GHANA LAW FINDER

Self help guide to the Law Easy to use Case and Subject matter index and more tonykaddy@yahoo.co.uk

HOME UNIVERSITY OF GHANA LAW JOURNAL

PRIORITY BETWEEN A DEBENTURE HOLDER SECURED BY A FLOATING CHARGE

MILLS J. E. A

Borrowing by companies to finance their operations is certainly not unusual in Ghana. Indeed,
given the prevailing economic conditions and the periodic downward "adjustments" in the
value of the cedi, we should not be surprised to see many more companies, especially those
which need to import foreign "inputs" for their operations, resorting to borrowing, from either
the financial institutions or private individuals, in order to discharge their financial obligations.

One of the popular ways of raising corporate finance through borrowing, especially on a long-
term basis, is by the issue of debentures1 to lenders. Technically, nothing prevents a company
from borrowing without creating any charge over its property.2 However, pressure from lenders
and the realities of today's money markets are such that not even well-established and
prosperous companies can hope to attract the desired volumes of credit by resorting to the
issue of "naked" debentures. Consequently, the creation by companies of charges on their
properties to secure their debentures has now become more the rule than the exception.

The usual charges created by companies are of two kinds: a fixed charge and a floating
charge.3 A fixed charge is a normal legal or equitable mortgage over specific assets of the
company and it usually precludes the company from dealing with such assets without the
consent or permission of the holders or their trustees.4 The holder of a fixed charge takes
precedence over all other creditors and so the enforcement of this type of charge usually
creates no problem for its holder. A floating charge, on the other hand, is an equitable
mortgage over the assets of the company (usually the stock-in-trade), but, unlike a fixed
charge, it allows the company to deal with the charged assets in the ordinary course of its
business without any interference by the holders. This concession to the company, however,
ceases to operate when the charge becomes crystallized or fixed.

It must be apparent from this brief description of the floating charge that it is not a "normal"
equitable mortgage. As we shall see, it possesses "certain peculiarities",5 and the ability of its
holder to realize the assets secured thereby is dependent on a number of factors.
Consequently, as evidenced by the judgment of Taylor J., (as he then was) in Republic v.
James Town Circuit Court Judge; Ex Parte Annor,6 the floating charge is not easy to enforce.
Indeed, after examining the peculiar incidents of the charge, the Review Committee on
Insolvency Law and Practice for England and Wales was driven to conclude that the charge
"has serious disadvantages and is capable of working great injustice",7 and also to wonder
how "such a device should ever have been invented by a Court of Equity."8

One issue which has been a "fruitful source of litigation"9 under English law—and will soon be
under our own—is whether the holder of a floating charge can legally prevent the company's
judgment creditor from levying execution on assets covered by the charge. Unfortunately,
despite Taylor J.'s valiant efforts in the James Town case to brighten this dimly-lit area of our
law, we cannot help but agree with Pennington's observation that: "the rules governing
competing claims to priority between judgment creditors and debenture-holders secured by a
floating charge are somewhat vague."10 The purpose of this article, therefore, is to help
illuminate this area of our law by attempting to formulate principles and rules which should
guide our courts in the determination of issues relating to such claims. Our discussion will,
therefore, cover three main areas. The first part will examine (a) the historical reasons leading
to the evolution of the charge by the courts of Equity; and (b) the peculiar nature of the charge;
the second segment will consist of a detailed examination of the relevant authorities aimed at
determining the exact nature and scope of the rights of the holder of such a charge; while the
third and final part will deal with what, applying the rules discerned from our examination of the
authorities, we perceive as the appropriate rules and principles to be applied by our courts in
the determination of such issues.

PART I

a. Reasons for the Creation of the Charge

In order to understand the exact nature of the present-day floating charge, especially the
peculiar incidents associated with it, it is necessary for the student of company law to bear in
mind the specific needs that this charge was evolved to satisfy. To this end, the following
explanation by Gower11 is most instructive:

"At first sight one would suppose that a sole trader or partners, being personally liable would
find it easier than a company to raise money by borrowing. In practice, however, this is not so
since a company is often able to grant a more effective charge to secure its indebtedness.
The ingenuity of equity practitioners led them to the evolution of an unusual but highly
beneficial type of security known as the floating charge; i.e. a charge which floats like a cloud
over the whole assets from time to time falling within a generic description, but without
preventing the mortgagor from disposing of these assets in the usual course of business until
something occurs to cause the charge to become crystallized or fixed. This type of charge is
particularly suitable when a business has no fixed assets, such as land which can be included
in a normal mortgage, but carries a large and valuable stock-in-trade. Since this stock needs
to be turned over in the course of business a fixed charge is impracticable because the
consent of the mortgagee would be needed every time anything was sold and a new charge
would have to be entered into whenever anything was bought. A floating charge obviates these
difficulties; it enables the stock to be turned over but attaches to whatever it is converted into
and to whatever new stock is acquired."

b. Nature of the Charge

That the floating charge was specially created to satisfy these needs explained above is
evident from the Companies Code which defines a floating charge as "an equitable charge
over the whole or a specified part of the company's undertaking and assets both present and
future, so however that the charge shall not preclude the company from dealing with such
assets until . . .",12 and from the following oft-quoted description by Lord Macnaghten:13

"A floating security is an equitable charge on the assets for the time being of a going concern.
It attaches to the subject charged in the varying condition in which it happens to be from time
to time. It is of the essence of such a charge that it remains dormant until the undertaking
charged ceases to be a going concern, or until the person in whose favour the charge is
created intervenes. His right to intervene . . . may be suspended by agreement. But if there is
no agreement for suspension, he may exercise his right whenever he pleases after default."

The charge, he further explains, "is ambulatory and shifting in nature, hovering over and so to
speak floating with the property which it is intended to affect until something occurs or some
act is done which causes it to settle and fasten on the subject of the charge within its reach
and grasp."14

As intended by its creators, therefore, the most important incident of the charge, the one which
distinguishes it from a fixed charge and upon which all other incidents of the charge seem to
hinge, is that notwithstanding its existence, the company is allowed to deal with the assets
charged in the ordinary course of its business without reference to the holder. Thus, the
company can sell, exchange or otherwise deal with those assets in any way it thinks fit,
provided it is in the ordinary course of its business.

Another point worth noting about the charge is the informality that surrounds its creation.
Apart from the requirement that a debenture must be in writing,15 the Code does not insist that
the charge should take any particular form. Just as it is under English law, it is for our courts to
determine in each case whether it is a fixed or a floating charge. ROMER, L.J.,16 however,
offers our judges guidance on how this determination is to be made. He suggests:

"I certainly think that if a charge has the three characteristics that I am about to mention it is a
floating charge. (1) if it is a charge on a class of assets of a company present and future; (2) if
that class is one which, in the ordinary course of the business of the company, would be
changing from time to time; and (3) if you find that by the charge it is contemplated that until
some future step is taken by or on behalf of those interested in the charge, the company may
carry on its business in the usual way as far as concerns the particular class of assets I am
dealing with."

PART II—THE RIGHTS OF A HOLDER OF A FLOATING CHARGE

A Look at the Authorities

The Ghanaian rules governing the rights of the holder of a floating charge are to be found in
the Companies Code, 1963, Act. 179 and "such rules of equity and of common law applicable
to companies . . . except so far as they are inconsistent with the provisions"17 of the Code.
Let us now proceed to examine these sources of law.

Case Law

One of the first cases to be decided under our Code was that of George Cohen (W.A.) Ltd. v.
Comet Construction Co. Ltd.: Ghana Commercial Bank (Claimants),18 in which Edusei J. (as
he then was) was called upon to determine the exact nature of this type of charge and the
rights of its holder.

The brief facts of the case were as follows: In June 1964, George Cohen (W.A.) Ltd. obtained
judgment in the High Court against Comet Construction Co. Ltd. for a certain sum of money.
Not having received payment, George Cohen (W.A.) Ltd., issued a Writ of fi:fa: against two
vehicles of the judgment debtors. The sale of these vehicles was scheduled for July 6, 1966.
When the Ghana Commercial Bank became aware of this fact, they interpleaded on the
ground that by virtue of a debenture dated 1 February, 1963 created in their favour by the
judgment debtors, the said vehicles, among other properties of the execution debtors, were
secured to them.

