A company owned hotels, in Leeds and in Buxton. In 1937, it issued a debenture creating a floating charge over all its assets to secure andpound;45,000. In December 1938, an order was made in a debenture holder’s action, appointing a receiver over all the company’s property except the Buxton Hotel which was subject to a prior mortgage and of no value to the debenture holder. The company continued to operate the Buxton Hotel. In March 1939, an order was made for the winding up of the company. In the meantime, in operating the Buxton Hotel, the company incurred certain preferential debts within the meaning of s. 264 of the 1929 Act. One issues was whether those preferential debts were payable in priority to the plaintiff (the debenture holder) from the proceeds of the assets over which the receiver was appointed in 1938. There were no other assets out of which the preferential debts could be discharged. The first issue related to the relationship between sections 78 and 264(4)(b) which is not of relevance. The second issue is the same construction issue arising in these proceedings, albeit in relation to s. 264(4)(b), providing: ‘The foregoing [preferential] debts shall: (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) in the case of a company registered in England, 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.’
Held: The court construed the expression ‘floating charge’ in the statute to mean a charge which was still floating at the date of the winding up.
Bennett J, having expressed his conclusion that s. 78 of the 1929 Act did not exclude or prevent the operation of sub-section 4(b) of s. 264, continued: ‘But that conclusion on the construction and effect of the statutory provisions leaves open the question whether in the supposed events there is, when the winding up take place, any floating charge or any property subject to that charge. In my judgment, sub-s. 4(b) of s. 264 only operates if at the moment of the winding up there is still a floating charge created by the company and it only gives the preferential creditors a priority over the claims of the debenture holders in any property which at that moment of time is comprised in or subject to that charge.
In the present case, the debenture held by the plaintiffs contained a floating charge over all the borrowers’ property. On December 9, 1938, that charge ceased to float on the property and assets of which Mr. Veale was appointed receiver. The charge on that day crystallised and became fixed on that property and those assets. It remained a floating charge on any other assets of the borrowers. At the moment before the winding up order was made, the charge still floated over any other assets of the borrowers and over those other assets, if any, the preferential creditors as defined by sub-s. I of s. 264 have a priority over the claims of the plaintiffs by force of the provisions of sub-s.4 of the same section. This seems to be a corollary of the proposition established by In re Lewis Merthyr Consolidated Collieries, Ld. (I) [1929] 1 Ch. 498.’
Judges:
Bennett J
Citations:
[1941] Ch 129
Statutes:
Jurisdiction:
England and Wales
Cited by:
Cited – Buchler and another (as joint liquidators of Leyland DAF Limited) v Talbot and another (as joint administrative receivers of Leyland DAF Limited) and Stichting Ofasec and others HL 4-Mar-2004
The liquidator sought to recover his expenses from assets charged under a floating charge in priority to the chargee.
Held: Barleycorn was decided in error. The liquidators costs incurred in an insolvent winding up were not to be charged . .
Lists of cited by and citing cases may be incomplete.
Company, Insolvency
Updated: 03 July 2022; Ref: scu.194251