Tutorial on charges

Tutorial on charges gy aztrayn ‘*OF6pR 15, 2011 S pagos Company Law – Tutorial on Charges 1. X Co. Ltd. approaches Thrifty Bank to apply for a €100,000 loan for a new line of business it wishes to start up in conjunction with an existing successful business.

The company has land and buildings worth €50,000 and suggests to the bank that they issue a debenture (the company acknowledges a debt given to them in a debenture document and the debenture can be secured or not secured but in most cases they are secured) containing a fixed charge on the land and buildings (the specific items Will be named n the contractual arrangement) and a floating charge on the company’s book debts. Advise the bank on the suitabili of this t pe of security. rs is that if the debtor The big advantag it to View can’t pay then the co anv eiver to recover the money that was lent charges must be registered under S g A floating charge on the companys book debts: a record of the money owed to the company and this money can also be used as security. Floating charges are for items that are subject to constant change e. g. raw materials. There are ways to go around this. I would advise the bank to take the fixed charge instead of the floating charge because: S 285 of the 1 963 Act: floating charges ran below the debts of the… nd S 285 (b) of the same Swlpe to vlew next page Act: if there are insufficient funds to satisfy preferential creditors then all assets subject to floating charge Will be used to pay preferential creditors. S 288 ofthe 1963 Act: provides that floating charges that are created within 12 months of the company winding up are invalid with the exception that the company was Still solvent when the loan was granted. S 136 of the 1990 Act: rovides that charges created in favour of directors or other connected persons with two years of winding up can be set aside.

If there is a floating charge on an asset and then there is a floating charge and the floating charge owner appoints a receiver then the receiver has to get the consent of the fixed charge holder before he does anything with the property. A floating charge on the company’s book debts. Keenan Brothers [1985] and National Westminster bank plc [2005] — the access of the borrowing company to the account must be restricted. Re Wogan’s Droheda Ltd – the court held that t would constitute…

Re Holidiar Ltd — That decision was reversed and the court Said in that case that if there is no restriction and the company has no access to the account then that would be regarded as a floating charge. 2. In April 2008, Moneybank Ltd. advanced money to Soda Exports Ltd. , a soft drink manufacturer, on the security of a properly registered floatlng charge over the entire stock of the company and the company’s factory building. The debenture creat RI_IFS charge over the entire stock of the company and the company’s factory building. The debenture creating the charge included an ndertaking by Soda Exports Ltd. ot to create any mortgage or charge on the property subject to the charge which would rank either pari passu or in priority to the floating charge. That is a negative pledge clause. In breach of this undertaking, the company created a fixed charge on its factory building on August 5, 2008 to secure a loan from Easi Finance Ltd. This charge was not registered. A negative pledge clause is merely a promise between the lending institution and the borrower. The test in this country depends on notice; ifhe has notice then he may not be able o take priority even though he has a fixed charge and so the question is what constitutes notice?

Welsh v Bo Maker Ireland Ltd – the judge said there should be actual notice of the negative pledge in the debenture before the subsequent lender would be bound by it and not able to take priority over the person with the floating charge. Re Sot Hill Properties Ltd. The big problem here is that the charge was not registered! What is the consequence/ practical implication of this? The person holding the charge looses his priority/ he just becomes an unsecured creditor. Soda Exports Ltd. reated another flxed charge over the same building on August 22, 2008 in favour of Reliable Loans Ltd. o secure another advance of money. Reliable Loans Ltd. had made a Sea 31_1fS favour of Reliable Loans Ltd. to secure another advance of money. Reliable Loans Ltd. had made a search of the Companies Register and had discovered that a charge was registered. It made no further inqulry regarding this charge. It was also aware of the charge in favour of Easi Finance Ltd. In October 2008 rumours began to circulate that Soda Exports Ltd. was in financial difficulties. On checking its security, gasi Finance Ltd. iscovered the failure to register the charge and applied to the court to extend the time for registration. It asked the court to dispense with the normal provision protecting intervening creditors on the basis of the actual awareness of Reliable Loans Ltd. at all tmes of the existence of its charge. S 106 of the 1963 Act gives the court the power to extend the time within which a charge can be registered but when you look up that section: Easy F are asking for the court to dispense with statutory provisions which he does not think they Will be happy to do!

Advise the parties to the various transactions outlined above in detail as to the principles applicable in each case. NB this question asks you to advise all of the parties. Issues: negative, registration, extension of time within which to register the charge, floating, fixed, breach of negative, priority, S 99 of the 1963 Act. Advise each ofthe parties independently. 3. James is the liquidator of Goodhue Ltd. , a DIY supplies company. Red Bank plc h 406 S company. Red Bank plc has loaned El 00,000 to the company and their debt is secured by a fixed charge over the bock debts f the company.

Nevertheless up until the date of liquidation the company had been free to deal with the cash from its book debts because, despite a term in the agreement which imposed an obligation on the company to establish a special account into which monies paid in relation to the debts would be lodged, this special account was never established. That would not constitute a fixed charge. Re Holidiar. The bank also has a floating charge over «stock in possession» of Goodhue Ltd. At the time of liquidation, about 000,000 Worth of stock was held by Goodhue Ltd. This is simply a floating charge.

The purpose of the two paragraphs is to see how you create a fixed and a floating charge. The Revenue Commissioners are claiming that the charge over the book debts is in reality a floating charge and that therefore the preferential debts owed to them take priority. S 285 of the 1 963 Act: floating charges rank below what is owed to the Commissioners. James Will have to pay the RC first. S 1,001 ofthe Taxes Consolidation Act 1997 gifts to the revenue of priority to the revenue over the book debts of the company. Advise James as to the legal position. SÜFS