LORD ADVOCATE v ROYAL BANK of SCOTLAND Ltd
| Jurisdiction | Scotland |
| Judgment Date | 24 February 1977 |
| Date | 24 February 1977 |
| Docket Number | No. 15. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
Lord Kincraig.
Company—Floating Charge—Receiver—Effect of prior arrestment on powers of receiver—Companies (Floating Charges and Receivers) (Scotland) Act 1972 (cap. 67), sec. 15 (2) (a).
Arrestment—Diligence—Effect of an arrestment not followed by a furthcoming—Whether an "effectually executed diligence."
The Companies (Floating Charges and Receivers) (Scotland) Act 1972 enacts by sec. 15 (2) (a) inter alia that the powers of a receiver over any property attached by the floating charge by virtue of which he was appointed shall be "subject to the rights of any person who has effectually executed diligence on all or any part of the property of the company prior to the appointment of the receiver."
A creditor in execution of a court decree against a company arrested funds belonging to the company in the hands of a bank. Before the creditor raised an action of furthcoming a receiver was appointed to the company by the holder of a floating charge. In the subsequent action of furthcoming raised by the creditor the receiver argued that he was not subject to the arrestment and had power to deal with the arrested funds. The arresting creditor argued that the arrestment was an "effectually executed diligence" with the result that the receiver had no such power.
Held (aff. judgment of Lord Kincraig, diss.Lord Johnston) (1) that an arrestment standing by itself is only a step in diligence creating merely personal rights in the arrester against other creditors and the common debtor; (2) that it gives to the arrester no real right of ownership of or security over the subjects arrested so that it is liable to be defeated by any real rights created in respect of those subjects subsequent to the date of the arrestment; and (3) that in consequence a bare arrestment is not a diligence effectually executedon property within the meaning of sec. 15 (2) (a).
Observed (per Lord President): "… although it is not strictly necessary for the disposal of the point in issue here to say so, it cannot, in my opinion, be said that the construction of sec. 15 (2) (a) which I favour leaves it without content so far as diligences over moveables are concerned. I accept that the subsection cannot include a decree of furthcoming proceeding upon the arrestment of a debt, for the decree transfers to the arrester the debtor's title, and if such a decree antedated the appointment of the receiver that debt would not be within the property of the company when the floating charge crystallised. For the same reasons it cannot include a poinding which has been completed by a sale. It would, however, include a decree of furthcoming proceeding on arrestment of corporal moveables, and a warrant of sale proceeding upon a poinding, for the effect of both is to adjudicate the moveables in security so that they may be sold to the extent necessary to satisfy the creditor's debt."
Dicta of Lord Kinnear in Lucas's Trs. v. Campbell & ScottUNK (1893) 21 R. 1096 at p. 1103 as to the nature and effect of an arrestment and furthcoming approved.
The Lord Advocate, acting on behalf of the Commissioners of Inland Revenue, obtained in the Court of Session on 14th March 1974 a decree for payment of the sum of £4850.49 against Imperial Hotel (Aberdeen) Limited. In execution of this decree the Lord Advocate arrested on 23rd May 1974 funds amounting to £593.68 owing to Imperial Hotel (Aberdeen) Limited in the hands of the Royal Bank of Scotland Limited. On 17th July 1974, Frank Hutchison Mycroft, C.A., was appointed as receiver of Imperial Hotel (Aberdeen) Limited. The Lord Advocate on 14th February raised an action of furthcoming in respect of the arrested funds. The receiver alone lodged defences to the action.
The pursuer averred inter alia;—(Cond. 2.) "On 14th March 1974 in an action at the instance of the pursuer against the defender and common debtor, the Court of Session as the Court of Exchequer in Scotland decerned against the defender and common debtor for payment to the pursuer of (1) the sum of £4850.49, (2) the sum of £33 of Expenses and (3) the sum of £1.40 of Dues of Extract and granted warrant for all lawful execution thereon, conform to Extract Decree extracted 4th April 1974 which is produced herewith. On 23rd May 1974 by virtue of the said Decree the pursuer arrested in the hands of the defenders and arrestees, the said The Royal Bank of Scotland Limited, the sum of £4,900 sterling more or less due and addebted by the said defenders and arrestees to the said defender and common debtor. The expenses of the foresaid diligence of arrestment amounted to the sum of £1.50. The execution of arrestment is produced herewith. The pursuer believes and avers that there has been attached the sum of £593.68 by virtue of the said arrestment. With reference to the averments in answer, admitted that the third-named defender was appointed as receiver within sixty days of the date when the pursuer arrested the said sum in the hands of the defenders and arrestees. Admitted that the pursuer held no decree at the date of the third-named defender's appointment, for payment by the defenders and arrestees of the said sum. Quoad ultra the averments in answer are denied."
