CRO when the charge was registered.
This meant that subsequent chargees who carried out a CRO search in relation to the property
would discover the negative pledge clause and, in turn, have actual/express notice of its
terms. However, s 412(6) of the 2014 Act states that the Registrar shall not enter such details
into the register.

Retention of Title Clause (when it comes to examinership; it is a good protection for

the creditors as well. From creditors perspective, it is positive)

 The debenture holder frequently finds today when it comes to realise its security that the
suppliers of goods and raw materials to the company who have not been paid claim to be
entitled to the ownership of them because of what are known as ‘reservation of title’ clauses.

The company itself don’t become the owner

 They allow a supplier to take back goods if the company that was supplied becomes
insolvent.
 The insertion of a retention of title clause in a contract means that the title to the property will
not pass to the insolvent company and, therefore, never forms part of its assets to be divided
out upon liquidation.

In terms of liquidators’ duties - figure out the assets’ status, if there is a retention of title clause

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552; [1976] 1 WLR
676:

 the plaintiff company had supplied the defendant with stocks of aluminium. The plaintiff
claimed their stocks back when the defendant went into administration.
 The contract contained the following clause (later known as Romalpa clause):

The ownership of the material to be delivered by AIV will only be transferred to purchaser when he
has met all that is owing to AIV, no matter on what grounds. Until the date of payment, purchaser, if
AIV so desires, is required to store this material in such a way that it is clearly the property of AIV ...
AIV and purchaser agree that, if purchaser should make (a) new object(s) from the material, mixes
this material with (an)other object(s) or if this material in any way whatsoever becomes a constituent
of (an)other object(s) AIV will be given the ownership of this(these) new object(s) as surety of the
full payment of what purchaser owes AIV.

As a result of this clause, it was held that the stock was the plaintiff’s property and should be
returned.

The retention of clause comes into question.

The crucial difficulty that such a clause presents is that in such transactions both parties - the supplier
and the company - envisage that the goods will be either sold on to a third party or used in the
manufacture of some product.

 A “simple” retention of title clause is so called because it simply purports to reserve title in
the goods in the seller until the buyer pays the full purchase price of the goods.
 To be distinguished from charges as both the legal and beneficial title in the goods remains
vested in the vendor and the contract will deal “only with present title to the goods sold and
not with future title of goods to be manufactured.” (Re Charles Dougherty Ltd [1984]
ILRM 437)
 It has been held that in fact a charge will exist where the clause in the contract between the
parties only purports to retain beneficial ownership to the goods in the seller (Re Bond
Worth Ltd [1979] 3 All ER 919)

📎 the clause in question purported to reserve to the suppliers of yarn intended to be used by a
company in the manufacture of carpets the ‘equitable and beneficial ownership’ in the yarn until
payment. In a lengthy judgment, Slade J held that this clause meant that the suppliers had transferred
the legal (it created a floating equitable charge) - as distinct from the equitable or beneficial - interest
in the yarn to the company. Because the floating charge was created by the buyer company and
therefore registrable, it was void for non-registration.

 where such a fiduciary relationship exists, and where it is possible to identify the property
now representing the goods supplied, the law will recognise the rights of the supplier to
follow or, in the language of the courts of equity, trace his claim into the property.

Legal and beneficial title remains vested in those…

 The distinction between retention of title clauses and charges is of importance as charges
requiring registration with the Registrar of companies in order to have priority while retention
of title clauses do not (priority in terms who are paying)
 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 (Somers v Allen [1985] IR 340).

If the product is mixed and create a new product - simple retention of title has no effect
  In Chaigley Farms Ltd v Crawford [1996] BCC 957, it was held that title in cattle that had
been the subject of a retention of title clause passed from the vendor to the purchaser once the
cattle were slaughtered.

Aggregation of Title Clauses

 It is possible to retain title over goods that are used in manufacturing/processing, etc by the
insertion of what is known as an aggregation of title clause into the contract for the sale of the
goods.
 This is a clause which dictates that where the 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.