The following facts were established by the Court; First, the type of debenture in issue was
one secured by a floating charge; second, a receiver and manager of the assets charged in
the debenture had been appointed on August 12, 1963, by the claimants in accordance with
the terms of the debenture, and notice thereof had appeared in the Commercial and Industrial
Bulletin of January 10, 1964; and third, the particulars of the said debenture were registered
with the Registrar of Companies on October 4, 1963, a period of almost 30 months after the
creation of the charge.

The question before the Court was whether, on these facts, the execution creditor or the
claimants, Ghana Commercial Bank, had a prior claim to those vehicles. Quoting from Charles
worth's Company Law19 and Gower's Company Law20 the learned judge correctly stated the
following as the salient principles governing the floating charge:

1. Unlike a fixed charge, a floating charge does not fasten on any definite property, but is an
equitable charge on property which is constantly changing;

2. The charge allows the company to continue to deal with that property in the ordinary course
of business;

3. If the holder, on the happening of some event stated in the debenture takes steps to have
the charge crystallized, it then becomes specific or fixed and the mortgagor loses his right to
deal with the assets; and

4. Crystallization occurs, inter alia, when a receiver or manager is appointed.

Applying, therefore, the ratio decided in the case of Evans v. Rival Granite Quarries Ltd.21 the
learned judge correctly ruled that, by reason of the appointment of a receiver by the claimants
well before seizure by the execution creditors, crystallization of the charge preceded the issue
of the Writ of fi. fa, and therefore, the claimants had a prior claim to those vehicles.

As already indicated, this ruling by the learned judge is in accord with the relevant provisions
under Section 87 of our Code, even though he did not advert to this section in his judgment.
There are, however, two rulings made by the learned judge in the case, which, it is respectfully
submitted, are at variance with the provisions of the Code. The first is the following opening
statement by the learned judge in relation to the rights of the holder of a floating charge:

"This question compels me to examine the exact nature of the rights of the holders of such a
debenture. That the debenture, if valid, undoubtedly creates a charge on the assets of the
company is now well established ever since: See Re Standard Manufacturing Co. and Re
Opera Ltd. These cases decide that such charges prevail as against an execution creditor if
the debenture is valid."22

This statement, innocuous as it may seem, it is submitted, is misleading and not an accurate
interpretation of the Code, in so far as, taken on its face value, it purports to suggest that the
creation of a valid debenture simpliciter vests a right in its holder over the charged assets.
Little wonder that this dictum was to be the subject of adverse comment by Taylor J. (as he
then was) in a later case. 23

Even though, through his subsequent amplification of this statement, Edusei J. was to redeem
himself, it would appear that that attempt was not enough to erase the erroneous impression
thereby created. That statement, as we see later, constituted a trap which the unwary Circuit
Court Judge in the James Town case could not avoid. Luckily, however, Edusei J. did not apply
this dictum in deciding the case before him. Another criticism that may be levelled against
Edusei J.'s judgment was his suggestion that the case of Davey & Co. v. Williamson & Co. Ltd,
Richards Claimant supported the contention of the claimants, Ghana Commercial Bank.24 We
join issue with the learned judge on this score, not because he incorrectly stated the ratio
decidendi of the Davey case, but only because, as we show later, it has long been established
under English law that the Davey case is bad in law and should not be followed.

Much more serious and unsupportable, however, is the learned judge's ruling on the question
as to whether or not registration of the charge was necessary. Incidentally, Section 107 of the
Code provides that every charge created by a company after the commencement of the Code
shall be void as security on the property charged unless the particulars of the charge are
registered with the Registrar of Companies within 28 days after its creation.

In spite of the fact that registration of the particulars of the charge was effected almost 30
months after creation, the learned judge ruled that the charge was not void. In so holding, the
learned judge first referred to Section 6 of the Companies Code, which he interpreted to mean
that banking companies were in no way governed by the provisions of the Code. According to
him, such companies are governed only by special pieces of legislation governing their
activities. And since he could find in the Bank of Gold Coast Ordinance of 195225 and the
Ghana Commercial Bank (Amendment) Ordinance, 195726 no specific legal obligation on
banks to register their debentures, as is required under the Code, non registration of the
charge, he ruled, did not affect its validity.

