Receiver validly appointed after Supreme Court interprets “close of business” as being 4pm
The Supreme Court has found that a Receiver was validly appointed, after upholding the trial judge’s finding that “the close of business” had been correctly interpreted by the bank as being 4pm.
The appeal followed an application initiated by an originating notice of motion filed on 13th July, 2012 in which Paul McCann (‘the Receiver’), invoking s. 316(1) of the Companies Act 1963, sought certain directions in relation to the exercise of his powers as receiver over the property and assets of the companies Elektron and Crossplan.
The appeal was narrowed to one issue, with the appellants, the directors of both companies, challenging the validity of the Receiver’s appointment on one ground, that, on the basis of the relationship and interaction between Irish Bank Resolution Corporation Limited(‘IBRC’), which appointed him, and Elektron and Crossplan and the appellants, he could not have been validly appointed at the time the deeds relied on as appointing him were executed.
The facts surrounding the case were similar with regards to both Elektron and Crossplan, therefore the Supreme Court provided background only to Elektron by way of example:
IBRC was the successor in title as mortgagee under six Deeds of Mortgage made by Ekektron in favour of the Irish Nationwide Building Society.
The earliest mortgage, dated 9th October 1998, contained a Clause which allowed for all monies to become immediately payable and the security to become enforceable if the Society issued a Notice in writing making such demands.
It also contained a Clause allowing the Society to appoint a Receiver over the charged assets, including the property.
Prior to appointing a Receiver, IBRC issued Demand Letters to the appellants on 15th February 2012.
These letters demanded an aggregate amount of €986,397.90 from Elektron, and €25,170,660.24 from Crossplan.
The seventh paragraph in the Demand Letter, which gave rise to the appeal, stated:
“In the event that payment is not received by close of business on 17 February 2012, we are entitled to and reserve the right to enforce any security given to us to secure the facilities made available under the Offer Letters, to take all such actions as are permitted under the said security (including, without limitation, the appointment of a receiver) and to take such steps, as we are lawfully entitled to, to recover all monies due by you to us.”
The appeal concerned the interpretation of the phrase “close of business”. The appellants alleged that as the Receiver had been appointed at 4pm, he had not been validly appointed, and that the power of IBRC to appoint a receiver only arose after “close of business” on 17th February 2012.
It was submitted that the trial judge had erred in concluding that close of business meant close of banking hours and also that banking hours were from 10am to 4pm.
Secondly, an alternative argument advanced was that, even if the trial judge was correct and close of business meant close of banking hours and that it occurred at 4pm, the power to appoint the Receiver was not exercisable at 4pm on 17th February, 2012 because the Demand Letter stipulated that IBRC was entitled to appoint a receiver if payment was not received “by close of business”, which it was suggested meant at or before 4pm. Therefore, it was suggested that the power was not exercisable until after 4pm.
Citing Merrow Limited v. Bank of Scotland Plc IEHC 130, the appellants argued that any ambiguity should be construed against the Receiver.
The Receiver argued that it was not necessary for IBRC to await any default in repayment of the monies demanded by the Demand Letter, but rather the legal entitlement to appoint a receiver arose as and when the sums became payable and the security was enforceable, which, it was contended arose on the service of the Demand Letter without anything further having to occur.
The Supreme Court found that the trial judge had been correct in finding that “close of business” meant by 4pm that day, as that was the end of the banking day.
The Court noted that “the end of the banking business day is the point in time when the relevant bank ceases to do banking business with its customers. As the trial judge found, in the case of IBRC, the end of banking business occurred at 4pm on Friday, 17th February, 2012.”
In relation to when a Receiver could validly be appointed, the Supreme Court noted that “one might ask why should IBRC have to wait a minute, as distinct, from, say, a nanosecond, which I understand means one thousand millionth of a second, before exercising its power? That rather facetious question does not have to be answered because once the deadline is reached and the prerequisite is satisfied by non-receipt by IBRC of the payment demanded, the power to enforce the security is exercisable.”
Accordingly, the appellants’ submission that the Receiver was not validly appointed was rejected on both bases on which it was argued.
In summary, the Supreme Court found that “the trial judge was correct in interpreting “by close of business” as meaning by 4pm. The proper interpretation of the preposition “by” in the phrase is that it indicates the deadline for receipt by IBRC of the payment demanded. The deadline occurred at 4pm, whereupon IBRC was entitled to enforce its security.
The appeal was therefore dismissed.