IONA HOTELS Ltd ((in Receivership)) v CRAIG
| Jurisdiction | Scotland |
| Judgment Date | 28 March 1990 |
| Date | 28 March 1990 |
| Docket Number | No. 33. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
CompanyFloating chargeDiligenceArrestment being effected prior to creation of floating chargeArrestment not followed by decree of furthcomingWhether arrestment an "effectually executed diligence"Competency of receiver having arrestment recalledInsolvency Act 1986 (cap. 45), secs. 53 (7), 55 and 60 (1) (b).1
PracticeDiligenceCompetencyWhether competent for company now in receivership, to petition Court of Session at common law for recall of arrestment laid on in sheriff court action.
Sec. 53 (7) of the Insolvency Act 1986 enacts that: "On the appointment of a receiver under this section, the floating charge by virtue of which he was appointed attaches to the property then subject to the charge; and such attachment has effect as if the charge was a fixed security over the property to which it has attached." Sec. 55 (1) and (2) of that Act narrates the powers of the receiver appointed in terms of the Act. Sec. 55 (3), however, adds the proviso that sec. 55 (1) and (2) applied, inter alia, "subject to the rights of any person who had effectually executed diligence on all or any part of the property of the company prior to the appointment of the receiver."
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Prior to 21st December 1987 a creditor raised an action against a company in the sheriff court in which he sought decree for payment of 13,000. The
company then consigned that amount of money in the hands of the sheriff clerk in order to await the outcome of the action. On 21st December 1987 the action was dismissed and an order was made for the consigned sum to be released to the company but, before the sum was released to the company by the sheriff clerk, the creditor raised a second action against the company. On 31st December 1987 the creditor arrested that sum on the dependence of that action in the hands of the sheriff clerk. The sum in question remained in the hands of the sheriff clerk thereafter and no furthcoming had been effected because the action was still in dependence in the sheriff court. On 22nd January 1988 the company granted a bond and floating charge in favour of a bank "over the whole of the property (including uncalled capital) which is or may be from time to time while this security is in force comprised in our property and undertaking." The charge was registered with the Registrar of Companies on 3rd February 1988 in accordance with the relevant statutory provisions. On 15th November 1988, in the exercise of the powers given to it by cl. (secundo) of the bond and floating charge, the bank appointed a receiver to the company, whereupon the floating charge attached to the property then subject to the charge in terms of sec. 53 (7) of the 1986 Act. In these circumstances, the receiver moved for recall of the arrestment in the sheriff court. That motion was refused and the company thereafter presented a petition at common law to the Court of Session craving in the prayer thereof for recall of the arrestment. Held (1) that the petition was competent; (2) that the answer to the question raised in the case was to be found by an examination of the principle of litigiosity and its effect which was that an arrestment, being merely a step in diligence, rendered the subject litigious as soon as it was used, with the result that the common debtor could not defeat it by any posterior voluntary deed; (3) that, the sums having become litigious in December 1987, this meant (a) that the arrestee had to keep it for the satisfaction of the debt for which it was arrested and (b) that the arrester's advantage could not be defeated by the subsequent voluntary act of the debtor himself; (5) that, in these circumstances, the granting of the bond and floating charge in January 1988, and the other events which followed such granting, could be properly described as flowing from a subsequent voluntary act of the company as debtor which did not and could not defeat the right of the arrester; and, accordingly, prayer of the petition refused.
Lord Advocate v. Royal Bank of Scotland Ltd.SC1977 S.C. 155distinguished.
William Craig raised an action prior to 21st December 1987 in the sheriff court at Glasgow against Iona Hotels Ltd. craving payment of 13,000. The company consigned that amount of money in the hands of the sheriff clerk in order to await the outcome of that action. On 21st December 1987 that action was dismissed and an order was made for the consigned sum to be released to the company but, before the sum was released, William Craig raised a second action against the company. On 31st December 1987 the sum of 13,000 was arrested on the dependence of that second action in the hands of the sheriff clerk. The sum had remained in the hands of the sheriff clerk since that date and there had been no furthcoming as that action was still in dependence in Glasgow Sheriff Court. On 22nd January 1988 the company granted a bond and floating charge in favour of the Royal Bank of Scotland plc "over the whole of the property (including uncalled capital) which is or may be from time to time while this security is in force comprised in our property and undertaking." The charge was registered with the Registrar of Companies on 3rd February 1988 in accordance with the provisions of sec. 410 of the Companies Act 1985. On 15th November 1988, in the exercise of the powers given to it by cl. (secundo) of the bond and floating charge, the bank appointed a receiver to the company, whereupon the floating charge attached to the property then subject to the charge in terms of sec. 53 (7) of the Insolvency Act 1986. The receiver thereafter sought recall of the arrestment in the sheriff court. That motion was refused by the sheriff. The company thereafter presented a petition at common law to the Court of Session the prayer of which sought recall of the arrestment and in which William Craig was called as respondent.
The petition came before the First Division, comprising the Lord President (Hope), Lord Allanbridge and Lord Cowie for a hearing thereon on 23rd February 1990. Eo die, their Lordships madeavizandum.
At advising, on 28th March 1990;
LORD PRESIDENT (Hope).This is a petition by a company which is now in receivership for the recall of an arrestment of a sum of money which was made prior to the granting of the bond and floating charge. The receiver's contention is that the floating charge under which he was appointed attached to that sum, and that he is entitled to take possession of it in exercise of the powers given to him by sec. 55 of the Insolvency Act 1986. Answers have been lodged by the arresting creditor, who contends that the sum in question is not subject to the bond and floating charge since it was granted voluntarily after the arrestment was laid on rendering that sum litigious. It is common ground that the particular issue which arises in this case is not the subject of any previous decision.
In Lord Advocate v. Royal Bank of ScotlandSC 1977 S.C. 155 the floating charges under which the receiver was appointed were granted before the date of the arrestment. It was held that the receiver had power to take possession of...
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David Macmillan Against T Leith Developments Limited (in Receivership And In Liquidation)
...subject of sustained academic criticism. It has never, however, been the subject of judicial reconsideration. In Iona Hotels Ltd v Craig 1990 SC 330, Lord President Hope observed obiter that, correctly in his Lordship’s view, senior counsel for an arresting creditor had made no criticism of......
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Reclaiming Motion By David Macmillan Against T Leith Developments Ltd (in Receivership And Liquidation)
...of some academic criticism, it had not been the subject of reconsideration. Its correctness had been accepted in Iona Hotels v Craig 1990 SC 330 which held that, although only a step in diligence, arrestment rendered subjects litigious, with the result that the debtor could not defeat the a......