It is submitted, with respect, that the learned judge's interpretation of Section 6 of the Code
was wrong. Section 6 of the Code, it is humbly suggested, does not mean that all the
provisions of the Code are inapplicable to companies specialising in the businesses specified
thereon. The provisions of the Code, it is submitted, are inapplicable to such companies only
to the extent that those provisions are inconsistent with the provisions of any special legislation
governing the operations of such companies. So rather than argue that, because there is no
express provision in those pieces of legislation requiring registration, such companies
therefore do not have to register their debentures, he would have been perfectly correct if he
had stated that he had found an express provision in the special legislation exempting such
companies from registration.

To conclude, therefore, that in the absence of any express provision requiring registration,
banking companies are thus exempt is to misinterpret our law. Interestingly enough, Section
46 of the Banking Act, Act 339, to which Taylor J. referred in the James Town case states in
very clear terms as follows:

"This Act shall be in addition to the Companies Code, 1963 (Act 179) and shall not, except
otherwise as expressly provided in this Act derogate from the provisions of that Code."

But even if Edusei J.'s interpretation of Section 6 was correct, it is still submitted that he was
wrong to rule that the non-registration of the charge did not affect its validity. This is because
the duty of registration spelt out in Section 107 of the Code relates to the creator of the charge,
in this case, Comet Construction Co., a non-banking company, and not to the beneficiary, the
Ghana Commercial Bank. Thus the failure to register within the stipulated time rendered the
debenture null and void. Annan J. (as he then was), therefore clearly hit the nail right on the
head when in the case of Ashanti Curls and Lumber Producers Ltd. v. Management
Committee of Ghana Timber Marketing Board27 he observed that:

"by virtue of Sections 107 and 111 of Act 179 the statutory obligation to register charges
placed on a limited liability company is not nullified merely because the company chooses to
transact business with a body not subject to the Code. When a limited liability company
creates a charge on its property by way of legal mortgage, the other party to that transaction
may be an individual or another limited liability company or a statutory corporation like the
defendants, and whatever the character of that other party the requirement for registration
under section 107 of Act 179 still stands and is not affected by the nature of the legal
personality with which the limited liability company chooses to transact business. Section 107
does not place any duty on a statutory corporation to register charges created by it but then it
does not exempt from registration charges created by a limited liability company in favour of a
statutory corporation."

In the light of the foregoing, we cannot help but agree with Taylor J. that this case was wrongly
decided, and consequently, it was wrong for the learned Judge to have ordered the release of
the vehicles from attachment.

Luckily for students of company law, in the subsequent case of Republic v. James Town Circuit
Court Judge; Ex Parte Annor,28 Taylor J. (as he then was) succeeded brilliantly in repairing
the damage done by Edusei J. This was another High Court case whose facts were similar to
those in the George Cohen case: Judgment obtained by the landlord of the business premises
of a company for arrears of rent, mesne profits and costs in respect of those premises not
having been satisfied, the landlord took in execution under a writ of fi. fa. certain assets of the
company. These assets, which included some of the company's factory equipment were to be
auctioned. The Ghana Commercial Bank, claiming to be the holder of an unregistered
debenture with a floating charge over the stock-in-trade and factory equipment of the
company, interpleaded. A clause in the debenture provided as follows:

"If executions shall during the continuance of this security have been levied against the said
equipment of the [company] under any judgment at law then and in any such case, it shall be
lawful for the bank, its servants or agents without previous notice to the customer to seize and
take possession of any of the said equipment included in the security in whatever place or
places they may happen to be and after the expiration of five (5) clear days from the day of
seizure may sell the said equipment by public auction or private contract on or of the said
premises and retain of the proceeds so much of the said principal sum and expenses which
the bank may incur as aforesaid and the expenses of sale and also any rent, rates and taxes
which the bank may pay in respect of the premises where the said equipment may be and the
surplus (if any) shall be paid to the customer."29

A motion filed by the landlord execution creditor before the Circuit Court seeking the rejection
of the bank's claim was dismissed on the grounds that (a) by virtue of Section 6 of the
Company's Code and Section 46 of the Banking Act, 1970 non-registration of a debenture
created by a company in favour of a bank did not render the debenture void; and (b) the rights
of debenture-holders prevailed over those of execution creditors. The Circuit Court therefore
ordered that the properties seized should be released from attachment and the landlord
execution creditor should pay the auctioneer's costs.

