The High Court declared invalid the appointment of David O’Connor as receiver and manager over the business and assets of Belohn Limited, which operated Foley’s Bar and O’Reilly’s Bar in Dublin city centre. Mr Justice Gilligan ruled that the appointment did not comply with the requirements of a 1981 debenture and that the company was not estopped from challenging it because of delay.
The Merrow Limited, Belohn’s sole member, brought the application under section 316 of the Companies Act 1963. Belohn owed Bank of Scotland about €4 million on loan facilities as of 3 October 2012, and accepted it was in default under two mortgage debentures. The bank appointed O’Connor receiver on 10 October 2012. The appointment was challenged on 18 December.
The court rejected the company’s argument that the bank lacked authority to execute the appointment deed. It found that a senior manager had authority to appoint receivers under the bank’s power of attorney and a letter of nomination.
The remaining challenge concerned the 1981 debenture, which required the bank to appoint a receiver “by writing under its Seal.” A separate clause excluded the option of appointment under hand. The bank argued, among other things, that it was not required to have a seal and that the appointment could stand under the 2008 debenture. The judge said the bank had not satisfied the court that it could not have a seal, and held that the contractual requirement in the 1981 debenture had to be followed.
Gilligan found that the two premises and their business were inextricably intertwined, so the appointment could not be treated as valid under the 2008 debenture alone. He concluded that the failure to appoint under seal made the appointment void in respect of the business covered by both debentures.
The bank also argued that the company’s delay and acquiescence prevented it from disputing the appointment. In the intervening period, O’Connor had run the business, addressed employee matters and sought a buyer; a booking deposit had been received subject to contract. The judge found there had been some delay and acquiescence, but no significant irreversible legal steps and little interaction between the company and the receiver. He rejected the estoppel argument.
The court granted declarations under section 316 that O’Connor did not stand validly appointed over the property and assets charged by either debenture, and that the purported appointment was invalid, void and of no effect.