"In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford[1985] AC 809 , 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder."
" 3. Charges The Company - hereby charges with the payment of all money and liabilities and other sums hereby agreed to be paid or intended to be hereby secured - and so that the charges hereby created shall be a continuing security: First: - Secondly: All book debts both present and future due or owing to the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) and the benefit of all rights relating thereto - Thirdly: All other debts, claims, rights and choses in action both present and future of the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) including (without prejudice to the generality of the foregoing): i. deposits and credit balances held by the Company with the Bank or any third party from time to time both present and future (including things in action which give rise or may give rise to a debt or debts) owing to the Company (and the proceeds thereof): - Fourthly: - Fifthly: - Sixthly: - Seventhly: - Eighthly: - Ninthly: - Tenthly: The undertaking and all property and assets of the Company both present and future including (without prejudice to the generality of the foregoing) - the Charged Property First, Secondly, Thirdly, Fourthly, Fifthly, Sixthly, Seventhly, Eighthly and Ninthly described (if and in so far as the charges thereon or on any part or parts thereof herein contained shall for any reason be ineffective as fixed charges). In this Debenture, the expression "
"I do not think that the bank balance falls within the term "book debts or other debts" as it is used in the debenture. It is true that the relationship between banker and customer is one of debtor and creditor. It would not therefore be legally inaccurate to describe a credit balance with a banker as a debt. But this would not be a natural usage for a businessman or accountant. He would ordinarily describe it as "cash at bank": compare the balance sheet formats in Part I, section B of Schedule 4 to theCompanies Act 1985 ."
"In this debenture, the significant feature is that Brightlife was free to collect its debts and pay the proceeds into its bank account. Once in the account, they would be outside the charge over debts and at the free disposal of the company. In my judgment a right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge."
"I was referred to Siebe Gorman & Co. Ltd. v Barclays Bank Ltd. [1979] 2 Lloyds Rep.142 and a recent decision of the Irish Supreme Court in In re Keenan Bros. Ltd. [1986] B.C.L.C. 242, in both of which charges over book debts were held to be fixed and not floating. In the former case, the debenture was in favour of a bank and not only prohibited the company from selling or charging its book debts but required that they be paid into the company's account with that bank. Slade J. decided that as a matter of construction the bank would not have been obliged to allow the company to draw upon the account at a time when it still owed the bank money under the debenture. The company was not free to deal with the debts or their proceeds in the ordinary course of its business. Each debt as it accrued to the company could therefore properly be said to become subject to an equitable fixed charge. On the other hand, Slade J. said, at p. 158: "if I had accepted the premise that [the company] would have had the unrestricted right to deal with the proceeds of any of the relevant book debts paid into its account, so long as that account remained in credit, I would have been inclined to accept the conclusion that the charge on such book debts could be no more than a floating charge."
"To put the matter another way, the August Transfers were not effected at the expense of other creditors of the Company and will not be adjusted by the court. The reason for this is that the payments were made out of third party moneys – ie out of the Bank's moneys. The Court of Appeal in IRC v Wimbledon FC Ltd[2004] EWCA Civ 655 , has confirmed that the following passage in Professor Goode (Principles of Corporate Insolvency Law (2 nd Edn) (1997) (at p.391) represents the law in this respect : "
"To constitute a charge on book debts a fixed charge, it is sufficient to prohibit a company from realising the debts itself, whether by assignment or collection. If the company seeks permission to do so in respect of a particular debt, the charge holder can refuse permission or grant permission on terms, and can thus direct the application of the proceeds. But it is not necessary to go this far. As their Lordships have already noted, it is not inconsistent with the fixed nature of a charge on book debts for the holder of the charge to appoint a company its agent to collect the debts for its account and on its behalf. The Siebe Gorman case[1979] 2 Lloyd's Rep 142 and In re Keenan Bros Ltd[1986] BCLC 242 merely introduced an alternative mechanism for appropriating the proceeds to the security. The proceeds of the debts collected by the company were no longer to be trust monies but they were required to be paid into a blocked account with the charge holder. The commercial effect was the same: the proceeds were not at the company's disposal. Such an arrangement is inconsistent with the charge being a floating charge, since the debts are not available to the company as a source of its cash flow. But their Lordships would wish to make it clear that it is not enough to provide in the debenture that the account is a blocked account if it is not operated as one in fact ." [my emphasis] The last sentence of that passage would appear to be an observation by Lord Millett that if an account is not, in fact, operated as a blocked account, restrictions specified in the debenture on the operation of the account may be irrelevant in determining whether the debenture gives rise to a fixed charge rather than a floating charge. That observation does not appear to have been taken into account as a material consideration in the analysis of the Court of