For the likes of car manufacturing for steel and fire - can extract although they don’t lock

 In Borden UK Ltd v Scottish Timber Products Ltd[1979] 1 All ER 961, it was held that the
supply of resin used in a glue mix in the manufacture of chipboard meant it was irreversibly
mixed.

the suppliers of resin intended to be used by the company to which it was delivered in the
manufacture of chipboard stipulated that ‘the ownership of the material’ should remain with the
suppliers until payment.

It was held by the Court of Appeal that once the resin had been converted into chipboard, any charge
which might have been created over it by the company simply ceased to exist, since the material over
which it had bee created - the resin - had vanished.

 In Re Peachdart Ltd [1983] 3 All ER 204, where leather used in the manufacture of
handbags meant it was inseparable from the manufactured goods.

Charge or Title Clause?

In Frigoscandia (Contracting) Ltd v Continental Irish Meat Ltd, the question of non-registration
appears to have been more fully agreed. In that case, the facts and the agreement were relatively
straightforward: the plaintiff company had delivered and installed an item of plant at the defendant
company’s factory. The contract provided that until payment the ownership of the plant was to
remain with the plaintiff company.

When the defendant company failed to pay, the plaintiff company claimed to be entitled to recover
possession of the plant against a receiver who had been appointed.

McWilliam J held that they were entitled to succeed: the provision was a straightforward contractual
term which did not create any charge and accordingly did not require registration.

By contrast, in Kruppstahl AG v Quitmann Products Ltd the plaintiff company, a German concern,
had supplied steel to the defendant company for use in the manufacture of certain goods such as
pedal bins and bread bins. The terms of supply as translated from the German provided that:
all goods supplied remain our property (reserved goods) until all claims are met, particularly also
balances due to us on any legal grounds whatsoever. This also applies, if payments are effected in
respect of specific claims

In addition, however, the contract provided for the possibility that the steel might be used in
manufacturing the finished products before it was paid for.

 Some of the steel delivered was used by the defendant company in the manufacture of its
products. When a receiver was appointed by a debenture holder, the plaintiff company
claimed to be entitled to be a secured creditor in priority to the debenture holder in respect of
the total indebtedness to it of the defendant company
 Gannon J concluded that the property in the unworked steel remained in the plaintiff
company, but that in the case of the steel used in manufacture, the defendant company was
trustee of the finished products and had thereby created a charge which was void for non-
registration under s 99 of the Companies Act 1963. The plaintiff company was accordingly
entitled to priority in respect of the unworked steel only.

📎 More complex questions arise where goods have been resold and the supplier claims to be entitled
to the proceeds of sale. It seems clear that, even where the original agreement does not expressly
oblige the buyer to account to the seller for the proceeds of sale in the event of their being resold, he
will normally be under such an obligation.

The position is less clear where the proceeds of sale have been paid into the buyer’s bank account
and mixed with other funds. The existence of a ‘tracing’ remedy in such a case appears to depend on
whether a fiduciary relationship exists between the buyer and the supplier.

There are English decisions to the effect that where the buyer is free to deal with the goods or the
proceeds of sale as he wishes, no fiduciary relationship can be said to exist.

In Unitherm Heating Systems Ltd v Wallace as official liquidator of BHT Group Ltd (In
Liquidation)

Unitherm supplied goods to BHT, which in turn sold these on to third parties.

Unitherm’s standard conditions of sale stated that ‘a fiduciary relationship shall exist between the
Buyer and the Company and the Buyer shall hold the said goods as trustee for and on behalf of the
company and shall return the same to the Company on demand.’

The terms continued permitting the buyer to sell the goods and requiring the buyer to keep the
proceeds in a separate account, which, in the event, was never operated. The terms also expressly
purported to charge the goods or proceeds in cases of admixture.

Despite terms purporting to create a fiduciary relationship, the Court of Appeal could find no
evidence in the trading practices of the parties of a genuine fiduciary duty nor an agency relationship
which would give rise to a fiduciary obligation.

