The Supreme Court allowed a liquidator’s appeal over the priority of Bank of Ireland’s claims against three companies in liquidation, ruling that notices served by the Bank converted floating charges into fixed charges before the companies’ winding up began.
The case concerned J.D. Brian Limited, trading as East Coast Print and Publicity; J.D. Brian Motors Limited, trading as Belgard Motors; and East Coast Car Parts Limited. Each company had given the Bank a debenture in 2005. The High Court ordered the companies wound up on 7 December 2009, following petitions presented on 13 November.
On 28 October 2009, the Bank served notices under the debentures’ clause 10, stating that it considered the assets covered by the floating charges to be in jeopardy and converting those charges into fixed charges. The liquidator later sought directions on how the Bank’s claims ranked against preferential debts, including debts owed to the Revenue Commissioners.
The High Court had declared that preferential debts ranked ahead of the Bank’s claims under the floating charges, whether or not those charges had been converted into fixed charges before winding up. It also ruled that the Bank’s notices had not converted the charges into fixed charges. The liquidator appealed those declarations, supported in substance by the Bank.
Delivering judgment on 9 July 2015, Ms Justice Laffoy concluded that the notices had the effect their wording described. Once converted, the charges restricted the companies’ use of the assets without the Bank’s consent. The Court also held that section 285(7) of the Companies Act 1963 gave preferential debts priority over claims under a floating charge existing when winding up began, but did not give them priority over a charge converted into a fixed charge beforehand.
The Court allowed the appeal and set aside the relevant High Court declarations. It directed that the charges became fixed on 28 October 2009 and that the Bank’s claims against the assets covered by those charges ranked ahead of the preferential debts identified under section 285(1) to (6).
The judgment confined that conclusion to express crystallisation under the terms of these debentures. It did not decide whether automatic crystallisation would have the same effect. The Court noted that the statutory position was unsatisfactory and said legislative amendment was needed; it also stressed that there was no evidence before it about what happened to the companies’ businesses or assets between the notices and the winding-up petitions.