Appeal in Spectrum Plus . Notwithstanding Miss Giret's submissions, if the outcome of the Substantive Strike Out depended merely on the possibility that the House of Lords might analyse the law in Spectrum Plus in a way which would undermine Siebe Gorman and the Court of Appeal's decision in Spectrum Plus in such a way as to throw real doubt on whether the charge created by the Debenture over the credit balances on Buildlead's account was a fixed charge rather than a floating charge, or indeed lead to the conclusion that it cannot have been a fixed charge, I might well have concluded that, in all the circumstances, on the particular facts of the present case, I should nevertheless accede to the Substantive Strike Out. On behalf of Quickson, Mr Davies offered an undertaking that, if the Preference Proceedings are struck out, but the House of Lords' analysis and decision in Spectrum Plus subsequently undermine the conclusion that the Debenture gave rise to a fixed charge over the credit balances on Buildlead's account, Quickson would not oppose an application for permission to appeal out of time by the Liquidators and would not take any point on limitation. In the light of the offer of that undertaking, and the already considerable duration of Buildlead's liquidation, and the need for further time and expense to be devoted to the Preference Proceedings in the absence of either a dismissal of the Preference Proceedings or a stay of uncertain duration pending the outcome of the appeal to the House of Lords in Spectrum Plus , I consider that the preferable course would have been to accede to the Strike Out Application. In the light, however, of the matters I have mentioned with regard to the absence of evidence as to Newguide's asset position, so far as relevant to the possibility of a preference in fact, the Substantive Strike Out must be dismissed. The Procedural Strike Out I can deal with the Procedural Strike Out relatively briefly. The Preference Proceedings were commenced by ordinary application in the s.236 Application. Quickson claims that the Preference Proceedings should have been commenced by an originating application, and, accordingly, the Preference Proceedings should be struck out as procedurally incompetent. Quickson relies upon the provisions of IR r. 7.2, which are as follows: "(1) In this chapter, except in so far as the context otherwise requires – "originating application" means an application to the court which is not an application in pending proceedings before the court; and "ordinary application" means any other application to the court. (2) Every application shall be in the form appropriate to the application concerned"
"The practice of the court, as I understand it, is this. Where there has been a compulsory winding up, insolvency proceedings have started pursuant to which applications can be made by way of ordinary application. It is the practice to use ordinary applications where the relief being sought is relief particular to the liquidator or to the general body of creditors as represented by him. Thus, applications to set aside transactions for preference are normally brought where there is a compulsory liquidation by ordinary application. The position is different where, as here, the winding up is a creditors' voluntary winding up. That, notwithstanding the submissions of Mr Atherton, is not, in my judgment, a proceeding so as to constitute an insolvency proceeding within r7. It does not seem to me that it is possible to say that where, in a creditors' voluntary liquidation, an application in another matter has been made by way of originating application, all subsequent court proceedings can be commenced by ordinary application using the number which the first originating application has taken. It seems to me that in a creditors' winding up, where it is intended to bring proceedings in a particular matter against particular respondents or defendants, an originating application should be issued. It is not without significance that the fee payable on a originating application is considerably greater than that on an ordinary application. These proceedings should have been commenced by originating application."
"17. However it is not accepted that the Liquidators' use of an ordinary application is erroneous. It is certainly more economical (£60 as opposed to£135 ), and if permissible, should be adopted. 18. What is needed in order for there to be pending proceedings is a court file: see Re Bullard & Taplin Ltd [1996]BCC 973 at 978E-F. Once there is a court file with a court number, then all proceedings by the liquidator thereafter will be made under that number, and necessarily by ordinary application, because it has become insolvency proceedings. If a new number is sought, then a new file will be opened. It was expressly accepted by Evans Lombe J that such applications in a compulsory liquidation would be brought by way of ordinary and not originating application: page 596 19. This is supported by looking at the EU Regulation, Articles 1,2, Annex A and B. It brings CVLs into proceedings when confirmed by the Court. This is achieved under IR 7.62. When confirmed by the Court, there is a court file referable to that particular CVL. The status is then the same as a winding up by the Court. 20. This makes absolute sense. If the Court has become seised of liquidation proceedings it is important that all elements are under one file, so that if, for example the liquidation be stayed, all pending matters would be known because they would be in one file. Court files are filed by number and not by name. Equally, if in one application, an order for costs was ordered to be "costs in the liquidation" then at the end of the liquidation, that order would be recorded in the court file. 21. It is to be noted that it is also consistent with bankruptcy when every application (such as preference) is bought by ordinary application in the bankruptcy, as with a compulsory winding up. CVLs with a court file must be in the same category."
