The chargor was a company which arranged with the chargee, a funding bank, that it should purchase equipment and let it on hire purchase to the chargor with permission to sub-lease to end users. The chargor charged to the chargee by way of security all the benefit of the terms of each of the specific sub-leases involved and, in particular, the rentals due under them. The chargor later went into administration and the issue arose as to whether the charges were fixed or floating charges. The court was also asked whether rental due under hire purchaser agreements should be treated as an expense of administration.
Held: To be treated as liquidation expenses under the rules, an expense had to meet the ‘liquidation expenses’ principle of fairness. If a liability was incurred as a result of a step taken for the benefit of the insolvent estate, it was fair that the burden should be borne by the persons for whose benefit the estate was being administered. A creditor could ordinarily be given leave to execute against the company’s assets for a ‘new debt incurred by the liquidator for the purposes of the liquidation’ ‘it is just and equitable that the burden of the debt should be borne by those for whose benefit the insolvent estate is being administered.’ It was a corollary of this principle that a debt was incurred for the purposes of the liquidation ought to be paid in full as an expense of the liquidation. ‘The latter principle is not confined to new debts incurred by the liquidator. It applies also to continuing obligations under existing contracts such as leases which the liquidator chooses to continue for the benefit of the winding up.’ As to the question of whether a fixed charge had been created: ‘in practice sums payable by the end users under these sub-leases were paid to the company and utilised by it in the ordinary course of business. In so far as this is relevant, it may well be that this was what the parties intended should happen. The company was to be at liberty to receive and use the instalments until AIB chose to intervene. We are unpersuaded that this results in these charges, on existing and defined property, becoming floating charges. A mortgage of land does not become a floating charge by reason of the mortgagor being permitted to remain in possession and enjoy the fruits of the property charged for the time being.’
Judges:
Nicholls LJ
Citations:
[1992] Ch 505
Jurisdiction:
England and Wales
Citing:
Cited – In re Lundy Granite Co; Ex parte Heavan CA 1871
The landlord of Lundy Island, which was let to a third party, distrained upon goods of the company which had been left upon the tenant’s property. The distraint was for rent which had fallen due more than a year after the winding up order. The . .
Cited by:
Cited – Kahn and Another v Commissioners of Inland Revenue; In re Toshoku Finance plc HL 20-Feb-2002
A company went into liquidation, being owed substantial sums by another company in the same group, but itself insolvent. A settlement did not include accrued interest, but was claimed to be taxed as if it had, and on an accruals basis. If so, was . .
Applied – In Re Kentish Homes Ltd ChD 31-Mar-1993
The question was whether a post-liquidation liability to community charge on empty flats was an expense of the liquidation.
Held: The company was the chargeable person in respect of the flats for the relevant periods, but the liability was . .
Applied – Re Atlantic Medical Ltd 1992
A charge was granted over hire-purchase agreements, sub-leases and rentals of leased equipment. The charge extended to such agreements as the chargor might enter into in the future.
Held: Applying Atlantic computers, the charge was a fixed . .
Cited – National Westminster Bank Plc v Spectrum Plus Ltd; In re Spectrum Plus CA 26-May-2004
The court was asked whether a charge given over book debts in a debenture was floating or fixed.
Held: Since the charge asserted some control over receipt of the payments, it was a fixed charge. Upon payment into the account, title to the . .
Cited – Freakley and others v Centre Reinsurance International Company and others HL 11-Oct-2006
When it became clear that the company would be financially overwhelmed by asbestos related claims, a voluntary scheme of arrangement was proposed under s425. The House was now asked whether the right to re-imbursement of the company’s lawyers after . .
Lists of cited by and citing cases may be incomplete.
Insolvency
Updated: 12 May 2022; Ref: scu.190091