Recent Case re Floating Charges
In ‘In the Matter of J.D. Brian Limited (In Liquidation) and In the Matter of J.D. Brian Motors Limited (In Liquidation) and In the Matter of East Coast Car Parts Limited (In Liquidation) and In the Matter of the Companies Acts 1963 to 2009’, an application was made by the official liquidator of certain companies within the Belgard Group, seeking declarations and directions of the court arising out of the purported crystallisation of floating charges created by each of the Companies in favour of the Bank of Ireland.
The High Court considered whether a floating charge was converted into a first fixed charge when a notice purporting to crystallize the floating charge was served. In general, once a floating charge has crystallised, the mortgagor cannot deal with that property without authorisation from the mortgagee. In this case, the mortgage deed was silent as to the mortgagor’s ability to deal with the property after the notice had been served. The Court found that crystallisation had not taken place. It seems that although a security document may have a provision for express crystallisation; it will not necessarily have the desired effect. Any such document should carefully outline the effect of the purported crystallisation i.e. that the mortgagor will be restricted from dealing with the relevant assets without the mortgagee’s consent.
The Court also found that floating charge holders who take steps to crystallise that charge prior to the winding up of a company will not have priority over preferred creditors (as defined in 285(2) of the Companies Act, 1963) to the proceeds of assets subject to the converted floating charge. It is not important whether crystallisation occurs as a matter of law or as a result of an express provision in the security document permitting crystallisation.
This case is to be appealed to the Supreme Court.
Conor Lennon
McKeever Rowan Solicitors
IFSC
Dublin 1
20th September 2011
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