"No insolvency proceedings shall be invalidated by any formal defect or by any irregularity, unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court."
"The court may, on cause shown, remove a liquidator and appoint another."
"I am of opinion that under the 141 st section of the Act I have a discretionary power to remove the liquidators appointed by the company. The question is, what is meant by the words "
"In many cases, no doubt, and very likely, for anything I know in most cases, unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shewn. In order to define "due cause shewn" you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."
"I have heard argument on the proper principles which should be applied when the court is invited to exercise the jurisdiction conferred by s 108(2). The section authorises the court to remove the liquidator 'on cause shown'. That is not the same as saying 'if the court shall think fit'. There is a burden on the applicant to show why the liquidator should be removed. Three authorities are relevant. In Re Marseilles Extension Rly and Land Co (1867) LR 4 Eq 692 Malins V-C made it clear that he did not regard the words 'due cause' as requiring anything amounting to misconduct or personal unfitness. He thought that it was sufficient if it could be shown that it was on the whole desirable that a liquidator should be removed. He took into account the fact that it was a serious and valid objection to the liquidator's efficiency that a considerable number of the creditors were opposed to his continuance in office. In Re Sir John Moore Gold Mining Co(1879) 12 Ch D 325 , the Court of Appeal dismissed an appeal from Bacon V-C who had removed the liquidator. In the course of their judgments, Jessel MR said (at 331): 'I should say that, as a general rule, [the words 'on cause shown'] point to some unfitness of the person – it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up – some unfitness in a wide sense of the term.' In fact, the court went on to find that there was such unfitness in the wide sense of the term and removed the liquidator, so that the words are, strictly speaking, obiter. In Re Adam Eyton Ltd(1887) 36 Ch D 299 the Court of Appeal considered the language of Jessel MR and made it clear that it is not necessary in order to justify the court under the section in removing the liquidator that there should be anything against the individual. Cotton LJ said (at 303): 'In my opinion, although of course unfitness discovered in a particular person would be a ground for removing him, yet the power of removal is not confined to that, and I do not think that the late Master of the Rolls in the case of In re Sir John Moore Gold Mining Company ((1879) 12 ChD 325 at 331), which has been cited, intended to give an exhaustive definition. Bowen LJ agreed that the liquidator should be removed although he said that in the particular case the liquidator whose removal was effected – 'may consider that the judgment of this Court is not based in any way on the possibility of any reflection upon himself, either in his conduct in this matter or in his general fitness to be a liquidator of any honourable company in the kingdom - his character is clear.' (See(1887) 36 Ch D 299 at 305.) It was submitted to me that the rule laid down in that case, that in order to effect the removal of the liquidator the court needs only to be satisfied that it is for the general advantage of those interested in the assets of the company that the liquidator be removed, must be read in the context of the facts of the case and that very special circumstances must exist before the power can be exercised in a case in which no personal misconduct or unfitness can be shown on the part of the liquidator. There were special circumstances in that case, but I do not read the general principle laid down by the Court of Appeal as being limited to cases in which special circumstances can be shown. On the contrary, the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation."
"After all, all that one has to find is some good cause why a person should not continue as a liquidator. You do not have to prove everything in sight; you do not have to prove, for example, misfeasance as such: you do not have to show more than there may well be a case of misfeasance or, indeed, incompetence."
"[23] In an application such as this, the court may have to carry out a difficult balancing exercise. On the one hand the court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future." "[27] On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s108 (2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay. "
"7. It is then for the applicant to prove to the court's satisfaction that the Liquidator has failed to conduct the liquidation in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future . The grounds to be established by Quickson must be good ones and, it is submitted, it must be shown that a replacement liquidator would be likely to perform so much more effectively that the cost and delay caused by a new appointment is justified."
