The Gazette 1979

JULY-AUGUST

1979

GAZETTE

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 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. (i) Solicitors seeking Assistants; (ii) Solicitors seeking Vacancies; (iii) Apprentices seeking Vacancies.

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

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