Tuesday, 26 January 2016

Ireland: insolvency - CLRG recommends Companies Act 2014 amendment following Supreme Court decision in JD Brian Ltd

Last year the Supreme Court gave judgment in In the matter of J.D. Brian Ltd (in Liquidation) t/a East Coast Print and Publicity [2015] IESC 62. The decision concerned section 285 of the Companies Act 1963 (now section 621 of the Companies Act 2014), which provides for certain debts to be granted preferential status (and therefore a priority) in a winding-up. It also provides, in subsection 7(b), that such preferential debts, "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" (italics added).

At issue before the Supreme Court was this italicised phrase. The Supreme Court unanimously held that it meant a floating charge that existed at the commencement of the winding up: it did not include a charge that on creation was a floating charge but had been converted into a fixed charge, by virtue of express crystallisation in accordance with the terms of the debenture, prior to the commencement of the winding up. The decision was referred to the Company Law Review Group and its report was published earlier this month: see here (pdf). The CLRSG has recommended that the Companies Act 2014 is amended to make clear that floating charge means a floating charge as created. This, the CLRSG states, restores the position to what it effectively was in practice if not in law.

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