Publications
Banking Update - Autumn 2004
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Welcome to the latest edition of the Mason Hayes+Curran Banking Update. As well as information on persuasive case law relating to fixed charges and on European insolvency proceedings, we have details of some team changes as well.
We are planning a number of seminars for the coming months and if this is of interest, please let me know. Our own premises project is providing an alternative ‘client’ perspective on development finance. We will be in our new building in Barrow Street in the first half of 2006 which will not be long in coming around.
Kevin Hoy
Head of Banking
Team News
Will Carmody promoted to Senior Associate
Congratulations to Will Carmody who has been promoted to Senior Associate. Will joined Mason Hayes+Curran in 2002 from another Dublin law firm and in a short space of time has built a strong reputation with clients. His promotion to
Senior Associate adds to the team’s continued growth.
Fixed versus Floating Charges and disposals of assets in the ordinary course of business
A fixed charge gets the holder to the front of the money queue. A floating charge-holder is in danger of being third in line, after fixed charge-holders and preferential creditors. The English High Court has recently held that, where a security document allows a company to deal with particular property in the ordinary course of its business, the security over that property should be construed as a floating rather than a fixed charge.
The security documents permitted disposals in the ordinary course of business, making no distinction between fixed charge assets and floating charge assets. The court interpreted this as a floating charge over all the assets rather than a fixed charge over certain assets and a floating charge over others, even though the documents attempted to create a fixed charge over certain assets.
The court did accept that the company would not dispose of certain asset classes in the ordinary course of its business. However, the court made it clear that the nature of the assets should not be the deciding factor. Instead its decision was based on the drafting of the documents and the ordinary meaning of the words used.
ACTION: If a lender wishes to protect a fixed charge security over specific assets, then it should provide that the fixed charge assets are specifically excluded from any permission to deal with the assets in the ordinary course of business.
Case: Ashborder v Green Gas Power Limited [2004] EWHC 1517 (Ch).
EC Regulation on Insolvency Proceedings: The Eurofood case
The EC Regulation on Insolvency Proceedings is formulated to provide clarity to creditors in relation to the institution of insolvency proceedings across member states of the European Union. The Regulation introduces the concept of the Centre of Main Interest (ÒCOMIÓ) which is where creditors must take insolvency proceedings, where a company operates in a number of jurisdictions across the EU. Once a court has determined a company’s COMI, that finding is binding throughout the European Union.
The Irish Supreme Court judgement in Eurofood is one of the first judicial examinations of the new Regulation in the EU. A winding up petition was presented to the High Court by Bank of America to wind up the Irish subsidiary of Parmalat Spa in January 2004. A month later the Italian courts refused to recognise the Irish insolvency proceedings as the main insolvency proceedings under the Regulation and admitted Eurofood into extraordinary administration under Italian law, declaring its COMI to be Italy. Eurofood’s creditors then appealed to the Irish High Court.
The Irish High Court held that Eurofood’s COMI was in Ireland and that the appointment of a Provisional liquidator was a ‘judgement’ opening insolvency proceedings under the Regulation and so the Irish proceedings were ‘main insolvency proceedings’. The Italian administrator appealed to the Irish Supreme Court, which agreed with the main findings of the High Court.
Importantly, the Supreme Court formulated a number of questions for the European Court of Justice (‘ECJ’) concerning the interpretation of the concepts of ‘main proceedings’ and COMI, the influence which a parent company may have on its subsidiary and public policy considerations which Member States courts should have with regard to judgements of other Member States’ courts.
These questions have been formally referred to the ECJ by the Supreme Court and the decision of the ECJ will be important in providing more direction in how to apply the Regulation. Up to now the lack of judicial guidance on the interpretation of COMI, as set out in the Regulation, has led to uncertainty in the application of the Regulation. The ECJ decision on the Eurofood questions will help in developing a uniform interpretation of the Regulation which was intended to reduce the problems of forum shopping and jurisdictional conflicts where a company operates across a number of jurisdictions.
In the matter of Eurofood IFSC Ltd (Unreported Supreme Court 27th July 2004).
For full information and advice on all matters relating to banking, contact any member of Mason Hayes+Curran’s dedicated Banking Unit.