"The due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed."
"The initial findings report indicated quite clearly substantial sums which appeared to have been paid to Quicksons in the form of a preference - and that the best result for the creditors would be to achieve a recovery of these sums even if it meant doing so over a period of time."
"So far as sanctioning any further fees is concerned - I cannot see how further sums "to be discussed" can be sanctioned by post when clearly there has been no discussion. This demonstrates clearly the need for committee meetings as opposed to postal arrangements so that proper informed discussion can take place before decisions are taken on important issues such as costs."
"Mr Katz and his firm have been instrumental in assisting to date in various matters relating to the insolvency process. It should be noted by the committee that the joint Liquidators have and will concentrate their individual efforts on different aspects of the Insolvency process, and that no duplication of effort or cost will therefore be chargeable against liquidation funds. It is intended that we discuss the various areas in the liquidation requiring attention emanating from this report, and the division of these responsibilities between the joint liquidators. To date, as is normal in these matters, considerable time costs have been expended consequent to a necessary "front loading" of chargeable time from our respective firms. We would seek authorization from the committee for withdrawal of our time costs to date, a full breakdown of which is annexed to this memorandum."
"given the now difficult timings, it is required that the Committee Members give their consideration to the aspect of the Joint Liquidator's costs and return the attached resolution by return of fax."
"In relation to the costs, these were discussed and it was brought to the attention of Mr Mitchell that the other members of the creditors committee had already approved the quantum of fees at an earlier date. Mr Mitchell remained unhappy that these fees had been agreed in advance of the meeting taking place, and requested that this point be minuted."
"The initial findings report indicated quite clearly substantial sums which appear to have been paid to Quicksons in the form of a preference. This was exemplified by the Quicksons inter-company account, which had been compiled from the company's books and records which had been obtained from Bob Quick after some substantial difficulty. It was indicated to the committee that the joint liquidators had no desire to bring about the failure of Quicksons, and that the best result for the creditors would be to achieve a recovery of these sums even if it meant doing so over a period of time. The tactics in relation to this matter were discussed, and it was agreed that Mr Katz would proceed on the following basis:- a. Land registry searches would be carried out on the directors' personal properties. b. The directors of the company would be requested to attend Mr Katz's office for detailed examination on matters relating to the inter-company entries. c. The debit balance shown on the Quickson's inter-company account was to be requested formally from Quicksons and any claim in the liquidation by them formally rejected. This would have the effect that Mr Mitchell would no longer be a valid member of the creditors' committee, and as such, the joint liquidators would deal with the filing of necessary papers for his removal. Mr Katz pointed out that Quicksons may seek to offset against debit balances owing, the amounts paid to Ernst & Young in respect of liquidation fees. d. Following the detailed interviews with the directors, formal demand was to be made from Quicksons for the amounts in question, and failing substantive favourable response from Quicksons within 14 days, solicitors were to be instructed to commence proceedings for recovery of these sums."
"1. Manner of inter-company trading. 2. Executive responsibilities of various Directors. 3. Individual contracts and work in progress at cessation of trade. 4. Details of circumstances and events surrounding the cessation of trade and the convening of the first meeting of creditors and preparation of the Statement of Affairs. 5. The provision of funding and working capital for the company."
"The purpose of my suggestion of a further meeting was in order that many of the matters raised in your letter could be dealt with on a more informal basis and in order that further peripheral information could be supplied verbally by your client, which might help to deal with some of the issues on the table. Your understanding of my suggestion is therefore not correct, and whilst I understand your client's desire to respond formally to this matter, feel that a phone call to me by yourself to confirm your understanding would have been helpful. In any event, we are now corresponding formally on this matter and therefore a further meeting at this time would seem to be inappropriate."
" In connection with the bank facility, it is the opinion of both Mr Kelmanson and myself that all of the documentation between your client and the bank relating to the "group" facility, should be provided to the Joint Liquidators for review. In a situation such as this where a facility is operation on a group basis, there can be no privilege over the correspondence relating to the facilities. I would therefore be grateful if you would supply to me by return, all bank/company correspondence relating to the group facility for review."
