The High Court has ruled that a notice served by the Bank of Ireland under a debenture did not convert a floating charge over a company’s stock-in-trade, cash at bank and book debts into a fixed charge. The court found the company remained entitled to use those assets in the ordinary conduct of its business without the Bank’s consent.
Ms Justice Finlay Geoghegan gave the supplementary judgment on 11 July 2011 in proceedings concerning J.D. Brian Limited, J.D. Brian Motors Limited and East Coast Car Parts Limited, all in liquidation. The issue arose after the court’s earlier judgment of 25 March 2011. The liquidator, supported by the Bank, sought a ruling on the outstanding issue so relevant matters could be before the Supreme Court in an intended appeal concerning the court’s construction of section 285(7) of the Companies Act 1963.
The court considered a 20 December 2005 debenture given by J.D. Brian Motors Limited. The parties agreed that the floating charge principally covered stock-in-trade, cash at bank and book debts. Under clause 10, the Bank could serve written notice to convert the floating charge into a first fixed charge over specified assets if, in the Bank’s sole judgment, they were in jeopardy.
The liquidator and the Bank argued that the clause’s reference to conversion into a fixed charge necessarily restricted the company from dealing with the assets after notice, without the Bank’s consent. The judge rejected that submission. She said the court had to examine the rights and obligations set out in the debenture, rather than treat the description of the charge as decisive.
The debenture did not expressly restrict the company’s use or disposal of the assets after a clause 10 notice. A separate term restricted disposal of property subject to a specific charge, but did not extend that restriction to the floating-charge assets. The judge also found that the company’s continuing obligation to conduct its business properly and efficiently was inconsistent with a fixed charge over assets needed for that business.
The court concluded that the company remained entitled to sell stock and make payments from its bank account and realised book debts without the Bank’s consent. The notice therefore did not create a fixed charge over those assets; they remained subject to the floating charge. The supplementary judgment determined that issue. The source does not state the outcome of the intended Supreme Court appeal.