The High Court has ruled that a floating charge granted by RQB Limited in 2008 was unenforceable by Danske Bank, finding that it lapsed when the loan agreement it secured came to an end.
The ruling was made by Mr Justice Cregan on an application by the company’s official liquidator for directions on the charge’s legal status. The application was heard under section 280 of the Companies Acts after the parties agreed to amend the original basis of the motion.
RQB and the bank signed an €8 million loan agreement and a separate €2 million overdraft agreement in September 2008 as part of a proposed restructuring. The agreements provided for personal guarantees and a floating charge over the company’s assets as security. The loan agreement also required the bank to receive personal asset statements from the guarantors in a form satisfactory to it before the facilities could be used.
The statements supplied were not satisfactory to the bank, and neither facility was advanced. The agreements provided for renegotiation if use of the facilities had not begun by 30 September 2008. The court concluded that the agreements lapsed on that date because the required condition had not been met.
The liquidator submitted that the charge was unenforceable, while the bank argued it remained valid and secured the company’s earlier borrowing. The bank relied, among other matters, on the charge’s wording, its registration and the bank’s continued forbearance on the earlier facilities.
Justice Cregan found that the September 2008 agreements identified the new loan and overdraft facilities as the obligations secured by the charge. He rejected the bank’s argument that the charge operated as independent security for the company’s 2005 borrowing, noting that the earlier facility had been secured by the directors’ guarantees and that there was no clear agreement to apply the charge retrospectively.
The court accepted that consideration supported the charge when it was created, but found it later lapsed with the underlying agreements. Registration did not make it enforceable after that lapse. The judge did not need to decide whether the charge had been delivered under seal, and did not rely on an earlier judgment concerning a guarantor’s personal guarantee.
The court’s conclusion was that the floating charge was unenforceable. The judgment records that conclusion on the liquidator’s application for directions; it does not state an order for payment or a separate award of damages.