On 25 March 2011 the High Court delivered a judgment concluding that a notice of crystallisation served by a bank (who held fixed and floating charges) on three corporate borrowers shortly before they were placed into liquidation did not alter the order of priorities.
In this case, three companies within the Belgard Group had granted debentures, the terms of which provided for the creation of a floating charge which would crystallise, upon notice, where the bank considered that the floating charge assets were in jeopardy. Approximately two weeks prior to the presentation of the petitions to wind up the three companies, the bank served notices on the companies seeking to convert its floating charges to fixed charge security.
Section 285 of the Companies Act, 1963 affords priority to certain preferential debts over the claims of holders of debentures under any floating charge created by a company. It does not expressly address the effect of service of a notice of crystallisation and there is no previous Irish decision on the point. Tom Kavanagh, the Official Liquidator of the companies, sought directions from the Court as to the validity of the service of the notice to crystallise and its effect on the priority of distribution of assets between the different creditors of the companies.
The full judgment is attached. A key extract from the decision noted that: "the proper meaning of Section 285(7) is that the preferential debts rank in priority to the claim of the Bank, as a debenture holder, to the funds realised from the assets subject to the floating charge pursuant to clause 5 of the Debenture, irrespective of whether the floating charge crystallised prior to the commencement of the winding up."
To see Judgment click here.