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1. This is an appeal brought by the companies concerned and by the examiner appointed by order of the court pursuant to the Companies (Amendment) Act 1990 against certain orders and declarations made by Costello J in the High Court in relation to applications by the examiner concerning the affairs of the companies concerned. The particular orders and declarations are contained in an order of 25 February 1994 which was the result of a judgment delivered upon the hearing of applications and which judgment was delivered on 19 February 1994.

2. The particular orders and declarations which became an issue on this appeal were as follows:-

3. The letters referred to above by the banks to the companies dated 31 January 1994 and 3 February 1994 were in effect letters drawing attention to the negative covenant contained in the debenture owned by the banks prohibiting borrowing without the prior consent in writing of the trustee and a direction to pay the proceeds of book debts owed to the company when discharged into an identified bank account in the MB Bank in Clonmel in the name of the trustee. These letters were written after the date of the appointment of the examiner.

4. In his judgment in this case delivered on 19 February, Costello J at the commencement set out with his usual clarity and brevity the history of the matter which came for his decision on that date. This history is as follows:-

5. On 20 January 1994 Holidair Ltd petitioned the court for the appointment of an examiner under the Companies (Amendment) Act 1990 and the protection which would follow such appointment both for itself and for 18 related companies (the Kentz Group). On 21 January the court appointed Mr Hugh Cooney interim examiner, and on 27 January granted the relief sought in the petition. The statement of affairs indicated that there were substantial sums due to the Revenue Commissioners by the Kentz Group and to a consortium of banks who were secured creditors. On 1 February and again on 7 February the examiner applied for and obtained orders under s. 9 of the Act authorising him to exercise the directors’ borrowing powers. The reason for these applications was his belief that the formulation and acceptance of a scheme of arrangement under the Act depended on securing a substantial equity investor and that the continued survival of the group in the short term was dependent upon the ability of the companies to fund their current operations for the following six to eight weeks by raising loans. In granting authority to exercise the directors’ borrowing powers, the court on both 1 and 7 February also ordered that the examiner should certify under s. 10 of the Act that the sums borrowed were ‘expenses’ and thereby give their repayment priority under s. 29 at the end of the protection period. But a number of problems have arisen in the exercise of these powers resulting from the fact that the banks are holders of a debenture dated 15 November 1984 by virtue of which they claim a fixed charge over inter a/ia the companies’ book debts. If this is correct, then the companies’ borrowing needs for working capital during the protection period are greatly increased.

6. The learned trial judge then referred to the application by the examiner which was then before him by two motions for directions and declarations of a number of issues which had arisen from conflicting constructions of the debenture holders’ rights under the debenture. Having considered the submissions made before him and also the legal principles which appear to be applicable, he made the orders and declarations to which I have referred.

7. Since the submission made on behalf of the examiner to the court has been that the chance of a satisfactory arrangement in regard to the affairs of these companies depends very much indeed upon the continuance of the companies who are involved in the construction industry as going concerns during the period of protection so as to permit the possibility of a substantial investment of equity from an outside source which has already been identified, this Court gave extremely urgent and expedited consideration to the appeals arising from the orders made in the High Court. The effect of the orders made in the High Court having regard to the attitude of the banks who were the holders of the debenture was that it appeared impossible that the affairs of the company could be continued on a going concern basis if the terms of the order made by Costello J on 25 February 1994 must be adhered to. The urgency of the situation was not only to the companies concerned but to a very substantial workforce indeed whose continued employment depended on all these matters.

8. The broad issues arising on the hearing of this appeal between the appellants consisting of the companies and the examiner who made similar and coinciding submissions and the banks who were the respondents consisted of conflicting contentions as to what the real intention and purpose of the 1990 Act was. The purpose and many aspects of that Act were considered by this Court in the case of In re Atlantic Magnetics Ltd [1993] 2 I.R. 561.

