[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Griffith & Anor, Re [1998] ScotCS 65 (13 November 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/65.html Cite as: [1998] ScotCS 65

[New search] [Help]

The petitioners are the joint receivers of Lewis Lloyd Holdings Ltd ("the Company"). By instrument of appointment dated 30 January 1998 made by the Royal Bank of Scotland plc ("Royal Bank") the petitioners were appointed to be joint receivers of the property charged by a Bond and Floating Charge ("the Royal Bank Charge") granted by the Company in favour of the Royal Bank. The Bond and Floating Charge was granted by the Company in favour of the Royal Bank on 29 August 1996 and registered with the Registrar of Companies (Scotland) on 9 September 1996. By instrument of appointment dated 9 February 1998 (incorrectly dated in the petition as 1 October 1995) Bass Brewers Ltd ("Bass") appointed the petitioners as joint receivers of the property and assets charged by a Bond and Floating Charge granted by the Company in favour of Bass. That Bond and Floating

Charge ("the Bass Charge") was executed on 29 August 1996 and registered with the Register of Companies (Scotland) on 5 September 1996.

On 12 September 1996 the Company granted a Standard Security in favour of the Royal Bank. It was registered in the Land Register for Scotland on 24 September 1996. This Standard Security ("the Royal Bank Security") was granted over two interests in land in Glasgow. On 12 September 1996 the Company granted in favour of Bass a Standard Security over one of the said subjects in Glasgow. This Standard Security ("the Bass Security") was registered in the Land Register for Scotland on 27 September 1996.

On 4 December 1996 the Company granted in favour of the Governor and Company of the Bank of Ireland, ("the Bank of Ireland"), a Standard Security ("the Bank of Ireland Security") which was recorded in the Division of the General Register of Sasines applicable to the County of Argyll on 7 January 1997, in respect of subjects at Hazelburn Business Park, Campbeltown. On 24 December 1996 the Company granted in favour of Argyll and Islands Enterprise Company ("Argyll Enterprise") a Standard Security ("the Argyll Enterprise Security") over the same subjects recorded in the Division of the General Register of Sasines applicable to the County of Argyll on 9 January 1997.

As appears from the petition, as between themselves the Royal Bank and Bass have regulated the ranking of their Charges by means of an instrument of alteration dated 4 September 1996 which was delivered pursuant to section 410 of the Companies Act 1985 to the Registrar of Companies on 17 September 1996. It further appears that as between themselves, the Bank of Ireland and Argyll Enterprise have sought to regulate the ranking of their Standard Securities by means of a ranking agreement recorded in the Register of Sasines for the County of Argyll on 23 June 1997.

In the Royal Bank Charge it is provided and declared inter alia that:

Further in the Royal Bank Charge the Company undertook, amongst other things, as follows:

In the Bass Charge, the grant of a Floating Charge was stated to be as follows:

The Company further undertook to procure that while the security was in force, amongst other things, that

The petitioners aver that when the Bank of Ireland and Argyll Enterprise Securities were created, the priorities which existed in favour of the Royal Bank Charge and the Bass Charge were not altered by the parties entering into a further instrument of alteration nor has this occurred subsequently.

On 27 December 1996 Messrs Munro, Solicitors, 53 Bothwell Street, Glasgow procured from Bass, trading as Tennent Caledonian Breweries, a letter in the following terms under the heading "Lewis Lloyd Holdings Ltd":

On the same day the said solicitors procured from the Royal Bank a letter in the following terms under the heading

Neither letter makes reference to any alteration to the existing priority of either of the Royal Bank Charge or the Bass Charge.

The petition sets out that questions have arisen as to the nature of the consent granted by the two letters quoted above. It is said that consent was necessary under the Royal Bank Charge, (first) for the grant by the borrower of any Standard Security and (second) for the grant of a Standard Security ranking in priority to the charge. The petition sets out that the Bass Charge has the same two-fold provisions. The petition further states that it has been argued on behalf of the Bank of Ireland and Argyll Enterprise that the unconditional consent to the grant of a Standard Security implied consent to its priority and that this interpretation has been resisted by the Royal Bank and by Bass. In the circumstances the petitioners have brought the petition to have the matter resolved by the court in terms of section 63 of the Insolvency Act 1986.

