The High Court has ruled that a 2007 agreement between Bank of Ireland and Eteams (International) Limited was a purchase of the company’s book debts, not a loan secured by an unregistered charge. The decision determines how those debts and their proceeds are treated in the company’s liquidation.
Mr Justice Keane delivered judgment on 15 June 2017 in an application for directions concerning the agreement. The company had entered voluntary liquidation after its directors resolved to wind it up in February 2013; a liquidator was appointed the following month.
The bank said the agreement transferred ownership of debts owed to the company, both then and in future. The company’s position was that the arrangement was a loan secured against those debts. If it were a charge, the company argued, it was void against the liquidator because it had not been registered under section 99 of the Companies Act 1963.
The court considered the signed agreement and the bank’s standard terms, both describing a debt purchase. The judge noted that they referred to the bank purchasing debts and becoming their owner, and did not describe the funding as a loan or the debts as charged assets. The company relied, among other points, on a former director’s reported understanding that the arrangement was security for a loan. The judge gave that account no weight: it was hearsay, and subjective understandings could not displace the objective interpretation of the signed contract.
The judge also rejected the argument that guarantees, recourse for certain debts, or the allocation of risk turned the transaction into a secured loan. He found that authorities on factoring and debt discounting did not support that distinction. The company had conceded that there was no evidence the agreement was a sham. Considering its terms as a whole, the judge concluded it was a sale and purchase, not a loan and charge.
The court granted the directions sought by the bank. It declared that the agreement effected a valid purchase of the company’s debts and was not a registrable charge under section 99. It directed the liquidator to pay the bank the proceeds of debts collected and received by him or the company, and to provide documentation and information in his possession, power or procurement that the bank required for collecting the debts. The judgment did not specify the amount of proceeds covered by that direction.