Ms. Justice Finlay Geoghegan, in her second judgment in the Belgard Motors case (Re JD Brian Limited (In Liquidation)(and related companies)) delivered on 11 July 2011, held that a notice served on foot of a clause in a debenture which indicated that the bank in question could, by notice in writing, convert a floating charge to a fixed charge over all the property and assets of the company subject to the floating charge if, in the bank’s sole judgment, the property and assets concerned were in jeopardy, was not sufficient to convert the floating charge into a fixed charge.

Ms. Justice Finlay Geoghegan, drawing upon the reasoning of the Supreme Court in Re Keenan Brothers ([1985] IR 401), concluded that this was the case on the basis that there was nothing in the debenture which restricted the entitlement of the company to deal with or dispose of stock in trade or use the proceeds of book debts or cash at bank following the notice.

The judgment is of particular significance as clauses of this type are extremely common in debentures taken by Irish banks and appear to have been accepted as effective by the English courts (Re Brightlife [1987] Ch 200). Both the Official Liquidator and the bank in question have indicated to the court that they intend to appeal the matter, this hearing having taken place against the backdrop of a decision dated 25 March 2011, in which Ms. Justice Finlay Geoghegan ruled that even if such crystallisation notice were effective, it did not have the effect of granting the floating chargeholder priority over the claims of preferential creditors.

Click here to read our Client Update on the first judgment in the Belgard Motors case.