Petitioners therefore seek directions in relation to three questions as follows:

It remains only to notice that the petition was served upon each of the Royal Bank, Bass, the Bank of Ireland and Argyll Enterprise but that neither the Royal Bank nor Argyll Enterprise entered the process and that no submissions at the hearing were made on behalf of the petitioners. In their answers the Bank of Ireland posed two further questions but it was accepted that in the absence of the Royal Bank and Argyll Enterprise, neither of whom had notice of the questions, it would not be appropriate to seek directions in relation to them in the present petition.

It is convenient at this point to refer to the various statutory provisions of which counsel made mention in the course of their submissions on behalf of the Bank of Ireland and Bass.

Section 70 of the Insolvency Act 1986 provides that the expression "fixed security", for the purpose of receivership in Scotland,

Under reference to the Conveyancing and Feudal Reform (Scotland) Act 1970 and in particular sections 9 and 11 thereof, a grant of any right over an interest of land for the purpose of securing any debt by way of a heritable security shall only be capable of being effected at law if it is embodied in a standard security and that where a standard security is duly recorded, it shall operate to vest the interest over which it is granted in the grantee as a security for the performance of the contract to which the security relates.

Reference was also made to section 2(3) and 3(1)(a) of the Land Registration (Scotland) Act 1979 which permit the creation over a registered interest in land of a heritable security which shall be registrable, registration of which has the effect of vesting in the person registered as entitled to the registered interest in land a real right in and to the interest.

In relation to floating charges, provision is made by section 462 for it being competent under the Law of Scotland for an incorporated company for the purpose of securing any debt or other obligation incurred or to be incurred by the company to create in favour of the creditor in the debt or obligation a floating charge over all or any part of the property which may from time to time be comprised in its property and undertaking. Section 410(2) of the 1985 Act provides that any charge, which includes a floating charge, created by a company is, so far as any security on the company's property or any part of it is conferred by the charge, void against the liquidator or administrator and any creditor of the company, unless the prescribed particulars of the charge, together with a copy of the instrument by which the charge is created or evidenced, are delivered to or received by the Registrar of Companies for registration within 21 days of the creation of the charge. In terms of sub-section (3) in the event that a charge becomes void under the section, the money secured by it immediately becomes payable. Section 417(3)(e) requires that the Registrar of Companies shall enter in the Register of Charges,

It remains only to note that in terms of section 53(7) of the Insolvency Act 1986 it is provided that on the appointment of a receiver, the floating charge by virtue of which he was appointed attaches to the property then subject to the charge and that such attachment has effect as if the charge was a fixed security over the property to which it has attached.

There was no dispute that by reference to the foregoing statutory provisions the Bank of Ireland and Argyll Enterprise Securities granted by the Company vested a real right in each of the Bank of Ireland and Argyll Enterprise on 7 January 1997 and 9 January 1997 and that these dates were antecedent to the dates when the petitioners were appointed as receivers of the property of the Company then subject to each Charge and accordingly the date when each charge took effect as if it was a fixed security over that property.

Before considering the submissions for the two respondents it is necessary to set out certain further provisions of the Companies Act 1985 as amended.

Section 464 so far as material provides as follows:

The wording of sub-section (1)(a) creates what has been termed a negative pledge: see A.I.B. Finance Ltd v Bank of Scotland 1993 SC 588.