📎 Irvine J considered that BHT’s right to sell to its customers in the course of its own business, credit
terms of 60 days, conditions which sought to impress the entirety of the purchase monies (including
BHT’s profit margin) with a trust, the fact that no separate account was ever established, and the ‘all
sums due’ nature of the retention of title clause, all presented instead the characteristics of a charge
made in favour of the seller over a fund to which it might have recourse for the discharge of any
monies outstanding.

That charge required registration under s 99 of the Companies Act 1963, and in the absence of such
it was invalid and void as against the liquidator.

It seems clear that such a clause will not be treated as void where the seller retains ownership and the
goods remain identifiable, as in Somers v James Allen & Co.

In such a case, if the goods are sold to a third party, the seller’s right to trace - assuming that it exists
- would not appear to require registration. But if the seller has lost its title to the goods - as where
they are not in their original state - then any claim it might have to the proceeds of sale would seem
to be in the nature of a charge requiring registration.

All Sums Due Clauses

 Purports to reserve title or ownership in the seller not only until the purchase price for the
actual consignment of goods has been paid but also until any outstanding sums owed by the
buyer to the seller in respect of other transactions are handed over.

Regular relationship with company - wants to make sure regularly protected - they keep on with the
clause where

 It has been held in both Cloughmill Ltd v Martin[1984] 3 All ER 982 and Armour v
Thyssen Edelstahlwerke AG [1990] 3 WLR 810 that, while the effect of this clause is very
similar to a charge, it does not in fact create a charge as the seller at all times retains title in
the goods.

Proceeds of Sale Clauses

 Provides that the buyer of goods may sell those goods to third parties provided that the
proceeds of sale are to be held on trust for the seller.
 The difficulty with such clauses is that a question may arise as to whether they constitute
charges over sales proceeds which require registration in the CRO. The general view seems
to be that such clauses do constitute charges on the proceeds of sale. As a result, they should
be registered in theCRO in order to gain priority over any subsequent charges that are created
over the property.
 Example:

Equitable and Beneficial Ownership shall remain with the seller until full payment has been
received, or until prior re-sale in which case the seller’s beneficial entitlement shall attach to the
proceeds of re-sale or to the claim for such proceeds.

Carroll Group Ltd v G & JF Bourke Ltd [1990] ILRM 285:

 A clause in a contract between the plaintiff seller and defendant purchaser purported to allow
the plaintiff to retain title over cigarettes supplied to the defendant until they were paid for.
  The clause also purported to retain title over the proceeds from the sale of the cigarettes and
to establish a separate bank account into which such monies would be lodged. Under the
contract, the proceeds of sale were to be retained in the separate account and were to be held
“on trust” for the plaintiff.
 The separate bank account had never actually used and the proceeds from the sale of the
cigarettes were lodged into the defendant’s general bank account. Of the monies held in the
bank account only about 5% represented proceeds from the sale of the plaintiff’s cigarettes.
Nonetheless, the plaintiffs sought to trace the proceeds from the sale of its cigarettes into the
buyer’s general bank account.

The lending institution was trying to create .., wanted the retention title of the cigarettes. In this circ
the money wasn’t separated - judge said that can be separated because mixed with the rest.

Murphy J held that not all of the monies in the buyer’s bank account related to the proceeds from the
sale of cigarettes supplied by the plaintiffs and that the bank account simply represented a fund to
which the plaintiffs could have recourse in discharging the monies due.

As the plaintiffs could not be entitled to the entirety of the fund, Murphy J held that the clause
purported to provide them with a security over the fund and that that security possessed all of the
characteristics of a charge which was void for want of registration under section 99 of the 1963 Act.

Registration of charges

📎 It is vital for the lender to ensure that charges governed by Part 7 are in fact registered, since if they
are not the Act declares them void against the liquidator and any other creditors.

 The 2014 Act also introduces an incentive to register in that the priority of competing charges
will now be governed by the order in which particulars of the charge were received by the
Companies Registration Office (CRO), rather than by the date of their creation, which was
the position under the prior Companies Acts.
 In order to allow lenders to find out if property is already subject to a charge, certain charges
created by the company must be registered with the Registrar of companies. See section 414
of the 2014 Act.
 Section 409 of the 2014 Act:

Every charge created, after the commencement of this section, by a company shall be void against
the liquidator and any creditor of the company unless either the procedure set out in—(a) subsection
(3) — the “one-stage procedure”, or (b) subsection (4) — the “two-stage procedure”, with respect to
the charge's registration is complied with

Who registers charges?

