Re Brightlife Ltd
| Jurisdiction | England & Wales |
| Date | 1986 |
| Court | Chancery Division |
Company - Debenture - Floating charge on assets - Notice to convert to specific charge - Subsequent resolution for voluntary winding up of company - Whether contractual notice effective to crystallize charge - Whether preferential debts taking in priority to debenture-holder
By a debenture dated 11 April 1983 the company created, inter alia, a “first specific charge” over “all book debts and other debts now or at any time during the continuance of this security due or owing to the company.” The debenture also created a “first floating charge” over “the undertaking and all other property, assets and rights whatsoever present and future.” Clause 3(B) gave the debenture-holder a right at any time to convert the floating charge into a specific charge as regards any assets specified in the relevant notice. The company went into voluntary liquidation, and at the date of the hearing its liquidator had collected book debts of about £18,000, had realised some £2,200 from sale of stock, and there was a credit balance of £19,000 standing to the company's credit at the bank. The company owed over £200,000 to the debenture-holder, and over £70,000 to the Commissioners of Customs and Excise. Prior to the passing, on 20 December 1984, of a winding up resolution the debenture-holder served notices dated 10 December 1984, demanding payment of £221,658, converting the floating charge into a specific charge over all the assets of the company, and demanding a legal assignment of all book and other debts, as provided for in the debenture.
On an originating summons by the liquidator seeking directions as to whether the credit balance in the company's bank account and/or the book debts should be applied pursuant to sections 196 and/or 614(2) of the
Held, (1) that on its true construction, the debenture dated 11 April 1983, though expressed to create a “first specific charge” over all book debts and other debts, operated to create a floating charge and not a fixed charge, and that the bank balance did not, in any event, fall within the expression “all book debts and other debts” used in the debenture (post, pp. 200H–201A–C).
(2) That the notices served by the debenture-holder dated 10 December 1984 operated effectively to convert the floating charge into a fixed charge, which crystallised before the passing of the winding up resolution, and that the court would therefore declare that the debt secured by the debenture in favour of the debenture-holder ranked in priority to the preferential debts in respect of all assets in the hands of the liquidator (post, p. 207A–D).
The following cases are referred to in the judgment:
Christonette International Ltd., In re [
Crompton & Co. Ltd., In re [
Governments Stock and Other Securities Investment Co. Ltd. v. Manila Railway Co. Ltd. [
Griffin Hotel Co. Ltd., In re [
Illingworth v. Houldsworth [
Keenan Bros. Ltd., In re [
Lister v. Romford Ice and Cold Storage Co. Ltd. [
Manurewa Transport Ltd., In re [
Nelson (Edward) & Co. Ltd. v. Faber & Co. [
Reg. in right of British Columbia v. Consolidated Churchill Copper Corporation Ltd. [
Siebe Gorman & Co. Ltd. v. Barclays Bank Ltd. [
Street v. Mountford [
Woodroffes (Musical Instruments) Ltd., In re [
Yorkshire Woolcombers Association Ltd., In re [
The following additional cases were cited in argument:
Armagh Shoes Ltd., In re [
Bismarck Australia Pty. Ltd., In re [
Bond Worth Ltd., In re [
Davey & Co. v. Williamson & Sons Ltd. [
Evans v. Rival Granite Quarries Ltd. [
Evans, Coleman & Evans Ltd. v. R. A. Nelson Construction Ltd. (
Horne and Hellard, In re (
National Provincial Bank of England Ltd. v. United Electric Theatres Ltd. [
Paul & Frank Ltd. v. Discount Bank (Overseas) Ltd. [
Robson v. Smith [
Stein v. Saywell (
Tailby v. Official Receiver (
Wallace v. Universal Automatic Machines Co. [
Warnink (Erven) Besloten Vennootschap v. J. Townend & Sons (Hull) Ltd. [
ORIGINATING SUMMONS
By an originating summons dated 5 August 1985, as amended, Keith David Goodman, as liquidator of Brightlife Ltd., sought, inter alia, (1) directions pursuant to sections 602 and 540(4) of the
The facts are stated in the judgment.
John Vallat for the liquidator.
Richard Sheldon for the debenture-holder, Norandex Inc.
John Mummery for the Customs and Excise Commissioners.
24 July 1986. HOFFMANN J. read the following judgment. Brightlife Ltd. (“Brightlife”) is in creditors' voluntary liquidation. Its assets have realised about £40,000. It owes over £200,000 to Norandex Inc., an American company, secured by a debenture. It also owes over £70,000 to the Commissioners of Customs and Excise for V.A.T. The commissioners say that Norandex's debenture conferred only a floating charge and therefore the claim for V.A.T., being preferential, takes priority under section 614(2)(b) of the
“(2) The preferential debts shall — … (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge.”
Norandex says that its debenture has priority because it created a fixed charge over most of the assets or, alternatively, because the floating charge over all the assets had become a fixed charge before the resolution for winding up.
I must first dispose of certain questions of construction. The debenture is dated 11 April 1983. It is expressed to secure all present and future indebtedness of Brightlife to Norandex. The charging clause over freehold and leasehold property. Sub-clause (ii) charges
“by way of first specific charge (a) all book debts and other debts now or at any time during the continuance of this security due or owing to Brightlife and the benefit of all securities and guarantees now or at any time held by Brightlife in relation thereto; (b) the goodwill and uncalled capital for the time being of Brightlife; and (c) the benefit of any licences for the time being in Brightlife.”
Sub-clause (iii) creates a first floating charge over after acquired freehold and leasehold property and “the undertaking and all other property, assets and rights whatsoever present and future of Brightlife” subject to a proviso which prohibits the creation of any other charges ranking in priority to or pari passu with the floating charge or the disposal of any assets subject to the floating charge contrary to the provisions of clause 5(ii). This important clause is quoted below.
Clause 3(B) reads:
“Norandex may at any time by notice to Brightlife convert the floating charge into a specific charge as regards any assets specified in the notice which Norandex shall consider to be in danger of being seized or sold under any form of distress or execution levied or threatened or to be otherwise in jeopardy and may appoint a receiver thereof.”
Clause 5 is a covenant by Brightlife that it:
“(i) shall carry on and conduct its affairs in a proper and efficient manner; (ii) shall not without the prior consent in writing of Norandex sell transfer or otherwise dispose of the whole or, except in the ordinary course of business, any part of its undertaking property or assets (being in the aggregate substantial) or deal with its book or other debts or securities for money otherwise than in the ordinary course of getting in and realising the same which expression shall not authorise the selling, factoring or discounting by Brightlife of its book debts or other...
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