Section 466 so far as material provides as follows:

In the present case there is no dispute, as I understood it, that the Royal Bank Charge and the Bass Charge having been executed separately on 29 August 1996, each charge was "created" in terms of section 410 of the 1985 Act on that date. Each charge was thereafter timeously registered in the Register of Charges. While the Company, the Royal Bank and Bass entered into an agreement on 4 September 1996 which constituted an instrument of alteration in terms of section 466, it is not suggested that its terms insofar as it regulated the ranking of securities affecting the heritable subjects in Glasgow, have any bearing upon the issue which arises in this petition. It is of note however that the Agreement contains Articles which are so far as material in the following terms:

In the subsequent Articles further provision was made for the ranking and preference of the Bass Charge in priority to the Floating Charges in the event of a sale of the subjects and to the ranking and priority of the two Floating Charges one to the other in certain specified events.

These Articles follow upon a recital that the Company (Lewis Lloyd Holdings Ltd), the Royal Bank and Bass had agreed that notwithstanding the terms of the stand securities, bonds and the two Charges, their order of recording, registration or intimation or law to the contrary, "the said Standard Securities and the said Bonds and Floating Charges shall be ranked, preferred and postponed as follows".

Nor do I understand it to be in dispute that at the date when the Royal Bank charge and the Bass charge were executed and thus was "created" a floating charge over the Company's property, each of the instruments contained a provision which prohibited or restricted the creation of any fixed security or any other floating charge having priority over, or ranking pari passu with, the floating charge.

It is convenient at this point to take note of a submission on behalf of the Bank of Ireland to the effect that the heritable property at Campbeltown to which its Security related did not form any part of the property of the Company to which each of the Royal Bank Charge and the Bass Charge related. I am bound to say that I do not consider that this is a submission which properly arises under the questions posed, not least because it affects directly the interests of the joint receivers, who did not enter the debate, and might also affect creditors of the Company other than the security holders who elected to appear at the hearing. However, it suffices to say that the argument, as I understood it, was to the effect that the provisions of section 464 of the 1985 Act in its reference to all or any part of the company's property which was affected by the creation of the floating charge, which included property acquired after the date of the execution of the floating charge, did not apply to property acquired after that date in respect of which a third party acquired a real right of security for value, contemporaneous with, and as part of, the transaction for the acquisition of that property by the Company. In those circumstances there had been a "back to back" transaction of a kind which deprived the Company of all beneficial right of property in the subjects so that the Company could not retain any beneficial interest in the subjects thereafter and in particular had not done so at the date of crystallisation of the Royal Bank and Bass Charges. This submission was supported by reference to the speech of Lord Clyde in Sharp v Thomson 1997 S.C. 66. It is enough to say that I can find nothing in what was said by Lord Clyde to support this submission. Unlike the case of Sharp v Thomson where a seller of heritable property had only retained a bare title, having no right or obligation to do anything more as regards the subjects beyond the negative obligation of refraining from conveying them to anyone else, and indeed who no longer had the right of lawful disposal, in the present case the Company could only have granted a standard security if it already had an interest in the heritable subjects and it would have been entitled at any time to exercise a right of redemption of the security. I refer to section 12 of the Conveyancing and Feudal Reform (Scotland) Act 1970 and Schedule 3 to the Act.

In the end of the day the issue between the respondents centred about the question as to whether the Royal Bank Charge and the Bass Charge remained constituted as instruments each of which contained provision such as was mentioned in paragraph (a) or (b) of sub-section (1) of section 464, which remained effective after the grant of the Bank of Ireland and Argyll Enterprise Securities and their recording so that priority was conferred on each Charge over each Security.

Counsel for the Bank of Ireland, in opening her submissions, pointed out that in the normal course where a floating charge was created by a company there was a real risk that a standard security which was granted by the company subsequently would be constituted as a real right by recording on a date before the floating charge crystallised with the appointment of a receiver and so would rank in priority to the floating charge. Against this risk floating charge holders tried to protect themselves by recourse to the provisions of section 464(1) and (1A) of the 1985 Act as amended. But subsection (1A) only conferred priority on a negative pledge which remained effective at the date when the floating charge crystallised. Neither the Royal Bank Charge nor the Bass Charge contained a provision such as was mentioned in paragraph (b) of subsection (1). Thus it was only if the negative pledge in each Charge remained effective after the Securities were recorded that the general order of priority under section 464(4) ceased to prevail. There was a presumption that the general order of ranking would apply where a floating charge, notwithstanding that it was created before the standard security was recorded, only crystallised thereafter.

