Neutral Citation No:  NICh 27
Judgment: approved by the Court for handing down
(subject to editorial corrections)*
(i) The transfer of August 2015 of Folio AR109171 Co Antrim to the second defendant and
(ii) The March 2016 lease to the second defendant in respect of Unit 1 of the Cloghogue Business Park ("the Business Park") dated 29 March 2016.
B. THE CASE PUT FORWARD BY THE RESPECTIVE PARTIES
(i) The Defendant's Case
(a) The Clipper was not registered as legal mortgagee and was not entitled to appoint the plaintiffs as administrators.
(b) Clipper was not a "holder" of a QFC within the meaning of paragraph 15 of Schedule B1.
(c) The QFC was not enforceable at the time of appointment because there were no assets to which it could attach.
(ii) The plaintiff's case
(a) The fact that Clipper was not registered as legal mortgagee was irrelevant. Inter alia, the second defendant has confused the right to possession with the right to appoint an administrator.
(b) Clipper was a holder of QFC within the terms of paragraph 15(1)(iii)(a) and (c).
(c) The QFC was enforceable at the time the appointments were made.
(d) In any event the fixed charges in respect of the book debts and bank balances failed and this property was caught by the QFC.
C. THE DOCUMENTS
(a) Clause 2 contains a covenant to pay AIB on demand all sums of money and all costs etc in relation to the enforcement of the mortgage.
(b) Clause 3(1)(a) provides that as security for the payment and discharge of the secured obligations (exhaustively defined and including all monies due to the AIB) the Company as beneficial owner demises and assigns unto AIB the property described in the schedule which comprises folios 17337, 17447, 16290 and 24508 Co Armagh ("the Lands") and assents to the registration of a charge hereby created as a burden affecting such Lands.
(c) At Clause 3(1)(b) by way of fixed equitable charge charges to the AIB all estates or interests in any field or leasehold property (except the Lands).
(d) By Clause 3(1)(c) by way of fixed charge charges to the AIB all book debts and other debts and all balances standing to the credit of any current, deposit or other account of the Company with the AIB.
(e) By Clause 3(1)(d) by way of fixed charge charges to the AIB all stocks, shares and/or securities in any body corporate belonging to the Company.
(f) By Clause 3(1)(e) by way of fixed charge charges to the AIB the goodwill to give the benefit of any licences and registrations required or obtained for the running of any business of the Company etc.
(g) By Clause 3(1)(f) by way of fixed charge charges to the AIB all plant etc.
(h) By Clause 3(1)(g):
"By way of floating charge charges to the (AIB) its undertaking and all its other property, assets and rights whatsoever and wheresoever present and/or the future, including those expressed as charged by way of fixed charge, if and to the extent that, such charge may fail (whether by virtue of the laws of Northern Ireland or the laws of any other jurisdiction in which the relevant property, asset or right is located or to which it subject) for any reason to operate as a fixed charge (hereinafter called the Property charged by way of Floating Charge and together with the Legally Mortgaged property, the Equitably Charged property, the Book and Other Debts, the Credit Balances, the Securities, the Goodwill and Intellectual Property, the Equipment and all other property hereby mortgaged or charged collectively called the Charged Property which expression may be taken to refer to the real and/or the personal or incorporeal property hereby mortgaged or charged as the context may require or admit);…"
(i) By Clause 3(2):
"Each charge, mortgage or assignment by way of security hereby created is separate, independent of and distinct from and in addition to every other such charge, mortgage or assignment."
(j) Clause 3(4) provides that:
"The floating charge created by Clause 3(1)(g) is a qualified floating charge for the purpose of paragraph 15 of Schedule B1 of the 2005 Order."
(k) Clause 8(1) provides in respect of book and other debts that in the absence of specific written instruction from the AIB to the contrary the Company shall collect in "the Book and Other Debts and shall pay into the Company's current account with the AIB and/or if so directed by the AIB into a special or specifically designated account with the AIB either in the name of the Company or the AIB or in the joint names of the Company and the AIB or into such other account as the AIB may direct all monies which it may receive in respect of the Book and Other Debts and pending such payment hold such monies on trust for the AIB and shall not sell, factor, discount or otherwise charge or assign the same in favour of any person or purport to do so without the prior consent in writing of the AIB and the Company shall if called upon to do so by the AIB from time to time execute legal assignments of such Book and Other Debts to the AIB in such form and on such terms as the AIB may direct and give notice of such legal assignments to the debtors from whom such Book and Other Debts are due, as the AIB may require."
