102 / 244
GAZETTE
JULY-AUGUST
1979
eluded that a charge on "all the Company's book debts"
embraced those debts of the Company presently in
existence and those which as a result of future trading
may come into existence. Having so decided it was now
necessary for the Court to determine the character of the
charge i.e. whether it was fixed or floating. In his
judgment Costello J. reviewed a number of English cases
which laid down certain tests to be applied in determining
this issue and quoted the following passage per the Lord
Chancellor from the Judgment of the House of Lords in
Illingworth
v.
Houldsworth
d
Anor.
[1904] A.C. 355 at
p. 357:
"In the first place you have that which in a sense I
suppose must be an element of the definition of a
floating security, that it is something which is to
float, not to be put into immediate operation, but
such that the Company is to be allowed to carry on
its business. It contemplates not only that it should
carry with it the book debts which were then
existing, but it contemplates also the possibility of
those book debts being extinguished by payment to
the Company, and that other book debts should
come in and take the place of those that had
disappeared. That, my Lord, seems to me to be an
essential characteristic of what is properly called a
floating security."
In the same vein Costello J. had earlier in his Judg-
ment referred to the obiter of Farwell J. in dealing with
the same issue in the lower Court
1
where the learned
Judge stated that if the security was to be treated as a
fixed charge then the Company had no business in
receiving one single book debt after the date of the charge;
but if on the other hand it was intended that the charge
was to remain dormant until some further date, and the
Company was permitted to go on receiving the book
debts and using them until then, then the security would
contain the true element of a floating charge.
The Court held that the charge created by Lakeglen
Construction Limited over all its book debts constituted a
floating charge and consequently was invalid under
Section 288 of the Companies Act, 1963.
2
It is clear from
the Judgment that the learned Judge was influenced by the
fact that there was no provision in the debenture, or no
circumstance existed from which it might reasonably be
inferred, that after the execution of the debenture the
Company was not to be at liberty to deal with its book
debts in the ordinary course of carrying on its business —
such as by receiving them and bringing new debts into
existence — until such time as the debenture holders
intervened in the Company's affairs; and further, that
there was no provision in the debenture which required
the Company to pay over the book debts and other debts
when received to the debenture holders.
If one must draw a conclusion from the foregoing
analyses of two recent cases which indirectly bear on the
same subject it must be this, that where a debenture
purports to create a fixed charge on existing and future
book debts and (1) there is no provision made in the
debenture, or by separate contract with the Company to
control the company in collecting, receiving and dealing
with its book debts from time to time; or (2) there is no
express arrangement in regard to the manner in which, or
the period for which, the company may be permitted to
use such book debts in the ordinary course of business;
and (3) there is no prohibition on the company from
charging or assigning such book debts to any third party
without the prior consent of the debenture holder, then it
is likely that a Court would hold such a charge to possess
the characteristics of a floating charge and construe it
accordingly.
And so it would seem that, in this country at any rate,
the drafting device of creating a
fixed
charge on book
debts present and future, designed to secure that in a
winding up of a company such debts would not be avail-
able to meet the preferential claims, is not the panacea
which it is thought by many to be. Liquidators and pre-
ferential creditors may take heart —all is not lost which
seemed to be lost.
1. In re
Yorkshire Woolcombers Association Limited. Houldsworth
v.
Yorkshire Woolcombers Association, Limited
[1903] 2 Ch. 284.
2. 288—(1) Subject to subsection (2), where a company is being
wound up, a floating charge on the undertaking or property of the
company created within 12 months before the commencement of
the winding up shall, unless it is proved that the company
immediately after the creation of the charge was solvent, be invalid,
except to the amount of any cash paid to the company at the time
of or subsequently to the creation of, and in consideration for, the
charge, together with interest on that amount at the rate of 5 per
cent, per annum.
INCORPORATED LAW SOCIETY OF
IRELAND
Employment Register
Members and apprentices are reminded that the
Society keeps a register of
(i) Solicitors seeking Assistants;
(ii) Solicitors seeking Vacancies;
(iii) Apprentices seeking Vacancies.
Members or apprentices who wish to avail of this
service (which is free of charge) should write to:
NICHOLAS MOORE,
Education Officer,
The Law Society,
Blackball Place, Dublin 7.
Landlord & Tenant Acts, 1978
TIME LIMITS
Correction to Notice published in the January-
February Gazette, 1979
The attention of readers is drawn to comment on
Section 13 of the Landlord and Tenant (Ground
Rents) (No. 2) Act, 1978, on p. 21 of the January-
February Gazette. This Section confers the right to
acquire the fee simple within one year of the
commencement of the Act, expiring on the 1st day
of August, 1979, where a lease expired within 10
years before the commencement of the Act (and not
8 years as was stated in the January-February
Gazette), the Lessee is in possession under a yearly
tenancy or as tenant at will or otherwise without
having obtained a new Tenancy or acquired the
Lessor's interest and no person was immediately
before such commencement entitled to be granted a
lease under the Act of 1958.
104