The terms of the Royal Bank letter were to be read as consenting to the grant of the two Securities and as confirming "non-crystallisation" of the Charge for a period of 21 days from the date of the letter. The terms of the Bass letter were to be read as consenting to the grant of the two Securities and as confirming that Bass had no intention of appointing a receiver and as an undertaking not to do so within 21 days of the date of the letter. The terms of the letters were thus to the same effect notwithstanding that the terms of the Royal Bank letter were qualified in the sense that the consent to the granting of the Securities only extended over the period of 21 days.

Counsel also pointed out that in the answers for Bass it is admitted that Bass knew that as a result of the transaction for the purchase of the subjects at Campbeltown, the Company would grant the Bank of Ireland Security and that the security subjects would become part of the property of the Company. It was also admitted that Bass believed, consistent with commercial practice and understanding, that in respect of the security subjects the Bank of Ireland security might well have ranked in priority to the Royal Bank and Bass charges. Since the terms of the negative pledges prohibited the creation of any subsequent fixed security by the Company, the Company would be unable to create such a fixed security without being in breach of the negative pledge and could not thereby defeat the priority of ranking conferred on the two Charges. However by giving consent to the grant of each Security and thus to its creation, the negative pledge cease to be effective by reason that it had been waived or dispensed with by each of the Royal Bank and Bass. As a result of giving such consent, the general order of ranking under sub-section (4) was reasserted so as to give the Securities, upon recording, priority over each of the Charges. However because the two Securities were not created as fixed securities for the purposes of the 1985 Act until they were recorded, it was necessary for the grantee in each to obtain from each chargeholder confirmation that they would not appoint a receiver within the period of 21 days after the date of the letter of consent. By giving their consent each of the Royal Bank and Bass became personally barred from appointing receivers under their Charge within that period.

In presenting this submission counsel argued that prior to the amendment of section 464 by section 140 of the Companies Act, and in particular in the absence of sub-section (1A), any breach of a negative pledge by a company by grant of a subsequent standard security which was thereafter recorded and so created as a fixed security for the purposes of the 1985 Act, would not have affected the validity of the standard security. Nor would such breach have altered the priority in order of ranking of any subsequent fixed security notwithstanding that it had been recorded before the date when the floating charge crystallised, in a question with the holder of that subsisting floating charge. Any observations to the contrary in the opinions in the A.I.B. Finance case were obiter.

The purpose of sub-section (1A), it was said, was to confer priority upon a floating charge which contained a provision such as was mentioned in sub-section (1)(a), in a question with a security granted subsequent to, but without the consent of, that subsisting charge holder. Otherwise sub-section (1A) did not alter the general priority established by the provisions of sub-section (4)(a) for fixed charges constituted as a real right by recording before the date when the floating charge crystallised.

In the whole circumstances, counsel contended that each letter of consent operated as express consent to the creation of the Securities and hence to according each security, upon recording, the general priority of ranking given by sub-section (4)(a). In the alternative, each letter expressly or by implication consented to the creation of the Securities so that once recorded the Securities would have priority in any question with the Royal Bank or Bass relative to the heritable subjects at Campbeltown. Being in general and unqualified terms, the consent granted by each of the Royal Bank and by Bass was habile to waive any negative pledge and ranking provision in favour of its Charge so far as it was prejudicial to the constitution of the Bank of Ireland Security as a fixed security having priority to the Charge.