(l) Finally, Clause 8(2) provided that with respect to Credit Balances the Company agreed to inform the AIB as soon as any Credit Balance with any third party other than the AIB comes into existence and if so directed by the AIB the Company agreed to transfer any such credit balance "into a specifically designated account with the AIB in the name of the Company or the AIB or in the joint names of the Company and the AIB or into such other account as the AIB may direct and shall not sell or otherwise charge or assign any Credit Balance in favour of any person or purport to do so without the prior consent in writing of the AIB."
It was confirmed to the court by counsel for the plaintiffs that the AIB had fixed or floating charges in respect of all of the company's property.
(a) Beneficial owner free from encumbrances, and as the registered owner, or as applicable, the party entitled to be registered as owner, with effect on and from the date of this Deed, hereby assigns absolutely to the Buyer, subject to the subsisting rights of redemption of the Borrowers and any Obligor and to the extent capable of assignment, all of its right, title, interest, estate, entitlement, benefit and obligation (present and future, and whether legal, equitable or beneficial or contingent except as otherwise expressly stated in this Deed) in and under each Loan Asset, and the Security and Credit Documentation applicable to each such Loan Asset (including all schedules and appendices to such Credit Documentation) and the Seller's right, title and interest in and to the Ancillary Rights and Claims and including without limitation. …
1.1 All right, title, benefit, estate, entitlement and obligation of the Seller in the Loan Assets and Security constituted by the documents listed in Schedule 2 …"
Schedule 2 lists, inter alia, the mortgage debenture dated 8 August 2006 between the Company and AIB including the specific charges over and in respect of the Lands. There are other mortgages in respect of other properties. There is a mortgage of 10 November 2006 between the Company and AIB relating to 41 Church View, Holywood, County Down (Folio No. DN974001, County Down) and a mortgage dated 12 January 2017 between the Company as borrower and AIB in respect of lands and premises at 311 Cavehill Road, Belfast (AN 152155L County Antrim).
D. RELEVANT STATUTORY PROVISIONS
"15(1) The holder of a qualifying floating charge in respect of a company's property may appoint an administrator of the company.
(2) For the purposes of sub-paragraph (1) a floating charge qualifies if created by an instrument which –
(a) states that this paragraph applies to the floating charge;
(b) purports to empower the holder of the floating charge to appoint an administrator of the company; or
(c) purports to empower the holder of the floating charge to make an appointment which would be the appointment of an administrative receiver within the meaning of Article 5(1).
(3) For the purposes of sub-paragraph (1) a person is the holder of a qualifying floating charge in respect of a company's property if he holds one or more debentures of the company secured –
(a) by a qualifying floating charge which relates to the whole or substantially the whole of the company's property;
(b) by a number of qualifying floating charges which together relate to the whole or substantially the whole of the company's property; or
(c) by charges and other forms of security which relate to the whole or substantially the whole of the company's property and at least one of which is a qualifying floating charge."
"(a) That the person is a holder of a qualifying floating charge in respect of the company's property."
Lightman and Moss on the Law of Administrators and Receivers of Companies (5th Edition) at 3.005 state that "If the administrator is in any doubt as to the validity or character of the charge under which he has been appointed, he should investigate any material facts that may not be clear, seek legal advice and, if necessary, seek the directions of the court." (emphasis added)
"In essence an administration order did two things. First, it placed procedural bar on the enforcement of security over the company's property or the commencement or continuance of legal proceedings or execution against the company. Secondly, it substituted for the existing management a court-appointed administrator with power, under the control of the court, to manage the company's business property. It did not alter substantive rights under contracts into which the company had entered or security which it had given. It did not affect the company's capacity, under its new management, to continue to trade and incur liabilities. It did not, save to the extent which I shall explain, affect the priorities which creditors would have if the company was wound up. That was left to any future reconstruction or liquidation."
"(i) Rescuing the company as a going concern; or
(ii) Achieving a better result for the company's creditors as a whole and would be likely if the company were wound up (without first being placed into administration); or
(iii) Realising property in order to make a distribution to one or more secure or preferential creditors."
It is important to note that the first objective, that is rescuing the company as a going concern, is the primary objective of the administration. Paragraph 60 of Schedule B1 provides:
"(1) The administrator of a company may do anything necessary to expedient the management of the affairs, business and property of the company."
Under paragraph 68 the administrator of the Company shall on his appointment "take custody and control of all the property to which he thinks the company is entitled."
"11(1) Save as is otherwise provided by or under this Act the register shall be conclusive evidence of the titles shown on that register and of any right, privilege, appurtenance or burden as shown thereon, and the title of any person shown thereon shall not, in the absence of actual fraud be in any way affected in consequence of his having notice of any deed, document or matter relating to or affecting the title so shown."