9. In the course of his judgment in that case, McCarthy J dealt with what he was satisfied was the purpose of the Act in the following terms at p. 578:-

10. It is, I believe, of great importance to bear in mind in the application of the Act that its purpose is protection – protection of the company and consequently of its shareholders, workforce and creditors. It is clear that parliament intended that the fate of the company and those who depend upon it should not lie solely in the hands of one or more large creditors who can, by appointing a receiver pursuant to a debenture, effectively terminate its operation and secure, as best they may, the discharge of the monies due to them, to the inevitable disadvantage of those less protected. The Act is to provide a breathing space, albeit at the expense of some creditor or creditors.

11. I am satisfied that this identification of the purpose of the Act is correct; it is consistent with the view of the court expressed in a judgment which I delivered in that case concerning specific questions with regard to the powers of an examiner which were raised before the court. Counsel for the banks in this case stated that he did not submit that the court should review or reconsider its decision in the case of In re Atlantic Magnetics Ltd but asserted that the decision related to points other than any of those which arose on the hearing of this appeal. I am satisfied that it does relate to issues which arise on the hearing of this appeal and insofar as it sets out a general principle and general identification of the purposes of the Act, it is extremely relevant to this appeal. I see no reason why I should depart either from the general principles laid down in that case or from the particular decisions.

12. With regard to the issues arising on this appeal therefore I conclude that it is appropriate that we should approach it on the basis that the intention of the legislature to be derived from the terms of the Act of 1990 was to provide a period of protection available for examination so as to try and ensure that if possible some scheme of arrangement might be made rather than an immediate liquidation or receivership of a company. It was also, I am satisfied, part of the intention of the legislature that if at all possible and if considered appropriate by an examiner during the relatively short period of protection under the court provided for in the Act of 1990, that a company should be continued as a going concern and that where ambiguity or doubt arises concerning the construction of any sections in the Act, these two objectives should be borne in mind.

13. In my view he can and for the following reasons. I accept the contention made on behalf of the banks to the effect that s. 9 of the Act of 1990 grants to the court a power to transfer to the examiner any of the powers of the directors but does not except for subs. (4) give to the court any authority to grant to the examiner a power which was not exercisable by the directors. It is clear that s. 9(3) was intended to and should be interpreted as giving a very wide discretion to the court in regard to the form of order which it would make under the section. The authority of the court is nonetheless confined in my view by the provisions of s. 9(1) as I have indicated to a transferral of powers exercisable by the directors to the examiner. I have carefully considered the submission made on behalf of the appellants to the effect that the provisions of s. 9(4) and in particular the opening words of that subsection namely ‘without prejudice to the generality of subs. (1) and (3)’ and the fact that subs. (4) then goes on to give to the court a very clear authority to give the powers which he would have if he were a liquidator to the examiner should be interpreted as meaning that an order made pursuant to s. 9(1) and (3) could include powers not exercisable by the directors. In a sense there is an inconsistency between the precise terms of subs. (4) and the terms of subs. (1) but in my view this inconsistency cannot be resolved other than by interpreting subs. (4) as an additional authority vested in the court to give to the examiner additional powers over and above those exercisable by the directors. That has not been done in this case nor was it sought in the High Court and therefore the order made under s. 9 which was clearly made under s. 9(1) and (3) does not in my view dispense the examiner from the necessity to obtain the consent provided for in the debenture.

14. I am however satisfied that he has got a power to dispense with the necessity to obtain such consent which is provided by s. 7(5) of the Act of 1990. That subsection reads as follows:-

15. Where an examiner becomes aware of any actual or

16. The words in this subsection ‘actual or proposed’ when attached to the word ‘contract’ of necessity means that the subsection applies to contracts already in existence and must therefore include the contract of debenture entered into before the examiner was appointed. There can be no doubt that the portion of the contract of debenture providing for the necessity of the companies to apply for the consent of the debenture holders to borrowing and the stated intention of the debenture holders not to agree to the borrowing which is in issue in this case clearly constitutes a contract and conduct in pursuance of the contract which is likely to be to the detriment of the company, and the examiner, I am satisfied, is therefore entitled to take such steps as are necessary to rectify, halt and prevent such effects. This must, it seems to me, include a power, provided the sanction of the court for borrowing has been granted, to carry out that borrowing without seeking or obtaining the consent of the debenture holders. I am therefore satisfied that the appeal against so much of the order made in the High Court as provided, in regard to both the borrowings concerned, the necessity to apply for the consent of the debenture holders should be allowed.