It was also contended by counsel for the Bank of Ireland that nothing in the provisions of section 466 was applicable to the circumstances of the case even if as contended in the answers for Bass, the terms of the Bass Charge could be read as containing a provision such as was mentioned in sub-section (1)(b) of section 464. Section 464(1)(b) provided that an instrument creating a floating charge could contain provisions regulating the order in which the floating charge should rank with any other subsisting or future floating charges or fixed securities over that property or any part of it with the consent of the holder of any subsisting floating charge or fixed security which would be adversely affected, and section 466 more generally made provision for alteration of the instrument creating a floating charge only by execution of an instrument of alteration by the company, the holder of the charge and the holder of any other charge (including a fixed security) which would be adversely affected by the alteration. But she pointed out that unlike a floating charge which contained provisions as mentioned in sub-section (1)(a) of section 464, a floating charge which contained provisions as mentioned in paragraph (b) of that sub-section was not effective to confer priority in terms of sub-section (1A). Rather it only was effective to create an order of ranking which would affect future floating charges or fixed securities if there was a subsisting floating charge or fixed security and the holder of such subsisting floating charge or fixed security which would be adversely affected, had consented to that order of ranking. There being none such, there was thus no provision prohibiting or restricting any subsequent fixed security to which Bass could point, which was effective to change the order of ranking which would otherwise be determined in accordance with the provisions of sub-sections (4) and (5).

Counsel for Bass submitted in the first place that it was important to have regard to the requirements of Part XII, Chapter II of the Companies Act 1985 in relation to the registration of charges in Scotland. Section 410 rendered a charge void against any creditor of a company unless a copy of the instrument by which the charge was created, was delivered to or received by the Register of Companies within 21 days after the date of the creation of the charge. Section 417 was concerned with the publication of particulars of a floating charge which would allow for public notice of, amongst other things, those provisions which were provisions as mentioned in sub-section (1)(a) or (b) of section 464. For that public notice to be displaced would require the execution of and subsequent registration of an instrument of alteration in terms of section 466. Having regard to the terms of each of the Royal Bank Charge and the Bass Charge, it was plain that the Company could not have granted either of the Bank of Ireland Security or the Argyll Enterprise Security without the consent of the Royal Bank and Bass since each of the Charges contained a provision such as was mentioned in paragraph (a) of section 464(1). In relation to the Bass Charge, there was at the time of its creation no other subsisting floating charge or fixed security which could be adversely affected by it since both it and the Royal Bank Charge were granted on the same day. The provisions in the Bass Charge referred to above however constituted provisions regulating the order in which the Charge should rank with any future fixed security over the property of the Company created after the date of the Charge as was decided in the A.I.B. case. So far as the letter of consent was concerned, all that provided for was consent to the creation by the Company of a fixed security which did not offend against the restrictive effect of the negative pledge in the Bass Charge. Such breach would occur if the Company were to execute and register a fixed security which provided that it had priority over or ranked pari passu with the Charge. In any event, if the submissions for the Bank of Ireland were correct, once the right to their Security had been constituted as a real right, it would achieve priority of ranking over not only the Bass Charge but also the Royal Bank Charge. That was to disturb the order of ranking which was established by both Charges by virtue of the provisions of sub-section (1A) of section 464 and to alter those respective orders of ranking by means of a document, namely the letter of consent, which could not constitute an instrument of alteration in terms of section 466 since it was not a document to which either the Company or the other chargeholder was party. The fact that in the answers for Bass there was an admission made, in relation to commercial practice, did not serve to secure any alteration in the order of ranking as it existed in terms of the Bass Charge. The letters of consent had been secured by the grantee in the Bank of Ireland and Argyll Enterprise Securities. Insofar as the letters provided for a period of 21 days grace, this was no more than to enable the deed constituting the fixed security to be recorded upon which it was constituted as a real right without being rendered ineffective by prior attachment under either of the Charges. The letters, however, did not dispense with the order of ranking established by the provisions in either Charge or enable the fixed security to become a fixed security, the effect of which was to give it a priority of ranking over the floating charge in contravention of the provision in each Charge of the kind mentioned in paragraph (a). Likewise, looking to the provisions in the Bass Charge quoted above, counsel submitted that they also fell within the ambit of paragraph (b) of sub-section (1). In that event the normal order of ranking as set out in sub-section