"I certainly do not intend to attempt to give an exact definition of the term floating charge, nor am I prepared to say that there will not be a floating charge within the meaning of the Act, that does not contain all the three characteristics which that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge.
(1) If it is a charge on a class of assets of a company present and future;
(2) If that class is one, which in the ordinary course of the business of the company, would be changing it from time to time;
(3) If you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way so far as concerns the particular class of assets I am dealing with." (Emphasis added)
In Evans v Rival Granite Quarries Limited  2 KB 979 at 999 Buckley LJ said:
"A floating charge is not a future security; it is a present security, which presently affects all the assets of the company expressed to be included in it. … A floating security is not a specific charge …"
"It is the third characteristic which is the hallmark of a floating charge and distinguishes it from a fixed charge. Since the existence of a fixed charge would make it impossible for the company to carry on business in the ordinary way without the consent of the charge holder, it follows that its ability to [do] so without such consent is inconsistent with the fixed nature of the charge."
"A floating charge is not capable of registration unless it crystallises, although the charge may register a cautionary inhibition in order to protect its interests."
Was Clipper the holder of an enforceable QFC?
"(1) The company's submission that the debenture did not create a floating charge led to the conclusion that the debenture had no operation at all, which could not be accepted in relation to a debenture expressed to create a floating charge over present and future property of the company.
(2) A floating charge in Section 29(2) had to include a floating charge which when created extended to future assets even if at the creation of the charge the company had no assets or no assets which were not the subject of a fixed charge, and the intentions of the company when the debenture was executed, and the debenture holder's knowledge of those intentions were irrelevant."
Vinelott LJ said:
"For my part I think it is sufficient to say that I see no ground on which the court could conclude that a charge which according to the terms created a floating charge over the present and any future property of the company had no operation at all."
He then dealt with the second argument raised about the appointment of an administrative receiver as follows:
"As I understand Mr Bannister's argument it is not suggested that the debenture creating a floating charge (which I think this debenture did) falls outside Section 29(2), merely because at the time when the receivers appointed substantially the only asset of the company is subject to a fixed charge, securing a sum in excess of the likely value of that asset – for instance, a factory in the possession of the company and used for the purposes of its business. The property of the company would then comprise the interest of the company as mortgagor and the question whether the holder of a floating charge has power to appoint a receiver over substantially the whole of the company's property cannot depend on the amount of the debt secured by the fixed charge relative to the value of the company's uncharged assets. Equally it cannot have been intended to exclude a floating charge, which when created extended to the future assets, merely because of the creation of the charge the company had no assets or no assets which were not the subject of a fixed charge; for that would exclude the obvious and common case where the floating charge was created to finance the commencement of a company's intended business."
Then he went on to say:
"I do not think that the answer to the question whether the holder of a debenture, which on its face creates a floating charge, has power to appoint an administrative receiver can turn on the intentions of the company when the debenture was executed or the knowledge by the debenture holder of those intentions'."
Briggs LJ said:
"24. In my judgment, nothing in the Yorkshire Woolcombers case or in the Spectrum Plus case lends any support to Mr Wolman's central submission that the validity of an instrument as a floating charge, at the time of its creation, depends upon the existence of uncharged assets of the company creating it, or whereupon a power in the company to acquire assets in the future, free from any fixed charge arising from the crystallisation of a prior floating charge. On the contrary, both those leading cases concern the alternative classification of a charge as fixed or as floating, by reference simply to the construction of the relevant instrument creating the charge. This is implicit in the opening words of Romer LJ's third characteristic: If you find that by the charge it is contemplated that … The question is not whether the company is inhibited in some way from dealing with its assets, but whether it is inhibited by the terms of the instrument itself."(My underlining)
Briggs LJ then referred to the authority of Re Croftbell Limited and the comments of Vinelott J referred to above which directly contradicted the submissions of Mr Wolman. He went on to say:
"26. The meaning of floating charges in Section 29(2) is in no relevant respect different from that in (paragraph 14) (our paragraph 15) of Schedule B1, as amplified by Section 251. Both provisions require the question to be answered at the time of the creation of the relevant charge. Vinelott J's analysis makes two perceptive points. The first is that the company may well wish to grant a floating charge for the purposes of setting itself up in business by borrowing working capital before it has any significant assets to which the charge can attach. The second is that a prior fixed charge over all or part of the company's assets nonetheless leaves a subsequent floating charge to attach to the company's equity of redemption under the fixed charge. An equity of redemption is, in this context, no mere chancery abstraction. A company may well wish to grant potentially valuable floating charge security to one intending lender, subordinated to prior fixed charges over the same assets, upon the basis that the prior charge may be redeemed in due course by repayment of the prior lender, leaving the subsequent floating charge as valuable security. In my judgment Vinelott J's analysis is correct both in principle and for those practical commercial reasons."