17. By virtue of the provisions of s. 5(1) of the Act of 1990 the provisions of s. 5(2)(d) are operable during the period beginning with the presentation of a petition for the appointment of an examiner and ending on the expiry of three months from that date or the withdrawal or refusal of the petition whichever first happens.

18. Where any claim against the company is secured by a

19. It is clear that this subsection does not merely prohibit the realisation of the whole or any part of a security but prohibits the taking of any action to realise the whole or part of any security. It is in my view clear that to attempt to provide for the lodgment of the proceeds of book debts into a bank account in the name of the trustee of the debenture which could not be operated by the companies except with the consent of that trustee is an action taken to realise the security consisting of the book debts by making them immediately available on the conclusion of the period provided for in s. 5(1) as a set-off in respect of part of the debt of the banks. It is in my view irrelevant that the banks had reserved to themselves in the debenture a right to take this step once they did not take it and took it for the first time after the appointment of the examiner. I am also satisfied that the view taken by the learned trial judge in the High Court that the appointment of the receiver was relevant to this issue and would if it were necessary avoid the provisions of s. 5(2)(d) in relation to the direction of the banks to lodge the monies in the nominated account is incorrect. The appointment of the receiver did not constitute any requirement to place the monies into a designated account and is therefore not the equivalent of the action subsequently taken by the banks by the letter of 3 February 1994. I would therefore allow the appeal against the finding by the learned trial judge that this direction was not inconsistent with or in breach of s. 5(2)(d) of the Act of 1990.

20. Though this matter was not dealt with by the learned trial judge having regard to his other findings, it was contended on the hearing of this appeal on behalf of the banks that the true meaning of s. 29(3) was to create merely a temporal priority in relation to the payment of the remuneration, costs and expenses of the examiner and that accordingly even if the examiner contrary to the contention being made by the banks was entitled to borrow without their consent and was entitled to have access to the monies realised from the book debts for the purpose of back to back borrowing that it was improper and misleading for him to assure any lender that any sum which remained due as a liability could be certified by him pursuant to s. 10(2) of the Act of 1990 and when so certified would take precedence over the secured creditors having regard to the provisions of s. 29(3). I am satisfied that this contention is incorrect and having regard to the other conclusions which I have reached concerning the issues arising in this appeal it is necessary that I should state quite unequivocally that the judgment which I delivered in the case of In re Atlantic Magnetics Ltd, with which all the other members of the court agreed, is a conclusion that the true interpretation of s. 29(3) is that the remuneration, costs and expenses as defined in that section of an examiner which had been sanctioned by order of the court shall be paid in actual priority to the claims of any secured or unsecured creditor and that under the provisions of s. 29(2) the court may if necessary, and must if it has sanctioned such remuneration, costs and expenses in a case where unsecured assets are insufficient to pay the total of the amounts involved, direct their payment out of secured assets.

21. For the reasons set out by me in the judgment in In re Atlantic Magnetics Ltd it seems impossible to construe the subsection as is contended by the banks in this case as merely providing what they describe as a temporal priority.

22. With regard to the issue as to whether the debenture provided a fixed or floating charge over the book debts I have read the judgment which is about to be delivered by Blayney J and I agree with it.

23. I agree with the judgment of the Chief Justice and I do not propose to deal in this judgment with any of the aspects of the case covered by him. I propose to confine myself to the question of whether the charge on book debts created by the mortgage debenture of 15 November 1984 was a fixed charge or a floating charge, and if it was a floating charge, whether, having been crystallised by the appointment of a receiver on 20 January 1994, it became subsequently de-crystallised by virtue of the subsequent appointment of the examiner.

24. Costello J held that the debenture created a fixed charge on the book debts and the examiner and the companies appeal against that finding.

25. The provisions in the mortgage debenture in regard to the book debts are as follows:-

26. Each of the companies as beneficial owner and to the intent that the mortgages and charges contained in this clause shall be a continuing security for the payment and discharge of the secured debt and all monies and liabilities hereby covenanted to be paid and discharged by it hereby:

27. F: Charges by way of first fixed charge in favour of the trustee on behalf of the banks all book debts and other debts present now and from time to time due or owing to such company, together with all rights and powers of recovery in respect thereof.