As was observed in both the A.I.B. Finance case and in Sharp v Thomson, the concept of a floating charge is something alien to the principles of Scots law. It is therefore necessary to construe the provisions of both the Royal Bank Charge and the Bass Charge against the background of the relevant statutory provisions and the undisputed factual background. So far as the factual background is concerned, the Company created the Royal Bank Charge and the Bass Charge on 29 August 1996. The Bank of Ireland Standard Security and the Argyll Enterprise Standard Security were "created" for the purposes of section 464 on the dates when the creditor recorded the Standard Security and thus obtained a real right (see the A.I.B. Finance. case). The dates of recording were subsequent both to the dates when the two charges were created, but also to the date when the instrument of alteration between the Company, Royal Bank and Bass was executed and registered in the Register of Charges as the instrument itself bears. However, the dates of recording of the Securities were antecedent to the date of appointment of the petitioners under each of the Royal Bank Charge and the Bass Charge. It was only on the date of appointment that each charge attached to the property of the Company. It is not in dispute that by virtue of sub-section (4)(a) of section 464 of the 1985 Act that the Bank of Ireland Security and the Argyll Enterprise Security would have priority of ranking to each of the Charges, unless the order of ranking otherwise fell to be determined by any provision in that Charge of the kind such as is mentioned in paragraph (a) or (b) of sub-section (1) of the section 464. In the A.I.B. Finance case the court was concerned with the provisions of section 464 prior to amendments made by section 140 of the Companies Act 1989 coming into effect. In sub-section (1) the only amendment was to introduce the words "with the consent of the holder of any subsisting floating charge or fixed security which would be adversely affected" at the beginning of paragraph (b). Sub-section (1A) was added at the same time. Sub-section (3) was re-cast to make clear that the order of ranking was to be determined in accordance with the provisions of sub-sections (4) and (5) "except where it is determined in accordance with any provision such as is mentioned in paragraph (a) or (b) of sub-section (1)". In so amending these provisions of section 464, I do not consider that Parliament was making any substantial change to the rules as to the order of ranking previously existing in terms of the unamended section 164, except to provide in the case of a provision such as that mentioned in paragraph (b) that any provision regulating the order of ranking so far as it adversely affected any subsisting floating charge or fixed security was only effective if the holders of such securities had consented to that order of ranking, both as regards their charges and future floating charges or fixed securities over the property which was subject to the floating charge. Where however there are no subsisting charges or fixed securities when the instrument creating the floating charge is executed, there is no place nor necessity for provisions such as are mentioned in paragraph (b) since the holder of the floating charge is adequately protected by provisions of the kind mentioned in paragraph (a) and the ranking accorded to the charge by sub-section (1A) in relation to future securities.

In the A.I.B. Finance case a company executed a standard security in favour of the first party on the same day as they had executed a floating charge in favour of the second parties. The standard security was recorded in the General Register of Sasines the same day as the floating charge was registered in the Register of Charges. The floating charge was, accordingly, "created" in terms of section 410(5) of the 1985 Act on that date. It contained a clause which provided, inter alia, that the company was prohibited from creating subsequent to the date of the floating charge any fixed security or any other floating charge having priority over or ranking pari passu with the floating charge accepting any fixed security which might subsequent to the date of the floating charge be granted in favour of the Bank which should have priority over the floating charge. The argument centred about the proper construction of that provision. It was held to be a provision such as is mentioned in paragraph (a) of sub-section (1) of section 464. However in the course of his opinion, the Lord Justice Clerk at p.596 stated that on a proper construction of section 464(3) in its as yet unamended form, the order of ranking in section 464(4) could be displaced by either a negative pledge or by a ranking clause, that was to say, a provision which was one such as was mentioned in paragraph (b) of sub-section (1). In the course of his opinion Lord McCluskey considered the legislative history of section 164. He observed that sub-sections (1) and (3) of section 464 were in virtually the same terms as certain provisions of the Companies (Floating Charges and Receivers) (Scotland) Act 1972 though without reference to instruments of alteration, which were of course dealt with in section 466. At p.602 he said this:

He then considered the terms of section 5(3) of the 1972 Act which was in terms as similar to those in sub-section (3) of the 1985 Act prior to amendment. He continued:

These expressions of opinion, notwithstanding that they were given in respect of section 464 in its unamended form, are nevertheless, in my opinion, apt to assist in the meaning and purpose of the relevant provisions of section 464 as amended by the 1989 Act. In particular, they made clear that the floating charge may contain either a negative pledge within the meaning of paragraph (a) or a positive regulation of the order of ranking such as is mentioned in paragraph (b) of sub-section (1) of section 464. In my opinion it is significant that it is the company which by executing an instrument creates the floating charge and likewise it is the company which by executing and recording a standard security creates it as a fixed security for the purposes of section 464, as was held in the A.I.B. Finance case. The amendment effected by the insertion of sub-section (1A) did no more than give statutory force to the substance of the decision in that case, namely that a negative pledge did indeed confer a priority of ranking on the floating charge which it was intended to protect. Furthermore, in principle the rights of a creditor cannot be altered without his consent and a company cannot determine unilaterally to alter its creditors' rights with respect to ranking. The amendment to section 464(1)(b) which made it an express requirement that any provisions in a floating charge regulating ranking must have the consent of the holder of any subsisting floating charge or fixed security which would be adversely affected, did no more than bring that paragraph into line with section 466(1) which required any instrument of alteration to be executed by the company, the holder of the charge and holder of any other charge including a fixed security which would be adversely affected by the alteration. Any instrument creating a floating charge and any instrument of alteration which falls within section 466(4) must be registered timeously in the Register of Charges otherwise it is void against, amongst others, any creditor of the company. Public notice in the register of charges of the particulars of such instruments is an important part of the statutory scheme and the requirement extends to those provisions in an instrument of alteration which fall within section 466(4)(a) and (b), which in turn reflect the provisions of section 464(1)(a) and (b). Accordingly if a company has created a floating charge which includes provisions such as mentioned in paragraphs (a) or (b), it cannot subsequently grant a further security which would achieve a priority of ranking which would adversely affect any subsisting floating charge by displacing the order of ranking regulated by those provisions unless and until the company and the holder of those charges have consented and executed an instrument of alteration which would vary the ranking or otherwise regulate the order of the ranking of the subsisting floating charge relative to the further security whether that security has yet to be or has already been granted. It would then be the company's duty to register the instrument of alteration timeously in the register of charges otherwise it would be rendered void as against the consenting holders of the affected charges as creditors of the company (section 466(4), section 410(2) and section 415). This accords with what was said by Lord McCluskey in the A.I.B. Finance case in the passage cited above. I would observe that this procedure was followed by the Company, the Royal Bank and Bass as affected holders in terms of their respective Charges in relation to the standard securities granted by the Company over the heritable subjects in Glasgow.

While I was not addressed in any detail on the provisions of either the Royal Bank Charge or the Bass Charge, I consider it is essential to examine them to determine to what extent each contains provisions of the kind mentioned in paragraphs (a) and (b) of sub-section (1).