"Given our repeated statements to you (both at our meeting on the 10 February, 1998, subsequently in correspondence and earlier at the Creditors Meeting and in the meeting with you on the 4 th September, 1997) it seems to me quite unreasonable for you to make such a demand. It smacks to me of a fishing expedition in the hope it may justify the prolonged nature of this otherwise pointless enquiry. With respect I do not believe that you have either the grounds or authority for taking such a step. The factual evidence which you already hold, including details and copies of the Charge documentation, make it perfectly clear that your enquiry is wholly inappropriate and I would go so far as to say if you issue such legal proceedings it must be regarded as an abuse of your position. My clients have no wish to become embroiled in pointless and doubtful litigation where your costs are met out of the funds held by you on behalf of the preferential creditors and they are obliged to fund the exercise themselves. Please be aware that if you pursue legal action on this basis my clients will ask the Court to make appropriate costs orders. I have written to you under separate cover concerning certain aspects of the Joint Liquidators conduct of the liquidation which may also be appropriate to be raised in the course of such litigation as well as with your professional and regulatory bodies. In an effort to avoid what is entirely unnecessary and wasteful litigation for the sake of litigation I am instructed to provide you with the following information: i. (a) Copy letter dated 28 th June, 1996 from Lloyds Bank Plc to the Secretary of Buildlead Limited concerning the formalities for giving a Debenture; (b) Letter of same date between the same parties in respect of formal requirements for the giving of Guarantee by Buildlead in favour of Quicksons to Lloyds Bank. ii. Extract from the Minutes of a Meeting of the Board of Directors of Buildlead on 27/9/96 on Lloyds Bank headed paper being an extract of the Resolution to grant a Debenture in favour of the Bank. iii. Without waiving privilege I enclose the following copy documents: a. Further copy of a letter of the 13 th May, 1997 from Lloyds Bank to Quicksons (copy to you with our letter to you of the 27 th February, 1998); b. Letter dated 22 nd May, 1997 from Lloyds Bank to Quicksons. c. Letter 10 th June, 1997 Lloyds Bank to Quicksons. It seems to me that this documentation makes the position abundantly clear and again confirms that your threatened legal action is wholly inappropriate and unnecessary. Perhaps when you have had a chance to consider these documents you would be good enough to confirm that that is also now your view. As far as I am aware the foregoing items are the only items in respect of which you have indicated you were considering taking legal action If that is not the case please let me know as soon as possible. Otherwise it would appear to me that we have complied with your requests fully and I take it you will now rescind the threat of legal action."
"It was previously agreed that this will be dealt with by way of circularisation and a postal resolution. In the circumstances, I enclose a suitable resolution document for your consideration and completion as relevant. I would be much obliged if this completed document could be returned to this office no later than 30 th September 1998."
"The Bank took a debenture from Buildlead Ltd when Quicksons acquired that company, together with a guarantee from Buildlead in favour of Quicksons Ltd. This was exactly the same arrangement that the Bank had put in place for Newguide Ltd previously when that company was acquired, as in both cases, all borrowing from the Bank was to be taken in the name of Quicksons and there were no arrangements for borrowing in the names of the subsidiaries. It was for this reason that guarantees from Quicksons in favour of the subsidiaries were considered unnecessary. In 1997 the Bank was concerned at the financial position of Quicksons and in particular at the financial losses of the group. Accordingly the company's overdraft limit was not renewed on expiry and my letter dated 27 th May 1997 refers. I was not prepared to renew facilities until I was convinced that the company had taken the necessary action to halt the losses and return the group to profit. Effectively therefore during the period May to after August 1997, neither Quicksons nor its subsidiaries had any overdraft facilities agreed by the Bank, and the Bank wished to keep any exposure to a minimum during this time. If therefore Quicksons was overdrawn and the subsidiary companies were in credit, it was the Bank's position that it requested transfers of the credit balances in the subsidiaries' names into Quicksons account to keep the latter in credit or in minimum overdraft. The balance of Quicksons' account at the time of the transfers in August shows an overdrawn position and the transfers would have been made to follow the request of the bank that the overdraft should be cleared or kept as low as possible. In these circumstances, given that the Bank was making this requirement and given the nature of its security from the subsidiaries, I cannot see how the transfers referred to by Mr Katz could be construed as preferential. This was also the view taken by Ernst & Young. The transfers were made using Lloydslink, the Bank's electronic banking product. The transfers would therefore be physically made by the directors or their staff, but against a background of the Bank's insistence that its exposure on the account of Quicksons was kept at all times to a minimum. You and your fellow directors were well aware of the Bank's position and it was not unusual, as you well know, that my staff would regularly phone your staff to ask that transfers of funds be made to ensure this requirement of the Bank was met. It is pertinent to point out that the Bank's debenture security from Buildlead's Ltd gave the Bank a fixed charge over debtors and any cash balances on Buildlead's account with the Bank. If the transfers referred to had not been made and the balances had remained on the account of Buildlead Ltd, the Bank was entitled to make demand on Quicksons for any resultant overdraft followed by demand on Buildlead Ltd under its guarantee. In the event of the demand being unsatisfied, the Bank would have been entitled to appoint a receiver to Buildlead who would have accounted to the Bank for the credit balances on Buildlead's account together with any other realisations of Buildlead's assets."
