High Court of Ireland Decisions

Neutral Citation No: [1988] IEHC 8

1908/153SP CTS

THE HIGH COURT

UNITED BARS LIMITED (In Receivership)

WALKINSTOWN INN LIMITED(In Receivership)

RAYMOND JACKSON

Plaintiffs

THF REVENUE COMMISSIONERS

Defendants

TRANSCRIPT OF JUDGEMENT DELIVERED BY MR. JUSTICE MURPHY ON JUNE 3, 1988.

Although the facts of this case have been fully set out in the affidavit sworn by Mr Raymond Jackson herein on the 20th of January of 1988 and furthermore those facts have been fully explored and analysed in the arguments addressed to me by Counsel earlier today, it may be helpful if I summarise the material facts as follows: United Bars limited and Walkins-town Inns Limited are two companies within what is known as the Belton Group. That group of companies were apparently engaged in the licensed trade. On the 6th of October 1987 three documents were executed. The first was a mortgage deben-ture given by the United Bars Limited in favour of Irish Inter-national Bank Limited to whom I shall refer as the bank, whereby United Bars charged by way of a floating security all its undertaking and assets with the payment of certain monies to the bank. It further charged and mortgaged to the bank certain lads and hereditaments consisting of licensed premises by way of further security and its indebtedness to the bank. The second of the documents executed in October 1981 was a guarantee for the payment of United Bars indebtedness to the bank by other members of the Belton Group), including, in part-icular, Walkinstown Inns Limited. The third material document was then a mortgage debenture given by Walkinstown Inns in support of the guarantee already referred to. That mortgage debenture, like the one given by United Bars Limited, comprised both a floating security and a fixed charge. A subsequent document was executed on the 17th of October 1983 but its provisions don't affect any matter of principle involved in these proceedings. Subsequently United Bars defaulted in the payment of monies due and owing by it to the bank. As a consequence the bank, on the 3rd of December 1986, appointed Mr.Jackson as Receiver and Manager of the properties of United Bars comprised in the debenture already referred to, and a similar appointment was made on the same day of Mr. Jackson in respect of the properties of Walkinstown Inns comprised in the debenture Granted by that company. After his appoint-ment Mr. Jackson proceeded to realise the property over which he had been appointed and happily from the bank's point of view at any rate, the realisation appears to have been very successful. The total amount received as a result of the sale of the premises, the first premises charged by United Bars, amounted to £991,125. The amount realised by the sale of the licensed premises charged by Walkinstown Inn in favour of the bank amounted to £127,876. Thus, the total amount received by Mr. Jackson by the realization of the licensed premises which were subject to a fixed charge amounted to £1,119,000. As the total due to the bank was £1,033,584 this left Mr. Jackson with a surplus of £85,417.