 The company has a duty to register charges on property which it acquires, even where such
charges were created prior to its acquisition of same. (Section 411 of 2014 Act)
 A failure to register such a charge is a category 4 offence for the company and every
defaulting officer (Section 411(3) of 2014 Act)
  Charges will often by registered by the chargee as it is in their best interests to have them
registered(Sections 410(1) and (2) of the 2014 Act)
 Such persons may recover from the company the amount of fees properly paid by that person
to the Registrar in respect of the registration of the charge concerned (Section 410(3) of the
2014Act).

Charges that must be registered under part 7 of the Companies Act 2014

 Most charges are now registrable, with only certain exceptions stated.

Section 408(1) of the Companies Act 2014 provides:

… ‘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) cash; (b) money credited to an
account of a financial institution, or any other deposits; (c) shares, bonds or debt instruments; (d)
units in collective investment undertakings or money market instruments; or. (e) claims and rights
(such as dividends or interest) in respect of any thing referred to in any of the foregoing paragraphs
(b) to (d)

Effectively, therefore, every charge created over company property is registrable unless it falls
within the list of excluded categories.

The list of excluded categories of charges is derived from the European Communities (Financial
Collateral Arrangements) Regulations 2010 implementing the Financial Collateral Directive in
Ireland.

Section 408(2) of the 2014 Act permits the Minister to extend the list of exempted charges should the
need arise by virtue of a Community Act relating to financial collateral arrangements.

 Whether an agreement constitutes a charge is a matter of construction of the intended effect

of the agreement.

In Re George Inglefield Ltd Romer J considered that a mortgage or charge had the following
characteristics:

The mortgagor or charger (borrower) is entitled to get back or ‘redeem’ the subject matter of the
mortgage or charge by paying back the mortgagee or chargee (lender); If the mortgagee or chargee
realises the subject matter for a sum more than sufficient to repay him or her, with interest and costs,
he or she has to account to the mortgagor or chargor for the surplus (what is left); and If the
mortgagee or chargee realises the subject matter for a sum less than he or she has paid to the
mortgagor or chargor, with interests and costs, then he or she is entitled to recover the balance from
the mortgagor or charger

Thus, while sale and hiring transactions (including hire purchase agreements) are not normally
registrable as charges, they must, however, be genuine sale and hiring transactions; if what was
intended was an assignment by way of security of the goods concerned rather than an absolute
assignment, the transaction will require registration.
  In Borden (UK) Ltd v Scottish Timber Products Ltd Buckley LJ expressed the view obiter
that the reservation of title clause ( is a provision in a contract for the sale of goods that the
title to the goods remains vested in the seller until the buyer fulfils certain obligations) in that
case would have required registration as a charge.
 In Kruppstahl AG v Quitmann Products Ltd, where the point arose directly, Gannon J held
that the reservation of title machinery applicable to the worked steel registrable as a charge
within s 99(3)(c) of the Companies Act 1963.
 In Carroll Group Distributors Ltd v G and JF Bourke Ltd, Murphy J held that the effect of an
agreement which purported to reserve title over mixed funds containing the proceeds of sale
of goods supplied under a reservation of title clause was a charge.

Failure to register

Section 417(1) of the 2014 Act:

The court may grant the following relief where it is satisfied that the omission to register a charge
within the time required by this Part or that the omission or misstatement of any particular with
respect to any such charge or in a memorandum of satisfaction— (a) was accidental or due to
inadvertence or to some other sufficient cause, or (b) is not of a nature to prejudice the position of
creditors or shareholders of the company, or that on other grounds it is just and equitable to grant that
relief in respect of such an omission or misstatement

*A failure to register under s 411 does not render the charge void, but the company and any officer in
default will be guilty of a category 4 offence.