Dissatisfied with this ruling, the landlord execution creditor applied to the High Court for
certiorari to quash the Circuit Court's decision and for such further orders as the Court might
see fit. Taylor J. overruled the decision of the Circuit Court, holding, inter alia, that (a) the
mere existence of a floating charge does not vest any rights in the holder until there is
crystallization and (b) that the non-registration of a debenture created in favour of a banking
company renders it null and void. He therefore granted the certiorari.

One of the main conclusions arrived at by Taylor J. in the case was that—

"On a consideration of the case law I find that it is not completely correct to hold that the rights
of debenture-holders in a floating charge prevail simpliciter over those of execution
creditors."30

With this statement, Taylor J. put to rest the principle supposedly established by Edusei J. in
his opening statement in the George Cohen case, and upon which the Circuit Court Judge had
confidently relied.

But the question we need pose is this: Is the learned Judge's conclusion an accurate
exposition of the case law? Unfortunately, as Taylor J.'s judgment in the James Town case
revealed, there is a dearth of Ghanaian decided cases on this issue. But, as the same judge
was quick to point out, there is under English law a long list of decided cases31 dating back to
the late nineteenth century, dealing exhaustively with this issue. In all these cases except
one,32 which went against the grain, the English courts have consistently applied the principle
that a holder of a floating charge acquires no rights to the company's assets except upon
crystallization of the charge. In other words, the mere creation of a floating charge does not
thereby immediately vest any rights in its holder over the company's asset. While the decided
cases establish the principle that a valid floating charge creates a charge on the company's
assets, they nevertheless emphasize the point that such a charge is ambulatory, shifting in
nature and remains dormant until crystallization.33

It can thus be seen that, as correctly interpreted by Taylor J., the case law position is that the
rights of the holder of a floating charge cannot "prevail simpliciter over those of execution
creditors."34 The position taken by English judges on this issue, when examined in the context
of the history behind the creation of the floating charge, makes perfect sense. To hold
otherwise would amount to defeating the main aim behind the creation of the charge, namely,
to assist a company with no fixed assets but carrying a large and valuable stock in trade, to
obtain credit by creating over its "circulating assets" a type of mortgage which permit the
company to dispose of such assets in the normal course of business.

The Davey Case

As already mentioned, the only case which seems to suggest that the rights of debenture-
holders in a floating charge prevail simpliciter over those of execution creditors is that of Davey
& Co. v. Williamson & Son Ltd.

This case, described by Taylor J. as "a somewhat unsatisfactory decision",35 and the subject
of severe criticism by some English judges, should normally attract no comment other than
that it was wrongly decided. We think, however, that a brief analysis of the case is appropriate
here for two reasons. First, the principle supposedly established by Edusei J. in the Cohen
case and upon which the Circuit Court judge relied to give his ruling the James Town case, can
be traced directly to this case. Secondly, an examination of the case itself clearly shows that
Lord Russell was only attempting to follow the trial blazed by his predecessors, even though,
thanks to his having followed the wrong directions, he ended up going in the opposite
direction.

The issue in the Davey case, in the judge's own words, was "whether the rights of the
claimant, claiming for himself and other holders of debentures of the defendant company (the
judgment debtors), to certain goods seized under a writ of fi. fa by the sheriff prevailed over
the rights of the plaintiffs, who are the execution creditors",36 even though the charge had not
crystallized. The learned judge held that the rights of the debenture-holders prevailed against
those of the execution creditors. Explaining the grounds of his decision, the learned judge
observed:

"It may seem hard upon the execution creditors that they should not be able to realize their
judgment for the debt incurred in supplying trade goods for the purposes of the company's
business, and that they should be met by claims of debenture-holders of which they had no
knowledge or public means of knowledge, and that such debenture-holders should be allowed
to claim as theirs goods in the apparent control of the company, and upon which possibly, or
indeed probably, credit had been given to them. But these are matters which concern the
judgment and action of Parliament. We must determine the rights of litigants in conformity with
what we believe to be the law."37

In the end the judge ruled: "In our judgment, the rights of the debenture-holders in this case
prevail against the execution creditors."38 In so ruling, the learned judge claimed to have
relied on the principle supposedly established in two cases: In Re Standard Manufacturing Co.
and Re Opera Ltd.39

But did these two cases relied upon by Lord Russell actually establish the supposed
principle? Let us examine these two cases. In Re Standard Manufacturing Co.40 the facts
were that the sheriff had in his possession goods and chattels of a company over which he
had levied execution on behalf of the company's judgment creditors. Before he could sell the
goods, however, some holders of the company's floating debentures had receivers appointed,
and eventually the company was liquidated. All the assets of the company in the possession
of all parties (including the sheriff) were subsequently sold. The question which arose was
whether the debenture-holders or the execution creditors were entitled to priority in payment. It
was held that since crystallization, i.e. the appointment of receivers and the eventual
liquidation of the company, preceded the sale of the company's assets, the debenture-holders
were entitled to priority over the execution creditors.