The defender averred inter alia;—(Ans. 2.) "Not known and not admitted what sum has, purportedly, been attached by said arrestment. Quoad ultra believed to be true. Explained and averred that said arrestment was not, on said date of the third-named defender's appointment as receiver, effectually executed within the meaning of section 15 (2) (a) of the Companies (Floating Charges) (Scotland) Act 1972. Sixty days had not elapsed since the execution of said arrestment. The said arrestment was accordingly liable to be cut down upon any winding-up of the defender and common debtor in terms of section 327 (a) of the Companies Act 1948. Further and in any event the pursuer held, on said date of the third defender's appointment, no decree in his favour for payment by the defender and arrestees of the sum arrested such as is now sought in the present action of furthcoming. Upon the appointment as receiver of the third defender accordingly any sum purportedly attached by said arrestment was attached by the said Floating Charges by virtue of which he was appointed and became subject to his powers as receiver in terms of section 14 (7) and section 15 (1) of the said Act of 1972."
The pursuer pleaded;—(1) "The pursuer having used an arrestment in the hands of the arrestees of the sum due by the arrestees to the common debtor and being entitled to have the same furthcoming towards satisfaction of the sums due under the said Extract Decree, Decree therefor should be pronounced as concluded for. (2) The defender's Second plea in law not being supported by relevant or sufficient averments should be repelled an decree pronounced de plano in terms of the Conclusion of the Summons."
The defender pleaded;—(1) "The pursuer's averments being irrelevant and insufficient in law to support the conclusion of the Summons et separatim being lacking in specification, the action should be dismissed. (2) The pursuer not having effectually executed said arrestment prior to the third-named defender's appointment as receiver, as condescended on, and any sum arrested being subject to the third defender's powers as receiver, decree of furthcoming should not be pronounced as concluded for."
On 29th January 1976 after a debate in the procedure roll the Lord Ordinary (Kincraig) sustained the first plea-in-law for the defender and dismissed the action.
At advising on 24th February 1977,—
LORD PRESIDENT (Emslie).—On 14th March the Inland Revenue obtained a decree for payment of about £4,900 against a company known as the Imperial Hotel (Aberdeen) Limited. On 23 May 1974 the Inland Revenue arrested funds of that company in the hands of the Royal Bank of Scotland. These funds included or consisted of the sum of £593.68. On 17th July 1974 a receiver was appointed by the holders of separate floating charges over the whole property of the debtor company which were created in 1972. In this action signetted on 14th February 1975 the Lord Advocate, for and on behalf of the Commissioners of Inland Revenue, sought payment from the Royal Bank of Scotland of the sum of £593.68 which had been arrested. The action was an action of furthcoming proceeding upon the arrestment of 23rd May 1974 and was directed against the arrestees, the debtor company, and the receiver. It was defended by the receiver. After debate in procedure roll the Lord Ordinary sustained the receiver's first plea in law—a plea to relevancy—and dismissed the action. The pursuer has now reclaimed to this Court.
The question for decision in the action was and is whether the Inland Revenue as arresters in the execution are entitled to decree of furthcoming in respect of the fund arrested notwithstanding the appointment of the receiver by the holders of the floating charges created in 1972. It will be understood that the case is in no way concerned with the different questions which might arise where an arrestment proceeded not only the appointment of a receiver but the creation of the relevant floating charge under which he was appointed.
The statutory provisions out of which the question for determination arises are contained in the Companies (Floating Charges and Receivers) (Scotland) Act 1972. This Act did two things.
In Part I it re-enacted with modifications the law relating to floating charges in Scotland which was first introduced by the Companies (Floating Charges) (Scotland) Act 1961. Section 1 (1) of the Act of 1972 made it competent for an incorporated company to create in favour of a creditor a charge, known as a floating charge, over all or any part of the property which might from time to time be comprised in its property and undertaking. By section 1 (2) it was provided that on the...
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