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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Farrell v. Equity Bank Ltd. [1988] IEHC 17 (13 December 1988)
URL: http://www.bailii.org/ie/cases/IEHC/1988/17.html
Cite as: [1988] IEHC 17
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1987 No. 1137Sp
THE HIGH COURT
IN THE MATTER OF BRIAN TUCKER LIMITED (IN VOLUNTARY LIQUIDATION)
AND IN THE MATTER OF SECTION 280 OF THE COMPANIES ACT 1963
BETWEEN
PEARSE FARRELL LIQUIDATOR OF BRIAN TUCKER LIMITED (IN VOLUNTARY LIQUIDATION)
PLAINTIFF
AND
EQUITY BANK LIMITED
DEFENDANT
Judgment of Mr. Justice Lynch delivered the 13th day of December 1988.
This is an application by the liquidator of the above named Brian Tucker Limited (the Company) for a determination pursuant to section 280 of the Companies Act 1963 as to who is entitled to receive part premiums refunded by various insurers on the cancellation of policies of insurance with them respectively before the expiration of the respective periods of insurance for which the premiums were paid. The moneys to pay such premiums had earlier been advanced by the Defendant Equity Bank Limited (Equity) to the Company on terms which Equity claim give Equity a prior right to receive such refunds until the whole of their advance has been repaid.
The liquidator contests such claim by Equity and in turn claims to be entitled to the said refunds for distribution in the course of the liquidation.
THE FACTS
The Company was incorporated on the 22nd of March 1968. On the 24th of October 1986 a resolution was passed at extraordinary general meeting of the members of the Company that the Company be wound up and the Plaintiff (the liquidator) be appointed liquidator for the purposes of such winding up.
On the 3rd of June 1986 the Company had applied in writing to Equity for a cash advance to enable the Company to pay its insurance brokers the premiums due in respect of the Company's insurance policies as set out in a renewal account furnished by the brokers to the Company in the total sum of £42,842. This sum was duly advanced by Equity to the Company and the Company signed an irrevocable letter of authority prior to the advance dated the 5th of June 1986 to its brokers authorizing the brokers to pay over to Equity any moneys received by the brokers on foot of such policies so long as any part of the said advance remained outstanding and unpaid.
The application to Equity for the cash advance (called "Application for Credit") provided at Clause 4 as follows:
"We agree to sign an irrevocable letter of authority to the insurance broker in the form prescribed and it shall be a condition of the advance that this letter is signed before any advance is made."
The conditions of the application for credit provided (inter alia) as follows:
"2. Notwithstanding anything contained in these conditions, upon the happening of any of the following events (the specified events) the balance of the total amount due as may be at that time outstanding shall upon demand therefore being made by Equity forthwith become due and payable:
(7) If an order is made or an effective resolution passed for the winding up of the Company, and upon the happening of any of the specified events Equity shall in addition be entitled to terminate or procure the termination of the insurance cover provided under the policy/policies and to take possession of such part of the premium as may be refunded by the Insurance Company.
3. If for any reason the insurance cover under the policy/policies is terminated (whether by Equity in accordance with Condition 2 above or by any other means) Equity shall be entitled to take possession from the Insurance Broker or the Insurance Company of any refunded premium and shall apply such amount firstly in defraying the balance of the total amount due for the time being outstanding and secondly, but only if there shall remain any available surplus, in accounting to the Company in respect of such surplus.
8. The Company shall not, for so long as any part of the total amount due remains outstanding, assign or charge the policy/policies or purport to assign or charge the same without the previous consent of Equity or to grant or purport to grant to any other person any interest whatsoever in the policy/policies or the proceeds of any claim thereunder without consent as aforesaid."
The letter of authority dated the 5th of June 1986 to the Insurance Brokers, provided, inter alia, as follows:
"In connection with this advance, we hereby request and authorise you to do the following:
2. If Equity shall so request, to instruct the Insurance Company/Companies to cancel forthwith the existing cover under the policy/policies.
3. If for any reason the existing cover under the policy or any of the policies is terminated, to hold to the order of Equity or if Equity shall so request to remit to Equity any part of the premium which may be refunded. We acknowledge that we have no right to receive any refunded premium in priority to Equity."
Following the resolution to wind up the Company the insurance policies were cancelled and refunds in a total sum of £14,167.37 were repaid to the brokers and are held by them pending the determination of these proceedings. At the date of the liquidation the Company owed Equity £15,839.87 and Equity claims to be entitled to the said sum of £14,167.37 in priority to the liquidator who as already stated disputes Equity's claim and in turn claims to be entitled to the said sum for distribution in the liquidation in accordance with section 275 of the Companies Act 1963.
SUBMISSIONS
Counsel for the liquidator submitted that when the advance by Equity had been paid over to the insurers as premiums the policies of insurance became the property of the Company. If the business had continued there would have been no refunds: because the business terminated there are refunds and the Company property in the policies has been converted to monetary refunds.