The facts of Re Opera, Ltd.41 were quite similar. At the time of the presentation of a petition
for the winding up of a company, the sheriff was in possession of goods of the company which
he had seized on behalf of the company's judgment creditors under writs of fi. fa. These
goods were covered by floating charges created by the company. Subsequent to the
presentation of the winding-up petition, the sheriff gave in possession of the goods and, a
winding-up order having been made, they were sold by the official liquidator, who retained the
proceeds. The sheriff then took out a summons against the liquidator and the debenture-
holders claiming priority in the payment of the judgment debts. The court held that since
crystallization of the floating charges preceded the sale of the assets, the execution creditors
were not entitled to priority in payment out of the proceeds of the sale of those assets subject
to the charges, as they claimed. Stating the authority for his ruling, Lindley, L. J. explained:

"After the decision in Re Standard Manufacturing Company, it seems tolerably plain and
settled that the rights of the holders of debentures must prevail against the execution creditors
at least before the sale."42

It is clear from the foregoing analysis that these two cases cannot be said to have established
the principle attributed to them by Lord Russell. Romer, L. J., in a later case,43 took pains to
explain the rationes decidendi of those two cases as follows:

"Those were cases of execution creditors, and in both (cases) the winding up of the company
commenced before the sheriff sold, and therefore, before the execution was completed . . . in
other words, before the assets seized by the execution creditors had been completely dealt
with so as to give any rights therein to the creditors."

In Evans v. Rival Granite Quarries Ltd.,44 Fletcher-Moulton, L.J. also took the opportunity to
set the records straight. He noted:

"I have read all the cases, two of which, In re Standard Manufacturing Co. . . and In re Opera .
. . were placed in the forefront as having the authority attaching to decisions of the Court of
Appeal and as establishing his position. In my opinion neither case helps him at all. They were
both cases of execution, but no distinction can be drawn for this purpose between execution
and garnishee proceedings. The sheriff had seized goods of the company, over which there
were floating charges in the shape of debentures; the debenture-holders claimed the goods as
being subject to the charge and claimed to be possessed of an equity of a higher nature than
the rights of the execution creditor. . . . But in each of these cases there is the all-important fact
that before the sale of the goods the debenture-holders turned their floating charge into a fixed
charge affecting the goods themselves. . . . When in these cases the goods were seized in
execution, the goods were not by such seizure fully alienated from the company (for the
company might have paid out the execution) so that time was left for the rights of debenture-
holders to develop into a fixed charge on the goods. This was effected before the sheriff could
sell, and, therefore, the goods could only be dealt with subject to the equities of the debenture-
holders . . . Neither case justifies the contention that the mere existence of a debenture is an
answer to the claim of a judgment creditor that his execution should be allowed to proceed or
that he is entitled to a garnishee order absolute."

Of the Davey case itself, the learned judge was to say:

"This was a very peculiar case . . . I must confess that I have great difficulty in understanding
the ground of the decision.45

Desirous of quickly repairing the damage done, the learned judge continued:

We are, however, not bound by that decision, and if it means that the mere existence of the
debenture was an answer to the claim of the execution-creditor, it was in my opinion wrongly
decided." 46

Since the Evans case, the English courts have come to accept the Davey case as a bad
precedent which ought not to be followed. The Davey case is therefore an open trap which the
Circuit Court judge in the James Town case could have easily avoided if he had been more
careful in his examination of the case law. Taylor J.'s rejection of the Circuit Court Judge's
ruling on this score is therefore perfectly justified.

Statutory Provisions

Section 87 (1), of the Companies Code, as already noted, allows a company, notwithstanding
the charge, to deal with such assets in the ordinary course of its business, until the
occurrence of any of the events listed thereunder. Section 87 (2) then provides that:

"on the happening of any such events the charge shall be deemed to crystallize and to
become a fixed equitable charge on such of the company's assets as are subject to the
charge."