28. With reference to the book debts and any other debts hereby charged, the companies shall pay into such accounts with the banks or any of them as the trustee may from time to time select, all monies which they may receive in respect of such debts and shall not without the prior consent in writing of the trustee sell, factor, discount or otherwise charge, assign or dispose of the same in favour of any other person or purport so to do and the companies shall if called upon so to do by the trustee from time to time execute legal assignments of such book debts and other debts to the trustee in such form as the trustee shall require and at the companies’ own expense.

29. Mr Cooke SC submitted that because the charge was described as a fixed charge it should be accepted as such unless there were other indications in the debenture inconsistent with this construction. I would reject this submission for the same reasons that a similar submission was rejected by Keane J in the case of In re Keenan Brothers Ltd [1985] I.R. 401. Keane J said in his judgment at pp. 410-411:-

30. I take the view that where the intention of the parties, inferred from the instrument read as a whole, is to create a floating rather than a fixed security, this intention should not be treated as displaced by the fact that the parties have, for whatever reason, chosen to give the charge thus created an inapposite description.

31. This was undoubtedly the view taken at first instance by Farwell J in In re Yorkshire Woolcombers’ Association Ltd [1903] 2 Ch 284 where he said at p. 289:-

32. In my opinion this is, although the parties have chosen to call it a specific security, nothing more or less than a floating security. But when one comes to consider what ‘specific security’ means, in my opinion it is quite clear that anything which may take effect as a floating security is wholly inconsistent with, and is the antithesis of, a specific security. A specific security is that which is given on specific property. A charge on all book debts which may now be, or at anytime hereafter become charged or assigned, leaving the mortgagor or assignor free to deal with them as he pleases until the mortgagee or assignee intervenes, is not a specific charge, and cannot be. The very essence of a specific charge is that the assignee takes possession and is the person entitled to receive the book debts at once. So long as he licenses the mortgagor to go on receiving the book debts and carry on the business, it is within the exact definition of a floating security.

33. The normal characteristics of a floating charge were set out as follows in the well known passage from the judgment of Romer LJ in the Court of Appeal in the case of In re Yorkshire Woolcombers’ Association Ltd [1903] Ch 284 at p. 295:-

34. I certainly do not intend to attempt to give an exact definition of the term ‘floating charge’, nor am I prepared to say that there will not be a floating charge within the meaning of the Act which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge.

35. It is quite clear that book debts have the first two characteristics. They are a class of assets of the companies present and future and in the ordinary course of the business of the companies they would be changing from time to time. The sole issue is whether the provisions in the debenture permitted the companies to carry on their business in the ordinary way in so far as concerned its book debts. In my opinion it did. The only provision in the debenture which might be relied upon as possibly preventing the companies from carrying on their business in the normal way using their book debts is clause 3.08, which I have already cited, and in my opinion it does not have this effect.

36. It should be noted firstly that the prohibition in the second part of the clause is a prohibition relating to the book debts and not monies received in respect of such debts. The phraseology used – ‘shall not without the prior consent in writing of the trustee sell, factor, discount or otherwise charge, assign or dispose of the same’ is appropriate only to refer to book debts and not to cash received in respect of such debts. And this is clearly the sense in which this prohibition was understood by the banks. In the letter of 31 January 1994 from Allied Irish Banks Capital Markets plc to the directors of Holidair Ltd this term of the debenture is referred to as follows:-

37. The company shall not, without the prior consent of the trustee, sell, factor, discount or otherwise charge, assign or dispose of such debts.