The question posed for the consideration of the court in these proceedings is whether the Receiver is bound, having regard to provisions or Section 98, Sub-Section 1, of the Companies Act of 1963 to use all or any part of the said sum of £85,417 in payment of the persons who are or would be preferential creditors of the company if and when those companies are wound up. It is necessary, therefore, to turn to Section 98. Sub-Section 1 of that Section provides, and I quote: "Where either a Receiver is appointed on behalf of the holders or any debentures of a company secured by floating charge or possession is taken by or on behalf of the debentures of any property so comprised or subject to the charge then if at the time in course of being wound up the debts which in every winding up are under the provisions of……" (Quoted). Counsel on behalf of the Receiver relied principally and primarily and indeed understandably on the decision of Mr. Justice Nurse in J. L. Saunders Limited, a case in Booth Company Law, 1986, page 40. That case has, to say the least of it, considerable similarity with the facts of the present case. The company, J. L. Saunders Limited, executed two debentures, by which it created fixed and floating charges over its assets. A Receiver was appointed and after paying the debts due to the bank, by whom he was appointed, was left with a surplus or £444,000 from the sale of the assets, subject to the fixed charges. The question arose whether all or part of that money should be used for the payment of preferential creditors or should be paid to the mortgagor, that is to say the company. Mr. Justice Nurse held that the money should be repaid to the company and not applied in payment of the preferential creditors. In essence, the decision of Mr. Justice Nurse in Section 94 of the United of 1948, Which is similar to that of the Irish Section 98, the decision of Mr. Justice Nurse was based on an oral judgment in re Lewis Marlty Consolidated Collieries, 1939, 1 Chancery Reports at page 498. In that case Mr. Justice Tomlin held that Section 107 of the Companies Consolidated Act of 1908, which was the procedure of the U.K. Section 94 and the Irish Section 98, it was held that that Section 107 applied only in respect of accounts coming to the hands of the Receiver which were the subject of a floating charge and not two assets subject to a fixed charge. That decision was confirmed by the Court of Appeal in England, whose decision is contained in the same report. That effectively disposed of the matter before Mr. Justice Nurse but he went on, having regard to the facts as he said, that the issue was one on which there were, which was considered a vexed question by different leading Counsel. He went on to express further views in an analysis which I find more difficult to follow. He explained that if debenture holders' debts or the particular debt had been extinguished there was no principle or interest owing, to the debenture holder and accord-ingly the Section would have no application. As I say, I find that analysis difficult to follow. Put the main part of the decision is simply the application of the long-standing decision in the Lewis Newby, the Consolidated Collieries case and that is the primary basis of his decision. In those circumstances Counsel on behalf of the Revenue Commissioners, who are named as defendants in the proceedings, makes point two points. First of all he draws attention to the form and content of the mort-gage debenture given by United Bars Limited to the bank and points out that the charge is, in the first instance, and primarily, a charge by way of floating security, and it is only in the secondary phase that the document goes on to provide for further securing the monies aforesaid. "The company, as beneficial owner hereby grants and conveys...." (Quoted.). So that there was, as Counsel points out, a f1oating charge on all of the assets of the company, necessarily including its free, premises and there was an additional or secondary security in the form of the fixed charge, so that it could be said in considering the rights of the bank or the nature of their security, that they did have a floating charge, and did indeed have primarily the floating charge on these premises in respect of which there was also an undoubtedly fixed charge. That is the first distinction which is drawn. Secondly, Counsel on behalf of the Revenue Commissioners courageously contend that the decision in the Merthyr Consolidated Coll-ieries case was wrong and should not be followed. Counsel have analysed that decision and in Particular the passage from the judgement of Mr. Justice Tomlin, starting at page 506, where from which I will quote as follows: "It is said by Mr. Grant that that line, if it is read literally....." (Quoted). Mr. Grant had presented an argument apparently based on a literal interpretation, which it seems to me, and which Counsel on behalf of the Revenue contend is an argument of substance and merit. That argument is then dealt with by Mr. Justice Tomlin in the following paragraph as follows: "If you are bound to introduce some limitation the question is whether that is the Proper limitation and read the Section as a whole...." (Quoted). "It seems to me to follow inevitably from that ......" (Quoted). That analysis of the Section is severely criticised by Counsel on behalf of the defendants and I have considerable sympathy with that criticism. It seems to me that the learned judge was not inferring that the legislature intended to include a complex qualification on the word "assets"; not merely as to what it would include or what it would infer, but what would be excluded from it and no such words expressly appear in the Section. That is always a difficult task, to read in a complex qualification, indeed a qualification which the learned trial judge did not himself find it easy to draft or express. Nonetheless the judge has so decided and his decision on appeal was confirmed and briefly and firmly in the words of Lord Justice Lawrence in page 512 of the report it was said: "In my judgements the fact that the debenture in the present case...." (Quoted). If the matter came before me de novo and I was untrammelled by any authorities either binding or persuasive, I might accede to the submissions made on behalf of the Revenue Commiss-ioners. I don't know whether I would necessarily agree with the submission. There are, undoubtedly, ambiguities and diffic-ulties in the interpretation of Section 98. It is clear and agreed rightly and necessarily by both parties that assets subject to a fixed charge may and can be realised by a variety of procedures under which no question of payment of preferential creditors would arise. It may even be that where a Receiver is appointed that the monies representing the proceeds of sales of some assets did not reach his hands, but perhaps the strongest point is one made by Counsel on behalf of the Receiver in saying that if the Section was to be interpreted in such a way that the procedures of sale of fixed assets by a Receiver were to be made available in whole or in part for preferential creditors, that this would infer upon them a benefit or entitlement which they would not have in the event of a liquidation because in a liquidation their rights would be to a priority over creditors who had a floating charge, in those who had a fixed charge, and if Section 98 were to be assessed as giving them priority over a fixed charge this would be an unexplicable and unwarranted additional benefit to the preferential creditors whereas the scheme of the Act was to give a particular right to preferential creditors in a winding up and that the function of Section 98 and its pre-decessors was to prevent that right being gained either intent-ionally or accidentally bar the appointment where no liquid-ation took place and the only purpose of Section 98 should be to equate the rights of preferential creditors in a receiv-ership with those of a liquidation, not to improve on those rights.

They are factors which undoubtedly have to be taken into account in considering the literal interpretation versus the teleological interpretation of the Section. But at the end of the case it. seems to me that predominant in the case is neither the literal interpretation or the original inter-pretation of the Section. The fact that must influence me most is the fact that the 1929 decision has stood the test of time. That has been, although an English decision, part of the corpus of our law for nearly sixty years, and whilst it has not been referred to, so far as I am aware, in many cases it is known and existed in the authorities and I think one must presume was known to the legislature and its legal advisors at the time of the enactment of the Companies Act of 1963.

Furthermore, it seems to me of the utmost importance in dealinq with commercial matters to maintain some measure of consistency, and to proceed on the footing that parties to commercial transactions have organised their affairs on the basis of the law as they understand and believe it to be for many years, and any change to that law should be made preferably by the Oireachtas or at any rate by the final court. of appeal in this country or any revision or correction of the law, apart from any actual judge, should be dealt with by the highest court in the land or preferably by the Oireach-tas. In the circumstances, it seems to me that I must apply the law as it was interpreted in the 1929 decision originally and more recently in the 1986 decision, notwithstanding any reservations that I might have had on the strength of the arguments brought forward by Counsel on behalf of the Revenue.

In the circumstances it seems to me that the question raised by the Receiver, Mr. Jackson, should be answered to the effect that the surplus monies in his hands in representing the proceeds of sales of assets, subject to the fixed charge, should not be applied in payment of the preferential creditors.

MR. GALLAGHER: Usual order for costs.

MR. JUSTICE MURPHY: That I give Mr. Fitzsimons his costs?

MR. GALLAGHER: Out of the Receivership.

MR. JUSTICE MURPHY: You have no objection?

MR. GALLAGHER: I don't want to be taken as conceiving it. It seems to me that it must follow.

MR. JUSTICE MURPHY: The defendants are entitled to their costs against the Receiver and I am making a declar-ation that the costs were properly incurred.

THE PROCEEDINGS THEN CONCLUDED.