"1.A copy of the Bank Facility letters for the Quickson/Buildlead Group covering the period1 April 1997 through to30 September 1997 . 2. Copies of all group company bank account statements for the same period. 3. Details of all company and personal security held by the bank during the same period. 4. Copies of the monthly banking covenant monitoring sheets which would have been submitted to your bank within the same period."
"(1) That there is any possibility of success by your clients against our clients in pursuing the alleged preference claim. Please set out your case and provide your authorities. We suggest that this is essential in the light of the Bank's known response on this issue and the DTI's consideration of that evidence and its decision to drop the disqualification proceedings which were dependent on the acceptance of Mr Katz's wilfully wrong interpretation of the bank transfers. (2) Given also that Mr Katz and Mr Kelmanson were appointed in September, 1997, explain the delay in raising the matters referred to in Mr Katz's letter of 21 st December, 1999 only in July, 2001, some 18 months later. Why did Mr Katz not send a single reminder letter in that time? (3) Confirm by one of your firm's partners that you have satisfied yourselves that the Joint Liquidators do not already have the information that Mr Katz has requested; and confirm that Mr Katz or Mr Kelmanson need this information; and as to its relevance."
"(2) Where the company has at a relevant time (defined in the next section) given a preference to any person, the office-holder may apply to the court for an order under this section. (3) Subject as follows, the court shall, on such an application make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference. (4) For the purposes of this section and section 241, a company gives a preference to a person if - i. that person is one of the company's creditors or a surety or guarantor for any of the company's debts or other liabilities, and ii. the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done. (5) The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (4)(b). (6) A company which has given a preference to a person connected with the company (otherwise than by reason only of being its employee) at the time the preference was given is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (5)."
"In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford[1985] AC 809 , 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder."
" 3. Charges The Company - hereby charges with the payment of all money and liabilities and other sums hereby agreed to be paid or intended to be hereby secured - and so that the charges hereby created shall be a continuing security: First: - Secondly: All book debts both present and future due or owing to the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) and the benefit of all rights relating thereto - Thirdly: All other debts, claims, rights and choses in action both present and future of the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) including (without prejudice to the generality of the foregoing): i. deposits and credit balances held by the Company with the Bank or any third party from time to time both present and future (including things in action which give rise or may give rise to a debt or debts) owing to the Company (and the proceeds thereof): - Fourthly: - Fifthly: - Sixthly: - Seventhly: - Eighthly: - Ninthly: - Tenthly: The undertaking and all property and assets of the Company both present and future including (without prejudice to the generality of the foregoing) - the Charged Property First, Secondly, Thirdly, Fourthly, Fifthly, Sixthly, Seventhly, Eighthly and Ninthly described (if and in so far as the charges thereon or on any part or parts thereof herein contained shall for any reason be ineffective as fixed charges). In this Debenture, the expression "
"I do not think that the bank balance falls within the term "book debts or other debts" as it is used in the debenture. It is true that the relationship between banker and customer is one of debtor and creditor. It would not therefore be legally inaccurate to describe a credit balance with a banker as a debt. But this would not be a natural usage for a businessman or accountant. He would ordinarily describe it as "cash at bank": compare the balance sheet formats in Part I, section B of Schedule 4 to theCompanies Act 1985 ."