Re International Retail Ltd, Unreported, High Court, Kenny J, 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

If the lending institution is aware that the company is going into liquidation, that’s not a sufficient
reason, the court can grant the relief to extend the time

Bank of Scotland Ltd v Investment Options Ltd [2010] IEHC 107:

 The charge that had been registered had been dated the 22nd June, 2001.
 However, on the Form 47 lodged in the CRO the date and description of the instrument
creating the charge was “Deed of Mortgage & Charge dated 3rd of July, 2001”.
 The applicant intended to appoint a receiver over the property that was the subject of the
charge.

Laffoy J:

 it was “reasonable, in order to obviate such potential difficulties, to apply to have the mis-
statement of the date of the deed of mortgage and charge in the particulars filed in the CRO
rectified.”

In order to stop such type of questions

  “[I]t would not be appropriate to impose the same conditions on this application as are
applied in the case of an order extending time.”
 “In this case, the CRO search against the company exhibited discloses three charges against
the notice party: the deed of mortgage and charge the date on which is incorrectly given as
3rd July, 2001; the mortgage and debenture dated 28th May,2003 in favour of the applicant,
on foot of which the receiver was appointed; and a judgment mortgage registered on 28th
September, 2009 by Andrew McNabb.”
 “I am satisfied that, on the facts of this case, it would not be appropriate to include the usual
condition which is imposed when an extension of time is granted under s. 106. The position
here is that the charge was created on 22nd June, 2001.The Form No. 47 was received in the
CRO on the 6th July, 2007, albeit with a mis-statement of the date of creation of the charge.”

📎 The Registrar, for her part, is required by s 414 to keep, in relation to each company, a register of
charges in the prescribed form, and, on payment of the prescribed fee, to enter the defined particulars
in the register.

 Section 412(6) provides that particulars of any negative pledge, any events that crystallise a
floating charge, or any restrictions on the use of a charged asset shall not be entered in the
register.

The procedure for registration

 One-stage procedure

The one-stage procedure prescribed in s 409(3) of the Companies Act 2014 consists of the taking pf
steps so that there is received by the Registrar, not later than 21 days after the date of the charge’s
creation, the prescribed particulars, in the prescribed form, of the charge.

In practice this is achieved by the completion, online, of a form C1 via the CRO’s online service at
www.core.ie, which is signed by both parties to the charge electronically using ROS (Revenue
Online Service) signatures.

📎 The Companies Act 2014 (Section 897) Order 2015, made under s 897(1) of the Companies Act
2014, mandates electronic filing as the sole means to be used to deliver the prescribed particulars to
the Registrar; paper filing is no longer permitted.

 Two-stage procedure

The two-stage procedure prescribed in s 409(4) involves taking steps so that there is received by the
Registrar a notice in the prescribed form containing prescribed particulars of the charge, and so that
the Registrar receives within a further 21 days after that a notice in the prescribed form stating that
the charge has been created. If the second notice is not delivered within the 21-day time period the
first notice will be removed from the register by the CRO.

! By registering notice of a charge in advance under the two-stage process, the lender can now secure
priority for its charge.

When the charge is ‘created’?

Strictly speaking, in equity, a charge stands created as soon as there is an agreement to create the
security and the consideration for that agreement has been executed, ie the loan is advanced or the
credit facility is extended.

Where the charge is over future goods which are not yet owned by the company, the date of creation
of the charge will be backdated to the date of the agreement and advance upon acquisition of an
interest by the company in that property.

! Failure to register the charge does not affect the company’s liability to repay the money which it
secures to the lender; on the contrary, under s 409(6) where the charge is void for non-registration,

the money secured thereby becomes immediately payable The failure to register the charge may
impact the security interest or claim that the lender has on the company's assets, but it does not
release the company from its fundamental obligation to repay the loan.

