Topic 4 Borrowing - Essay

What is borrowing in a corporate context?

Borrowing is a key feature of corporate existence that enables companies to secure the necessary funds for operational and growth needs.

Explain what a mortgage is.

A mortgage involves the transfer of ownership of a legal or equitable interest. It involves the formal conveyance or assignment of the legal title to real or personal property.

Explain what a charge v mortgage is per Re Cosslett.

A charge does not transfer ownership but grants an equitable right to use the charged property for the satisfaction of a secured debt.

How was a charge described in Re Clare Textiles?

it was described as a contract making property available as security to meet a liability.

How was a charge described in Re Charge Card Services?

it was described as the appropriation of specific property of the chargor to the chargee for debt payment, granting the chargee rights to use the property to satisfy a debt.

What Irish case accepted the definition of a charge in Re Charge Card Services

Murray v Wilkin

How did Illingworth v Houldsworth distinguish between floating and fixed?

unlike a fixed charge a floating charge is “ambulatory and shifting in its nature, hovering over with the property.”

What are the three characteristics of a floating charge, as set out in Re Yorkshire Woolcombers Association Ltd?

1. Covers a class of assets of a company - present and future.

2. The class changes in the ordinary course of business.

3. Until some future step is taken by those interested in the charge, the company can continue dealing with the assets.

What case confirmed floating charges can exist over land?

Welch v Bowmaker

Do floating charges take immediate effect in Irish law? [3 cases]

Irish law affirms that floating charges take effect immediately and must be registered within 21 days (Re Tullow Engineering; Evans v Rival Granite Quarries; Re JD Brian).

What is the key advantage of a floating charge over a fixed charge?

The key advantage is the ability of the chargor company to deal with the charged property freely, without interference or restriction from the chargee bank.

What was held in Smith v Bridgend?

The company had a contract with a local authority and it received an advanced payment. As security, the contract provided that all the plant owned by the company when on site would be deemed property of the local authority which could be sold to satisfy the payment. This was held to be a floating charge

What was held in Re Lakeglen Construction?

the debenture charged the company’s ‘book debts and all rights and powers of recovery thereof.’ The Court held that if the intention was that the charge was to remain dormant and the company was permitted to go on receiving the book debts and using them until then the security was a floating charge. 

What are 'book debts' in the context of corporate borrowing?

Book debts are the current and future debts owed to the company, forming a changing class of assets

How did banks seek to take fixed charges over book debts?

lending institutions sought to take fixed charges over book debts by allowing the borrower to continue collecting the book debts but requiring them to keep proceeds in a controlled bank account.

What was held in Re Keenan Brothers Ltd?

the debenture provided that the company should pay into a specified bank account monies received in respect of book debts and couldn’t without prior consent of the bank in writing make any withdrawals. The court found this to be incompatible with the characteristics of a floating charge as the proceeds were rendered frozen and unusable.

What was held in Re Wogans?

where a lender delays the designation of a bank account or suspends the right to exercise direct control over the account, this deprives the borrower the rights agreed in the debenture document.

What was held in Re Holidair?

because the debenture did not prohibit any withdrawals by the company from the bank account, the charge was a floating one

What is 'crystallisation' of a floating charge?

Crystallisation refers to the process where a floating charge converts into a fixed charge when certain specified events occur. Pre-crystallisation, the company is free to deal with the charged property.

What are the 4 main causes of crystallisation?

1. Appointment of a receiver.

2. Commencement of the company's winding up.

3. Express/automatic crystallisation clauses in a debenture.

4. Factual cessation of business.

What was held in Halpin v Cremin re appointment of receiver?

mere steps to appoint a receiver are insufficient.

What did Re Crompton establish regarding crystallisation due to winding up?

a floating charge will crystallise whether a company is wound up voluntarily by its members or creditors, or compulsorily by the court.

What was held in Re JD Brian re express crystallisation?

a floating charge will crystallise where the debenture expressly provides that the giving of notice will cause it to crystallise. In practice it will take the form of a ‘notice of conversion clause.’

What was held in Re Wogans re express crystallisation?

the Supreme Court did not specifically comment upon the validity of this clause.

Explain automatic crystallisation

purports to operate automatically upon the occurrence of a particular event, and without the intervention of the chargee.

Explain Halpin in the context of factual cessation of business.

the plaintiff sought ownership of land through a purchase and HC order, however, the defendant claimed title via adverse possession. It was held that the floating charge did not crystallise as no receiver was appointed, nor was the company wound up. However, the judgment does not definitively establish that ceasing business alone does not crystallise a floating charge.