The prohibition of assignment in the conditions of the application for credit emphasizes that the policies are the property of the Company. Counsel submitted that there was no charge on the policies of insurance themselves and there therefore could be no charge on the pecuniary refunds representing such policies.
Counsel further submitted that if a charge did arise it was a charge on book debts and was void because it had not been registered as required by section 99 (2) (e) of the Companies Act 1963. Counsel pointed out that there was no question of the documents constituting an absolute assignment of the refunds of premiums which would be outside the terms of section 99 because Equity have to account with the Company for the refunds in case that there should be any surplus over and above the amount outstanding on their advance to the Company. The termination or cancellation of the policies of insurance creates debts due by the insurers to the Company and these are now payable to the liquidator for disbursement in accordance with section 275.
Counsel for the liquidator submitted that the terms of paragraph 4 of the application for credit incorporated the irrevocable letter of authority to the Insurance Brokers and furthermore that Condition 3 of the application for credit conferred a preferential status on equity. Counsel further submitted that the letter of authority to the brokers by paragraph 3 creates a trust in favour of Equity for any refunded premiums or part premiums and acknowledges Equity's priority. Counsel submitted that the wording "to hold to the order of Equity" amounted to the same thing as "on trust for Equity."
If the documents create a charge rather than a trust then counsel submitted such a charge is not registrable because the refunds of part premiums are not book debts. At the time when the charge was created in June 1986 it could not be anticipated that refunds of part premiums would ever become payable and it was a mere possibility that they might become payable. That being so they could not be a book debt at the date of the advance or at any time such as either were required to be or could be registered within 21 days as required by subsection (1) of section 99 of the Companies Act 1963.
CONCLUSIONS
First it is quite clear that it was the intention of the parties in June 1986 when they executed the application for credit and the irrevocable letter of authority to the broker that Equity should have priority over the Company to receive refunds of premiums in the event of policies being cancelled until such time as Equity's advance of the moneys to pay such premiums should have been fully discharged. I have come to the conclusion that the terms of the application for credit and especially Condition 3 thereof are such as to create a charge on the refunds if and when they might become payable. The question then arises as to whether such a charge is void on the basis that it is a book debt and was not registered as required by section 99 (2) (e) of the 1963 Act.
There is no definition of the term "book debt" in the 1963 Act or so far as I could find in any other Act either. The term is however defined for bankruptcy purposes in Volume III of the fourth edition of Halsbury at paragraph 376 footnote 2 and paragraph 525 footnote 4 as follows:
"Book debts mean all such debts accruing in the ordinary course of a man's trade as are usually entered in trade books (or at least well kept books) but to constitute a book debt it is not necessary that the debt should be entered in a book."
A number of authorities are referred to in the foregoing paragraphs of Halsbury and I was referred to a number of them in the course of argument. I think the most helpful is the decision in the case of Paul & Frank Limited and another v. Discount Bank (Overseas) Limited and another (1966) 2 AER 922 and in particular the passage commencing at the page 926 to the following effect in the judgment of Pennycuick J.
"Section 95 of the Companies Act 1948 (which corresponds to section 99 of our 1963) requires registration of a charge on book debts within twenty-one days of creation. It seems to me that, in order to ascertain whether any particular charge is a charge on book debts within the meaning of the section, one must look at the items of property which form the subject-matter of the charge at the date of its creation and consider whether any of those items is a book debt. In the case of an existing item of property, this question can only be answered by reference to its character at the date of creation. Where the item of property is the benefit of a contract and at the date of the charge the benefit of the contract does not comprehend any book debt, I do not see how that contract can be brought within the section as being a book debt merely by reason that the contract may ultimately result in a book debt. Here the E.C.G. policy admittedly did not comprehend any book debt at the date of the letter of authority, and that seems to me to be an end of the matter."
I agree with the foregoing reasoning and it seems to me to be applicable to the circumstances of this case. The mere possibility that future refunds of premiums might become payable in amounts that were wholly unascertained and might never arise at the date of the creation of the charge does not make that transaction a book debt which must be registered pursuant to section 99 of the 1963 Act.
In addition to the foregoing conclusion, however, it seems to me that the terms of Condition 3 of the application for credit and paragraph 3 of the irrevocable letter of authority to the Insurance Brokers makes the brokers trustees for Equity of the refunds of premiums received by them until such time as the whole of Equity's advance for the payment of such premiums has been repaid.
For the foregoing reasons therefore I find that the refunds from the Company's insurance policies presently held by the insurance brokers in the sum of £14,167.37 are payable to Equity in priority to the liquidator until such time as the whole of the advance by Equity to the Company for the payment of the premiums has been discharged.
Signed
Kevin Lynch
DOC. No. 3184SAK