 Problem with 1 stage procedure according to CLRG:

A lender may arrange to make available finance to a corporate borrower on day 10 subject to
receiving a charge over the borrower’s assets, at the time it advances the loan, and obtaining also at
that time a search from the CRO (carried out in day 10), showing that the borrower has no
outstanding charges registered against it. If the lender files the form C1 in the CRO(containing the
prescribed particulars of the charge created on day 10) and such filing is made on day 12, the lender
might reasonably assume that it has priority over any other charge created by the borrower.
However, aside from priority under any specialist registries dealing with particular assets, if the
corporate borrower had created a charge on the same assets on day 2 (8 days prior to day 10) but had
not registered particulars of the charge until day 20, this latter charge would in fact rank in priority to
the charge given on day 10, as it had been created although not filed, prior to the date of creation of
the day 10 charge.

If you don’t have a warning that the charges are registered, there is no transparency there

 Thus, for example, charge ‘A’, created on day 2 over specific assets, takes priority over
charge‘B’ on the same assets, created on day 10, even if its particulars are not filed with the
CRO, and thus publicly known, until day 20 and charge ‘B’ is disclosed on day 12. The
lender in respect of charge ‘B’ has no notice of the existence of charge ‘A’ at the time of the
creation of his charge.

Certificate of Registration

 Once the one- or two- stage procedure has been properly followed, the Registrar will issue a
certificate of registration pursuant to section 415(1) of the 2014 Act.
European Convention of Registration?

Lombard and Ulster Banking (Ireland) Ltd v Amurec Ltd [1976-1977] ILRM 222:

 The plaintiff bank provided the defendant company with credit loan facilities for the purpose
of purchasing property. When the purchase was completed in late 1972, the defendant
company deposited the charge documents, which were undated at that point in time, with the
plaintiff bank. (a mortgage by a company to a bank was not registered until a lengthy period
after its execution, the mortgage being left undated.)
 The defendant company’s solicitor also gave an undertaking at the time of depositing the
documents to provide the sum of£3,50033 in order to enable the plaintiff to have the
documents stamped prior to registration. (The bank ultimately stamped and dated the
mortgage and presented it for registration within 21 days of the date so appearing and the
Registrar issued a certificate pursuant to s 104 of the Companies Act 1963.)

The liquidator comes after, he missed 22 days, so he can’t charge the company

 When the defendant company went into liquidation, its liquidator contested the plaintiff
bank’s right to enforce its security on the grounds that the charge was void by reason of the
plaintiff company’s failure to register it within 21 days of its creation, as required by s 99 (the
predecessor to s 409).

Rebuttable evidence

 Hamilton J held that the charge was a valid one and that the Registrar of companies had
issued his certificate of registration pursuant to s 104 of the 1963 Act, which states that the
certificate shall be conclusive evidence that the registration requirements of the Act have
been complied with.

📎 That view was later reaffirmed in R v Registrar of Companies, ex parte Central Bank of India
where, however, the question was left open as to whether the certificate could be successfully
challenged in two special cases, ie where there was an error on its face and where it had been
obtained by fraud.

Section 415(3) of the Companies Act 2014 now expressly provides that to the extent that the
particulars of a charge delivered to the Registrar omit the required particulars in respect pf one or
more properties to which the charge relates, the conclusive evidential effect of the certificate shall
not extend to the particular property or properties in respect of which that omission occurs.

The effect of registration

 Section 412 of the Companies Act 2014 now modifies any relevant rule of law governing the
priority of charges created by a company (other than a statutory rule) so that the date and time
of receipt of particulars by the Registrar is substituted for the date of creation of the charge.
 In a winding up the charge shall not take priority to those charges which have been registered
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.
 Persons who hold unregistered charges in a winding-up fall in to be paid alongside the
unsecured creditors.
  The change specifically does not affect the exceptions to the general ‘first in time’ principle
which gives priority to a person in particular circumstances by virtue of not having notice of a
matter. Thus, the ‘equity’s darling’ principle, the rule in Dearle v Hall in relation to choses in
action, and the rules governing ‘tacking-on’ of advances all continue to operate in appropriate
circumstances just as they did before the commencement of the Act.
 Nor does this change do anything to affect the principle that a fixed charge created after a
floating charge takes priority, because that principle is based in the inherent nature of a
floating charge and not on the first in time principle.
 It seems logical that the change made by s 412 should only operate where there is
competition between two registered charges: indeed s 412 (3) speaks of the ‘dates of receipt
by the Registrar of the prescribed particulars of the 2 or more charges concerned’. Then
where there is competition between a registered and registrable charge, on the one hand, and
an unregistered and unregistrable charge on the other then the ordinary, unmodified, principle
of priority should apply (what was created first).
 The fact that the charge will be rendered void by a failure to register “is without prejudice to
any contract or obligation for repayment of the money secured by the charge concerned and
when a charge becomes void under that subsection, the money secured by it shall
immediately become payable.”