The combined effect of these provisions is that until crystallization the holder acquires no rights
to the companys' assets. Thus under both the Code and the relevant "case law", the mere
existence of a floating charge does not vest any rights in the holder. In other words, until there
is crystallization the position of the holder can be likened to that of an unsecured creditor.

That Taylor J.'s brilliant and well-reasoned judgment in the case immensely contributes to our
understanding of this area of our company law is undisputed. We must nevertheless express
our dissatisfaction with the learned judge's total reliance on English case law to resolve the
issue of priority without even a passing reference to the relevant provisions in Section 87 of the
Companies Code. In so far as the learned judge, by his ruling, purported to hold out the case-
law as the only relevant source of law, his ruling, it is humbly submitted, is rather misleading.
As already indicated, the Code constitutes the primary source of our company law. The rules
of equity and of common law, i.e. the case law applicable to companies, are only secondary
sources of law. Where, therefore, as in the James Town case, there exist statutory provisions
on an issue, our Courts are in duty bound to apply them. Even if, as in the James Town case,
those statutory provisions merely codify the case law,47 that fact, it is suggested, must first be
acknowledged before proceeding to apply that case law. It should be remembered that, to
students of law, the question of what law to apply is more important than the decision reached
by the court. In all legal matters the means should justify the end and not vice versa.

Crystallization

One point which can be gleaned from the foregoing discussion is that the holder of a floating
charge acquires rights to the charged assets only from the moment that the company loses its
right to deal with those assets. In other words, for as long as the company retains the right to
deal with its assets, the judgment creditor can levy execution on those assets and eventually
sell them to defray his debts without any interference by the holder of the charge. This event,
on the occurrence of which the company's rights in the assets are automatically transferred to
the debenture holder, is known as "'crystallization". The pertinent question then is, what events
amount to crystallization of the charge? Our Code contains detailed provisions on this issue,
but in order to appreciate their import more fully, an excursion through English common law is
necessary.

English Law

It is now well settled that a floating charge crystallizes in any of the following ways:

1. Upon the commencement of the winding up of the company. As Gower explains, "no
intervention by the debenture-holders is necessary. The charge automatically crystallizes
because the licence is subject to the implied condition that the company carries on
business;"48

2. Where there is a default by the company and the holder, pursuant to a power in that behalf
in the debenture, appoints a receiver or manager;49

3. Where a receiver is appointed by the court on the application of the holder.

Appointment of Receiver by the Court

Normally, the courts will appoint a receiver or manager on the application of holder of a floating
charge where the security has become enforceable. But even where the security has not
become enforceable, English courts have a general discretionary power to protect a
mortgagee from losing the property charged with the payment of a debt. Thus the English
courts may appoint a receiver or manager on the application of the holder where there is
reason to believe that the holder's security is "in jeopardy". They have in fact done so in the
following cases: (a) when company's works were closed and creditors were threatening
actions;"50 (b) when execution was actually levied by a judgment creditor;51 (c) where a
creditor's winding up petition was pending and compulsory liquidation was imminent;52 and

(d) where the company purposed to distribute its reserve fund, which was its only asset,
among its members.53 In one case, however, the court refused to regard the holder's security
as being in jeopardy when the company was a going concern, was not being pressed by its
creditors, and there was no risk of its assets being seized by its creditor; the holder's only
argument being that the security left was insufficient to discharge the charge.54

Two points are worth noting about the exercise of this discretionary power by the English
courts: it is difficult to predict, with any degree of success, the reaction of the courts in any
given case, since the courts themselves are yet to offer any clear-cut guidelines on when this
power will be used. Second, in certain cases when the power has been exercised in favour of
a holder, the courts have done so with reservations. For example, in Makins v. Percy Ibotson
and Sons55 when the company was clearly insolvent, had overdrawn its account, and was in
fact, unable to continue business, Kay J., appointed, on the application of the holder, a
receiver and manager on the ground that the holder's security was in jeopardy; but he was
quick to add that " I make the order so asked, but I repeat, I do so with great hesitation.56"