I turn first to the Royal Bank charge, the relevant parts of which have been quoted before. Looking to declaration (Primo) and undertaking (B), I consider that read together, they contain provisions which prohibit or restrict the creation of any fixed security having priority over, or ranking pari passu, with the Charge other than a fixed security in favour of the Royal Bank which is created after the execution of the Charge and in priority to any other floating charge and that in terms of the declaration the Company was prohibited from creating any fixed security except as previously agreed in writing by the Bank as one such as is mentioned in paragraph (a). It is accordingly a provision such as is mentioned in paragraph (a) and the order of ranking is therefore provided by sub-section (1A). Furthermore, I consider that the last part of declaration (Primo) and its reference to "no such fixed security" can only refer to a fixed security which has been created with the previous agreement in writing by the Bank and that the provision that no such fixed security shall "except with the previous agreement of the Bank in writing" rank in priority to or equally with the Charge requires further that agreement is not only given to the creation of the fixed security, but also to its ranking if that ranking were to depart from the order of ranking set out in the earlier part of the declaration, namely that the Charge should rank in priority to any future fixed security. For a fixed security to be executed in conformity with and not in breach of those provisions, it was necessary that consent in writing be given not merely to the creation of the fixed security, but also to an alteration which displaced the order of ranking prescribed in declaration (Primo). In my opinion, that would only be effected if the Company, the Royal Bank and Bass, as the holder of a Charge which would be affected by the alteration, executed an instrument of alteration to vary the order of ranking prescribed by sub-section (1A) of section 464. While the Royal Bank, in terms of its letter of consent, must be held to have previously agreed in writing to the creation of the Bank of Ireland Security and the Argyll Enterprise Security, its consent in the absence of any instrument of alteration cannot be read to extend to having displaced the order of ranking provided by sub-section (1A). The letter could not have been presented or registered as an instrument of alteration, since the Company was not party to it. In any event, it would have been void against the Bank as it was not registered timeously, even if otherwise it could be regarded as an instrument of alteration. Counsel for the Bank of Ireland could not point to anything in the letter which constituted agreement as to what form any alteration in the order of ranking was to take, namely whether the Bank had agreed that the fixed security should rank in priority to or whether it had agreed that the fixed security should rank equally with the charge. In these circumstances, I am of the opinion that the letter of consent had no effect as regards the ranking of the Royal Bank Charge relative to the Securities in favour of the Bank of Ireland and Argyll Enterprise. In particular, the letter of consent by the Royal Bank did not have the effect of giving priority to the Bank of Ireland and Argyll Enterprise Securities relative to the Royal Bank Charge. The effect of the letter of consent written by the Royal Bank at best was no more than to give agreement in writing for the creation by the Company of standard securities over the Campbeltown subjects in favour of the Bank of Ireland and Argyll Enterprise whose ranking did not take preference over the Charge and to give an assurance that within the period of 21 days from the date of the letter, the Bank would do nothing to prevent the Bank of Ireland and Argyll Enterprise from constituting the right to the security a

While the provisions of the Bass Charge, which are quoted above, take a different form from those in the Royal Bank Charge, nevertheless I consider that they have the same effect. There is a prohibition from creating subsequent to the execution of the Bass Charge any fixed security having priority over or ranking equally with the Floating Charge. That prohibition constitutes a negative pledge such as is mentioned in paragraph (a), and in terms of sub-section (1A) it is effective to confer priority on the Charge over a fixed security created after the date of the instrument. Counsel for the Bank of Ireland conceded that if the Company created a subsequent fixed security in breach of the prohibition such a fixed security even when constituted as a real right, could not be brought within the order of ranking set out in sub-section (4)(a). Undertaking (B) does no more than enable the Company to create a security upon part of its property subsequent to the charge with the written consent of the Company insofar as that fixed security does not displace the order of ranking which arises by virtue of the prohibition against creating a fixed security which displaces that order of ranking. Mere written consent to the creation of a subsequent fixed security by the Company cannot carry with it any displacement of the order of ranking which arises by virtue of the terms of sub-section (1A) in an instrument which has been registered in the Register of Changes and which remains unaltered as regards that order by any instrument of alteration in terms of section 466. Accordingly, as with the Royal Bank

Charge, I am of the opinion that the letter of consent had no effect as regards the ranking of the Bass Charge relative to the Securities in favour of the Bank of Ireland and Argyll Enterprise, and in particular the letter did not have the effect of giving priority to these Securities relative to the Bass Charge. In each Charge the provision contained in it, being a provision such as is mentioned in section 464(1)(a) of the 1985 Act, remained at all times up to the appointment of the petitioners effective to confer priority on the charge over each Security, albeit the order of ranking had been otherwise altered by the Minute of Alteration in September 1996.