Still entitled

 Thus, although the charge (i.e. the security) will be void, the monies remain due and owing to
the creditor in question.

Tutorial 1

1. Jeremy is the liquidator of Fabulous Foods Limited (the “Company”) which has been placed
into official liquidation following the bringing of a petition by the revenue commissioners
grounded on the company’s inability to pay its debts.
 Jeremy seeks your advice on the validity of the following transactions:

(a) Eighteen months before the presentation of the petition, the Company had created a floating
charge in favour of its sole member and managing director, John, to secure a loan of €50,000 made
by John to the Company. There is evidence that the loan made by Joan to the Company was
advanced in cash the day after the floating charge was created.

The first issue: whether the floating charge is valid on the basis of the length of time. (section 597)

A floating charge - 18 months - valid

Needs to be registered? - the second issue - whether needs to be registered

(b) Two cheques were drawn and dated one month before the petition was presented to the High
Court to have the Company wound up.

The first cheque for €15,000 was payable to John and represented the repayment of part of the loan
made 18 months earlier. This cheque was cashed the same day it was drawn.

The second cheque for €30,000 was payable to a creditor of the company for goods purchased by the
Company, and it was cashed the day after the petition was presented.

Just a debenture

You are required to advise Jeremy on the transactions described in (a) and (b) and in your answer
you must cite all relevant case and statute law.

Preference - liquidation and winding up topic;

The directors of the company try to avoid the sequence of priority;

Section 604 of the Company Act;

The intention to infer;

The issue 3 - the position of possession after the petition was presented;

Section 602

1. (1) This section applies to each of the following acts in any winding up of a company:

(a) any disposition of the property of the company;

(b) any transfer of shares in the company; or

(c) any alteration in the status of the members of the company,

made after the commencement of the winding up.

(2) Without prejudice to subsection (3), an act to which this section applies that is done without the
sanction of—

(a) the liquidator of the company, or

(b) a director of the company who has, by virtue of section 677 (3) retained the power to do such act,

shall, unless the court otherwise orders, be void.

(3) Nothing in this section makes a person who does an act rendered void by this section liable for
doing such act, being an act that was done by the person at the request of the company, unless it is
proved that, prior to the person's doing the act, the person had actual notice that the company was
being wound up.

(4) If a company that is being wound up makes a request of a person to do an act referred to in
subsection (3) and does not, at or before the time of making the request, inform the person that it is
being wound up, the company and any officer of it who is in default shall be guilty of a category 2
offence.

(5) Nothing in subsection (4) shall be read as limiting any liability, civil or criminal, that, apart from
this section, may attach to a company, or any officer of it, for making a request of the kind referred
to in that subsection, irrespective of the consideration that the relevant facts have been
communicated to the person concerned or that those facts are otherwise in the knowledge of that
person.

2. “The causes of crystallisation of a floating charge are now settled in Irish case law.”

Discuss, with reference as appropriate to relevant statutory provisions, case law and commentary

 McGrath, ‘Re Latzur Ltd (in receivership) [2023] IECA 60; Court of Appeal, Collins J., 16
March 2023’, (2023) 30(5) CLP 103
 Donnelly, The Law of Credit and Security, (3rd Edn, 2021) - Chapter 8
 Boyle, ‘Whether preferential creditors rank in priority to floating charge holders,’ 34(11)
(2016) ILT
 Boyle, ‘Floating Charge Not Enforceable,’ (2016) 34(5) ILT 58

 Fannon, ‘The Crystallisation of Floating Charges: Reform and Clarity,’ (2016) 23(8) CLP
209.

