Receivership Process
Cases
Eisc Teoranta, In re
[1991] ILRM 760
McCRACKEN J
“Where either a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken by or on behalf of those debenture holders of any property comprised in or subject to the charge, then, if the company is not at the time in course of being wound up, the debts which in every winding up are, under the provisions of Part VI relating to preferential payments to be paid in priority to all other debts, shall be paid out of any assets coming to the hands of the receiver or other person taking possession as aforesaid in priority to any claim for principal or interest in respect of the debentures.
This section was considered by Lardner J in In re Eisc Teoranta [1991] ILRM 760 in circumstances where a receiver was appointed under a fixed and floating charge, discharged all sums due under the debenture out of the proceeds of sale of the assets subject to the fixed charge and was left in possession of the proceeds of sale of the assets subject to the floating charge. Subsequently an order was made winding up the company and a liquidator was appointed and the issue was whether the receiver was bound to discharge the preferential creditors out of the proceeds of sale of the floating charge before handing them over to the liquidator. Lardner J analysed the section at p. 763 as follows:
Despite the forceful submissions advanced by Ms Finlay, I think s. 98 is sufficiently clear and mandatory to enable a determination of this issue to be made. The section applies first where ‘a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge’ which is this case. Then it imposes a clear duty on the receiver in these words ‘the debts which in every winding up are under the provisions of Part VI of this Act relating to preferential payments to be paid in priority to all other debts shall be paid out of any assets coming into the hands of the receiver … in priority to any claim for principal or interest in respect of the debentures.’ In my view the section specifies when this duty arises, namely, where a receiver is appointed on behalf of the holders of any debenture of a company secured by a floating charge. Then, if the company is not at the time, that is the time of the appointment, in the course of being wound up the duty is imposed on the receiver to make the preferential payments. It is noteworthy that the duty is to make these payments in priority to any claim for principal or interest in respect of the debentures. In my view such a claim is the basis of the appointment of the receiver. It is a claim which exists at the time of his appointment.
Accordingly, he held that the receiver was bound to discharge the preferential creditors. In the present case, counsel for the First National Building Society sought to make the distinction that this case had involved a liquidator, rather than a mortgagee, but I must say I fail to see how the distinction affects the construction of the section. The present case is similar to the Eisc Teoranta case in that the receiver in fact discharged the debenture holder’s debt out of the fixed assets, but he did take possession of the assets which were subject to the floating charge. It was sought to be argued that the priority referred to in s. 98 was only in respect of the debts due under the debentures, and as no part of the assets subject to the floating charge were used to discharge any monies due under the debentures, the section never came into effect. This is dealt with in the judgment of Lardner J where he holds, in effect, that once a claim has been made under the debenture, the obligation arises under s. 98 . I cannot see any practical distinction between the two cases, and I can see no good reason to differ from that judgment.
The only remaining point is whether the proviso in the order of Keane J extending time under s. 106 gives priority to the preferential creditors. If the judgment of Lardner J in the Eisc Teoranta case is correct, then the liability to discharge the preferential creditors arose on the appointment of the receiver, and was an existing liability of the company with a preferential status at the time of the order extending time. It was sought to be argued that, while they may have been preferential creditors, they were simply ordinary creditors who were given some form of preferential treatment, but I do not think I can accept that argument. On the appointment of the receiver, the preferential creditors were given a priority under s. 98 , and that priority was a right acquired prior to the time of the registration of the particulars of the mortgage of the First National Building Society.
Accordingly I would direct:
(a) That the receiver is bound to discharge the preferential creditors of the company out of the proceeds of sale referable to the sale of the property at Bagenalstown, Co. Carlow, and
(b) that the proposed payment by the receiver takes priority over any rights of the First National Building Society arising under the mortgage which was registered in its favour on 15 October 1993.”
In re H. Williams (Tallaght) Ltd.
[1996] 3 I.R. 534
Geoghegan J.