"29. Mr Wolman's alternative submission that, even if a floating charge when (sic) created, the Debenture was unenforceable at the time of the appointment of the joint administrators, is in my view misconceived. The essence of this submission was that a floating charge was not enforceable within the meaning of paragraph 16 (our paragraph 17) of Schedule B1 for as long as the assets to which it related were the subject of any prior security, fixed or floating.
30. Paragraph 15 (our paragraph 16) of Schedule B1 expressly contemplates that a floating charge holder may appoint administrators even though there is a prior floating charge, either by giving the prior chargee two business days' written notice or by obtaining its consent (as occurred in the present case). This procedure plainly assumes that a second or lower-ranking floating charge may nonetheless authorise the appointment of the administrators by the chargee.
31. Mr Wolman submitted that this might be so in relation to a chain of floating charges, but had no application where the prior charge was (as is to be assumed here), fixed, either on original creation or by reason of the crystallisation of a prior floating charge. This is in my view an unrealistic submission. First, in the overwhelming majority of cases, the same events which occurred during the company's financial collapse will have caused all floating charges in a relevant chain to crystallise so that, from the perspective of the chargee seeking to appoint administrators, a prior floating charge will have by then created fixed charges over the company's assets.
32. Secondly, I consider that the reason why paragraph 15 (our paragraph 16) only requires notice to, or consent from, the holder of a prior floating charge is because it is floating rather than fixed chargees who have the right to appoint administrators out of court. The obvious purpose of paragraph 15 is to enable the holders of prior floating charges to appoint their chosen administrators, should they wish to do so, in preference to those selected by the holder of the subordinate charge.
33. Thirdly, I consider that the requirements of paragraph 16 (our paragraph 17) that the floating charge relied upon for the appointment of administrators might be enforceable is concerned with the question whether the charge has a right to enforce, rather than with the question whether there are free assets to which a chargee can have recourse for the purposes of enforcement. A floating charge is in my judgment enforceable if any condition precedent to enforcement has been satisfied (such as an event of default) and there remains a debt for which the floating charge stands as security." (Emphasis added)
Arden LJ said at paragraph 48:
"That completes the statutory conditions for the creation of a qualifying floating charge. There is no additional condition that there should be any assets available within the floating charge at the moment it is created. Moreover as Vinelott J explained in Re Croftbell Limited (which, as Brigg LJ, states, is an authority in Section 29(2) of the 1986 Act, and not paragraphs 14-16 of Schedule B1), there is no inherent requirement that the company should have any assets which fall within the floating charge at the moment of its creation, in order for it to be validly created. If there was a requirement that there should be some assets at the date of the creation of the charge it would be completely unclear what value or amount of assets were required. All that paragraph 14(3)(b) (our paragraph 15(3)(b)) requires is that the floating charge relates to the whole or substantially the whole of the company's property and it is in my judgment satisfied by a floating charge which has effect in relation to the whole of that property when it comes into existence."
She then goes on to say at paragraph 51:
"Under paragraph 16 (our paragraph 17) of Schedule B1, the floating charge has to be enforceable. This is a statutory condition on the appointment of an administrator and it therefore applies subsequently to the creation of the floating charge. The word enforceable clearly means capable of being enforced. Again, it is not a statutory requirement that at the time relevant for paragraph 16 (our paragraph 17) purposes there should be any assets of value within the floating charge at this moment in time. In the present case, the assets included an equity of redemption which may or may not have been of value to the floating charge holder …" (Emphasis added)
"In all these cases, and in any other case in which the chargor remains free to remove the charged assets from the security, the charge should, in principle, be characterised as a floating charge. The assets would have the circulating, ambulatory character distinctive of a floating charge."
Both the book debts and the bank balances despite the restrictions placed upon them by clause 8(2) seem to retain Romer LJ's third characteristic. Both these assets are of a circulating, ambulatory character which is the mark of a floating charge.
(i) Clipper is the holder of a QFC in respect of the Company.
(ii) QFC was enforceable at the date of appointment.
(iii) The plaintiffs were lawfully and validly appointed as administrators over the Company's property.
(iv) Even though the Lands owned by the Company are subject to a fixed charge, those Lands still form part of the property of the Company which is subject to the administration order.
(v) The fixed charges in respect of the working debts and/or the bank balances are floating rather than fixed charges.
(vi) The failure of the Land Register to register Clipper as the successor in title to the AIB is not relevant to the validity of the appointment of the administrators.