"In this debenture, the significant feature is that Brightlife was free to collect its debts and pay the proceeds into its bank account. Once in the account, they would be outside the charge over debts and at the free disposal of the company. In my judgment a right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge."
"I was referred to Siebe Gorman & Co. Ltd. v Barclays Bank Ltd. [1979] 2 Lloyds Rep.142 and a recent decision of the Irish Supreme Court in In re Keenan Bros. Ltd. [1986] B.C.L.C. 242, in both of which charges over book debts were held to be fixed and not floating. In the former case, the debenture was in favour of a bank and not only prohibited the company from selling or charging its book debts but required that they be paid into the company's account with that bank. Slade J. decided that as a matter of construction the bank would not have been obliged to allow the company to draw upon the account at a time when it still owed the bank money under the debenture. The company was not free to deal with the debts or their proceeds in the ordinary course of its business. Each debt as it accrued to the company could therefore properly be said to become subject to an equitable fixed charge. On the other hand, Slade J. said, at p. 158: "if I had accepted the premise that [the company] would have had the unrestricted right to deal with the proceeds of any of the relevant book debts paid into its account, so long as that account remained in credit, I would have been inclined to accept the conclusion that the charge on such book debts could be no more than a floating charge."
"To put the matter another way, the August Transfers were not effected at the expense of other creditors of the Company and will not be adjusted by the court. The reason for this is that the payments were made out of third party moneys – ie out of the Bank's moneys. The Court of Appeal in IRC v Wimbledon FC Ltd[2004] EWCA Civ 655 , has confirmed that the following passage in Professor Goode (Principles of Corporate Insolvency Law (2 nd Edn) (1997) (at p.391) represents the law in this respect : "
"(1) In this chapter, except in so far as the context otherwise requires – "originating application" means an application to the court which is not an application in pending proceedings before the court; and "ordinary application" means any other application to the court. (2) Every application shall be in the form appropriate to the application concerned"
"The practice of the court, as I understand it, is this. Where there has been a compulsory winding up, insolvency proceedings have started pursuant to which applications can be made by way of ordinary application. It is the practice to use ordinary applications where the relief being sought is relief particular to the liquidator or to the general body of creditors as represented by him. Thus, applications to set aside transactions for preference are normally brought where there is a compulsory liquidation by ordinary application. The position is different where, as here, the winding up is a creditors' voluntary winding up. That, notwithstanding the submissions of Mr Atherton, is not, in my judgment, a proceeding so as to constitute an insolvency proceeding within r7. It does not seem to me that it is possible to say that where, in a creditors' voluntary liquidation, an application in another matter has been made by way of originating application, all subsequent court proceedings can be commenced by ordinary application using the number which the first originating application has taken. It seems to me that in a creditors' winding up, where it is intended to bring proceedings in a particular matter against particular respondents or defendants, an originating application should be issued. It is not without significance that the fee payable on a originating application is considerably greater than that on an ordinary application. These proceedings should have been commenced by originating application."
"17. However it is not accepted that the Liquidators' use of an ordinary application is erroneous. It is certainly more economical (£60 as opposed to£135 ), and if permissible, should be adopted. 18. What is needed in order for there to be pending proceedings is a court file: see Re Bullard & Taplin Ltd [1996]BCC 973 at 978E-F. Once there is a court file with a court number, then all proceedings by the liquidator thereafter will be made under that number, and necessarily by ordinary application, because it has become insolvency proceedings. If a new number is sought, then a new file will be opened. It was expressly accepted by Evans Lombe J that such applications in a compulsory liquidation would be brought by way of ordinary and not originating application: page 596 19. This is supported by looking at the EU Regulation, Articles 1,2, Annex A and B. It brings CVLs into proceedings when confirmed by the Court. This is achieved under IR 7.62. When confirmed by the Court, there is a court file referable to that particular CVL. The status is then the same as a winding up by the Court. 20. This makes absolute sense. If the Court has become seised of liquidation proceedings it is important that all elements are under one file, so that if, for example the liquidation be stayed, all pending matters would be known because they would be in one file. Court files are filed by number and not by name. Equally, if in one application, an order for costs was ordered to be "costs in the liquidation" then at the end of the liquidation, that order would be recorded in the court file. 21. It is to be noted that it is also consistent with bankruptcy when every application (such as preference) is bought by ordinary application in the bankruptcy, as with a compulsory winding up. CVLs with a court file must be in the same category."