“H. Williams (Tallaght) Ltd. went into receivership on the 22nd September, 1987. The receiver was appointed on behalf of the holders of a debenture secured by a floating charge. In accordance with the provisions of s. 98, sub-s. 1 of the Companies Act, 1963, the receiver, in respect of assets coming into his hands upon realisation of the property subject to the floating charge, treated the Revenue Commissioners as preferential creditors in relation to certain debts of the company in respect of P.A.Y.E. and P.R.S.I. Having paid the preferential debts, the receiver had sufficient assets in his hands to discharge the entire debt of the debenture holders and he had therefore no further function to perform. But on the 1st July, 1991, the company went into liquidation. The Revenue Commissioners are claiming to be a preferential creditor under s. 285 of the Companies Act, 1963, in respect of a corporation tax liability of the company. The liquidator argues that such a preferential claim cannot be permitted in that, as he submits, it was never intended that the same creditor could make a preferential claim in a receivership and claim preference again in a subsequent liquidation. He maintains that s. 98 of the Act of 1963 when read in conjunction with s. 285 ought to be construed as precluding such a double preference as he might describe it. The liquidator further submits that even if he is wrong in that view, the claim by the Revenue Commissioners is out of time and is statute barred.
These two issues now come to be determined by this Court on foot of an application for directions by the liquidator and an order of Murphy J. that the matter be specially set down for bearing on foot of pleadings delivered by both sides. I now propose to deal with each of the two issues in turn.
….
No authority has been cited in support of the argument of the official liquidator and I can find no basis for his submission in the wording of section 98. The relevant part of that section reads as follows:
“(1) Where . . . a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge . . . then, if the company is not at the time in the course of being wound up, the debts which in every winding-up are, under the provisions of Part VI relating to preferential payment to be paid in priority to all other debts, shall be paid out of any assets coming to the hands of the receiver . . . in priority to any claim for principal or interest in respect of the debentures.
(3) The periods of time mentioned in the said provisions of Part VI shall be reckoned from the date of the appointment of the receiver . . .”
The debts in respect of which priority is to be given are the same debts as would be given preferential treatment under s. 285 but that is really the only link between the two sections. There is nothing in s. 98 which in any way suggests that once a particular preferential creditor has been paid his preferential debt in the receivership, he cannot subsequently make a claim in respect of a preferential debt if the company goes into liquidation. There could well be a situation where a company would go into receivership on foot of a debenture secured by a floating charge and the receiver succeeds in paying in full the debenture holder after first discharging the preferential debts and the company does not go into liquidation for many years afterwards. Is it to be said that notwithstanding the mandatory requirements of s. 285 the official liquidator is to ignore these in respect of a creditor who has already been treated as a preferential creditor in the earlier receivership? Such a proposition would seem to me to be quite unsustainable. Section 285, sub-s. 2 provides that in a winding-up”there shall be paid in priority to all other debts” certain categories of debts which are set out in the section and which include “all assessed taxes, including income tax and corporation profits tax, assessed on the company up to the 5th April next before the relevant date and not exceeding in the whole one year’s assessment”. Although as I have already mentioned there is no authority in point, counsel for the official liquidator has referred me to In re United Bars Ltd. [1991] 1 I.R. 396. In his judgment in that case, but in a totally different context, Murphy J. expressed the view that the only purpose of s. 98 should be to equate the rights of preferential creditors in a receivership with those in a liquidation, not to improve on those rights. But I do not think that that passage in Murphy J.’s judgment lends any support to the argument of the official liquidator in this case. What was at issue in In re United Bars Ltd. was whether assets realised by a receiver on foot of a fixed charge as distinct from a floating charge were to be used for the purpose of discharging preferential creditors. Murphy J. decided that he should follow the clear English case law to the effect that they should not. He relied on In re Lewis Merthyr Consolidated Collieries [1929] 1 Ch. 498 and In re G.L. Saunders Ltd. (in liquidation) [1986] 1 W.L.R. 215. Although he was following English authorities, he expressed the view that there were undoubtedly arguments both ways. But one strong point in favour of the view taken by the English courts was that, in a liquidation, preferential creditors have no right to preferential payment out of assets the subject matter of a fixed charge, but only out of assets the subject matter of a floating charge, and he doubted whether it could have been intended that preferential creditors claiming under s. 98 could be held to be in a better position, that is to say entitled to claim priority out of assets realised from a fixed charge. That is the context in which equality came into play, but in my view it has no relevance to the arguments in this case. I am satisfied, therefore, that if it is not statute barred the priority claim of the Revenue Commissioners in respect of the corporation tax is well founded.”