38. The sole question then is whether the first part of the clause prevented the companies from using the proceeds of their book debts in their ordinary day to day business. The relevant provision is that ‘the companies shall pay into such accounts with the banks or any of them as the trustee may from time to time select all monies which they may receive in respect of such debts’. What meaning is to be given to the phrase ‘such accounts with the banks or any of them as the trustee may from time to time select?’ It seems to me that it must mean such accounts of one or other of the five companies who granted the mortgage debenture as the trustee may from time to time select. In other words, the trustee was being given a discretion to determine into what account with what bank the monies were to be paid. In the letter of 31 January 1994, to which I have already referred, the banks attempt to put a different construction on this clause when they state that the trustee directs ‘that all book debts be lodged to accounts in the name of the trustee, relating to the appropriate company, at AIB Bank, 5/6 O’Connell Street, Clonmel.’ Such a construction would be wholly inconsistent with clause 8.12. of the mortgage debenture which provides as follows:-

39. To carry on business in proper and efficient manner: Each of the companies shall carry on and conduct and procure that any subsidiary of the companies shall carry on and conduct its business in a proper and efficient manner and not make any substantial alterations in the nature of its business.

40. If, from the date of the debenture, it would have been open to the trustee to direct that the proceeds of the book debts should immediately be paid to him, it would have been quite impossible for the companies to carry on business in the manner in which they were obliged to do so under clause 8.12.

41. I am satisfied, accordingly, that the correct construction of the clause is that the trustee had a discretion to determine into what company account with what bank the proceeds of book debts should be paid from time to time. But there is no restriction in the clause on the companies drawing the monies out of these accounts. Accordingly, there is nothing in it to prevent the companies from using the proceeds of the book debts in the normal way for the purpose of carrying on their business. By reason of this the charge has also the third characteristic referred to by Romer LJ in his judgment in the case of In re Yorkshire Woolcombers’ Association Ltd and is accordingly a floating charge and not a fixed charge.

42. The two recent Irish cases in which a charge on book debts was held to be a fixed charge are both distinguishable by reason of the particular terms of the debenture in each case. In the case of In re Keenan Brothers Ltd [1985] I.R. 401 the debenture contained a clause as follows:-

43. The company at all times during the continuance of this security:

44. The effect of this was that there was a complete prohibition on the company using the proceeds of the book debts, a prohibition which does not exist in the present case.

45. The company hereby covenants to pay into such banking account or accounts as may be designated for such purpose by the lender, and whether with the lender or with any other banking institution, designated by the lender, all monies which it may receive in respect of book debts and other debts or securities and not without the prior consent of the lender in writing to withdraw or deal with such monies or to assign or purport to assign the same in favour of any other person and if called upon to do so by the lender to execute a legal assignment of such book debts and other debts and securities to the lender.

46. The existence of that clause in the debenture clearly distinguishes that case from the present.

47. For these reasons I am satisfied that the charge created by the debenture is a floating charge, and not a fixed charge, and accordingly that it is necessary to deal with the submission made on behalf of the companies and the examiner that, while the floating charge would have crystallised on the appointment of the receiver, it would have become de-crystallised, that is to say, it would have resumed its character of a floating charge on the appointment of the examiner. In my opinion this submission is well-founded.

48. Once the examiner was appointed, the receiver could no longer act (s. 5(2)(b) of the 1990 Act). It would accordingly have been pointless to keep the book debts frozen. The receiver would have had no right to collect them. Apart from this, since the purpose of the 1990 Act, as emphasised by the Chief Justice in his judgment, is the protection of the company and consequently of its shareholders, workforce and creditors, it would be wholly inconsistent with that purpose that the company would be deprived of the use of its book debts particularly as it appears that they are absolutely essential for its survival during the period of protection. Furthermore, it is no injustice to the debenture holders who appointed the receiver since the companies are continuing to trade and so continuing to create new book debts to replace those that may be paid and the proceeds of which may be used by the companies. Finally, it seems to me that if the receiver were to insist upon the charge on the book debts remaining crystallised, he would be in breach of s. 5(2)(d) of the 1990 Act which provides that: -

49. Where any claim against the company is secured by a charge on the whole or any part of the property, effects or income of the company, no action may be taken to realise the whole or any part of such security, except with the consent of the examiner.

50. For these reasons I would hold that on the appointment of the examiner the charge on the book debts ceased to be crystallised and became again a floating charge.

51. I would accordingly allow the appeal of the companies and the examiner against the decision of the High Court in regard to the nature of the charge on the book debts.