Re J.D. Brian Ltd t/a East Coast Print and Publicity and Re East Coast Car Parts Ltd

o Following the SC decision, the Company Law Review Group was requested by the
relevant Minister, Richard Bruton TD,

to examine the judgment (the ‘Belgrad Motors case’) and its implications for the
priority of payments to creditors in company liquidations and to recommend what, if
any, changes should be made to the Companies Act 2014, particularly having regard
to paras 91-98 of the judgment
Essentially the concern was that the effect of the decision of the SC is that a lender could
circumvent existing priorities on insolvency, in particular priority given to the preferential
creditors under the Companies Act 2014, by providing for a clause allowing for the
crystallisation by notice of a floating charge.

Two new developments have arisen from the decisions of the courts:

o that crystallisation of a floating charge by notice is now permitted.

o the problem regarding the effect of such crystallisation by notice on preferential
creditors.

The Company Law Review Group has now issued a Report, in which it has opted one of the
three possible options for reform of the law in this area:

📎 Make a simple change to the effect that any floating charge which will be considered in the
context of priorities means a floating charge as created, regardless of whether an attempt has
been made to crystallise this charge. Thus a charge which as created was a floating charge
will continue to be treated as such for the purposes of s.440 (relating to receivership) and
s.621 of the Companies Act 2014 (relating to preferential creditors, in liquidation),
effectively following the provision of the UK Insolvency Act 1986.

Effectively, crystallisation by notice prior to a liquidation will not change the priorities of the
preferential creditors in relation to floating charges created as such.

<aside> 📎 A similar provision is included in the examinership legislation. Section 11 of the

original Companies (Amendment) Act 1990 provides that an examiner can have access to
assets subject to a charge which ‘as created’ was a floating charge. This addresses the
possibility that a floating charge could have crystallised prior to the appointment of an
examiner. Most commonly this has occurred when a receiver has been appointed. (now -
s.530 of the Companies Act 2014)

</aside>

o The concept of de-crystallisation and its effect was raised in the context of
examinership in Re Holidair Ltd.

The effect of crystallisation of a floating charge - should charges which are crystallised
by notice be re-registered as fixed charges?

In this author’s view this approach is unworkable for many reasons. The preferred view is
that crystallisation merely attaches the floating charge to the particular asset available at that
time.

Are there other unforeseen consequences regarding the adoption of a practice of

crystallisation by notice?
 Crystallisation by notice is more problematic, because effectively such crystallisation is a
private event between the chargor and chargee and no publicity attaches to the alleged
creation of a new fixed charge.

If a crystallisation by notice takes place and the company continues to trade, other creditors
may not realise that the assets of the company are not available to them. It is therefore now
allegedly a fixed charge which has not been registered, offends fundamental principles on
which the registration system is based, namely publicity, transparency and the idea that there
is a known set of assets available to creditors collectively.

What if any significance attaches to the concept of de-crystallisation?

T this point, de-crystallisation of a crystallised floating charge has been raised in Irish law in
a very specific context, namely where a receiver has been appointed but has subsequently
been ordered to cease to act under the examinership legislation as described in the factual
scenario occuring in Re Holidair Ltd.

It was argued in that case that even if the floating charge had crystallised and become fixed as
a result of the appointment of a receiver, it had de-crystallised on the removal of the receiver.
This was accepted by the Supreme Court.

The question arises whether a further new floating charge is created. If this is the case, then
an original charge created as a floating charge could crystallise and de-crystallise creating
(again allegedly) a fixed charge on crystallisation and a floating charge on de-crystallisation
but none of this would give to registration obligations. Alternatively, and more appropriately,
can we agree that crystallisation merely affects control over the asset, which increases on
crystallisation and decreases on de-crystallisation.

Read

 Fannon, ‘The Floating Charge Debate in Irish Law: The Path to Clarity,’ (2015) 22(8) CLP
187.

SSRN-id2966647.pdf

 Ali, ‘Developments in fixed and floating charges: legal principles, policy issues and
implications for structured financing,’ (2006) 13(2) CLP 46.