"No insolvency proceedings shall be invalidated by any formal defect or by any irregularity, unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court."
"The court may, on cause shown, remove a liquidator and appoint another."
"I am of opinion that under the 141 st section of the Act I have a discretionary power to remove the liquidators appointed by the company. The question is, what is meant by the words "
"In many cases, no doubt, and very likely, for anything I know in most cases, unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shewn. In order to define "due cause shewn" you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."
"I have heard argument on the proper principles which should be applied when the court is invited to exercise the jurisdiction conferred by s 108(2). The section authorises the court to remove the liquidator 'on cause shown'. That is not the same as saying 'if the court shall think fit'. There is a burden on the applicant to show why the liquidator should be removed. Three authorities are relevant. In Re Marseilles Extension Rly and Land Co (1867) LR 4 Eq 692 Malins V-C made it clear that he did not regard the words 'due cause' as requiring anything amounting to misconduct or personal unfitness. He thought that it was sufficient if it could be shown that it was on the whole desirable that a liquidator should be removed. He took into account the fact that it was a serious and valid objection to the liquidator's efficiency that a considerable number of the creditors were opposed to his continuance in office. In Re Sir John Moore Gold Mining Co(1879) 12 Ch D 325 , the Court of Appeal dismissed an appeal from Bacon V-C who had removed the liquidator. In the course of their judgments, Jessel MR said (at 331): 'I should say that, as a general rule, [the words 'on cause shown'] point to some unfitness of the person – it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up – some unfitness in a wide sense of the term.' In fact, the court went on to find that there was such unfitness in the wide sense of the term and removed the liquidator, so that the words are, strictly speaking, obiter. In Re Adam Eyton Ltd(1887) 36 Ch D 299 the Court of Appeal considered the language of Jessel MR and made it clear that it is not necessary in order to justify the court under the section in removing the liquidator that there should be anything against the individual. Cotton LJ said (at 303): 'In my opinion, although of course unfitness discovered in a particular person would be a ground for removing him, yet the power of removal is not confined to that, and I do not think that the late Master of the Rolls in the case of In re Sir John Moore Gold Mining Company ((1879) 12 ChD 325 at 331), which has been cited, intended to give an exhaustive definition. Bowen LJ agreed that the liquidator should be removed although he said that in the particular case the liquidator whose removal was effected – 'may consider that the judgment of this Court is not based in any way on the possibility of any reflection upon himself, either in his conduct in this matter or in his general fitness to be a liquidator of any honourable company in the kingdom - his character is clear.' (See(1887) 36 Ch D 299 at 305.) It was submitted to me that the rule laid down in that case, that in order to effect the removal of the liquidator the court needs only to be satisfied that it is for the general advantage of those interested in the assets of the company that the liquidator be removed, must be read in the context of the facts of the case and that very special circumstances must exist before the power can be exercised in a case in which no personal misconduct or unfitness can be shown on the part of the liquidator. There were special circumstances in that case, but I do not read the general principle laid down by the Court of Appeal as being limited to cases in which special circumstances can be shown. On the contrary, the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation."
"After all, all that one has to find is some good cause why a person should not continue as a liquidator. You do not have to prove everything in sight; you do not have to prove, for example, misfeasance as such: you do not have to show more than there may well be a case of misfeasance or, indeed, incompetence."
"[23] In an application such as this, the court may have to carry out a difficult balancing exercise. On the one hand the court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future." "[27] On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s108 (2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay. "
"7. It is then for the applicant to prove to the court's satisfaction that the Liquidator has failed to conduct the liquidation in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future . The grounds to be established by Quickson must be good ones and, it is submitted, it must be shown that a replacement liquidator would be likely to perform so much more effectively that the cost and delay caused by a new appointment is justified."
"The due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed."
"The initial findings report indicated quite clearly substantial sums which appeared to have been paid to Quicksons in the form of a preference - and that the best result for the creditors would be to achieve a recovery of these sums even if it meant doing so over a period of time."
"So far as sanctioning any further fees is concerned - I cannot see how further sums "to be discussed" can be sanctioned by post when clearly there has been no discussion. This demonstrates clearly the need for committee meetings as opposed to postal arrangements so that proper informed discussion can take place before decisions are taken on important issues such as costs."