North J.'s reaction in Edwards v. Standard Rolling Stock Syndicate57 was no different. There,
the holders of a floating charge applied for the appointment of a receiver, at a time when the
principal was not due and the interest not in arrears, on the ground that several actions
brought by creditors against the company were pending, and that in one of those actions
judgment had been recovered against the company and execution had been levied by the
sheriff on property comprised in the charge. The action was therefore brought to prevent the
sheriff from proceeding to sell the goods he had seized. The learned judge granted the
application on the ground that the security was in jeopardy, but not before he had given vent to
his true feelings. He stated:

"I feel a difficulty in interfering with the right of ordinary creditors to levy execution . . . I must
follow Wildy v. Mid-Hants Railway Company, in which at the instance of debenture-holder, who
were mortgagees of the undertaking of the company, Lord Chancellor Chelmsford held that a
receiver could be appointed, though the mortgage money had not become due when the bill
was filed . . . I will follow that case, though. . . I make the appointment with great hesitation."58

Automatic Crystallization

One issue on which there appears to be a divergence of opinion among text-book writers is, in
the words of one of them, "whether it is possible to insert in a floating charge an express
crystallization clause which provides for automatic and self-generating Crystallization in certain
events."59 In other words, what is the effect of a provision in the debenture (along the lines of
the clause in the Ghana Commercial Bank's debenture quoted in the James Town case) which
lists certain events, e.g. non-payment of principal or interest, sequestration, execution, etc.,
and then provides that on the occurrence of any such event the charge would be deemed to
have crystallized? In such cases, does the charge crystallize immediately any such event
occurs, or does it crystallize only after the holder appoints or gets appointed a receiver or
takes some other steps to realize his security? Pennington60 holds the view that the
occurrence of any such event effects crystallization without the holder or the court appointing a
receiver or taking any steps to realize his security. Gower,61 on the other hand, asserts that
"default alone will not suffice to crystallize the charge, the debenture-holders must intervene to
determine the licence of the company to deal with the property, normally by appointing a
receiver or by applying to the court to do so." The position that Farrar62 adopts lies
somewhere between the two. The only writer who examines this issue in great detail, Farrar
observes that the practice of inserting such clauses is more common in Australia and New
Zealand than in England and Wales. Conceptually, he notes, automatic crystallization is
impossible in Scotland where the floating charge has only a statutory form. While, on the one
hand, he acknowledges the existence of dicta in some decided English cases63 in which the
validity of such clauses was specifically upheld, he, on the other hand, points to a number of
dicta64 in decided English cases which give a contrary indication. He therefore concludes, not
without justification that, while "there is some limited support in the authorities for automatic
crystallization ... the authorities are not clear cut." 65

Farrar's position on this issue is no different from the stand taken by Berger J. in the British
Columbian case of The Queen v. Consolidated Churchill Corporation Ltd.66 This was a case in
which Counsel for the holder of the floating charge (Brameda) had urged the court to uphold
the validity of an automatic crystallization clause. After examining the relevant authorities, both
English and "foreign", on the issue, the learned judge concluded that:

"it may be said that the words 'until some event or some act is done' are consistent with the
argument in support of self-generation crystallization. But no authority has gone as far as . . .
Brameda urges the court to go in the case at bar."67

What is noteworthy about Berger J.'s judgment in the case is not so much the conclusion he
reaches on the validity of automatic crystallization clauses as the policy reasons he gives for
his opposition to the adoption of such clauses. The sentiments expressed by the learned
judge should certainly gladden the hearts of the drafters of our Code. Observed the judge:68

"But there has been no judgment rendered on the question in Canada. The matter is one of
first impression. So policy consideration weigh heavily against the adoption of the motion (sic)
of consideration of self-generating crystallization. In the case at bar there were numerous acts
of default going back to 1921. Brameda [holder of the charges] did not, until 14th April 1975,
take the position that the floating charge has crystallized. If in truth it had crystallized back in
1972, when Brameda acquired the Bank's interest in the debenture. Brameda did not treat the
Company thereafter as if its licence to carry on business was at an end. Brameda sought to
have it both ways: to attain priority over the province's lien without putting Churchill into
receivership. This shows the parlous state of affairs which would result if the concept of self-
generating crystallization were to be adopted. The requirement for filing by a receiver under
the Companies Act would be rendered a dead letter. The company would not know where it
stood; neither would the company's creditors. How is anyone to know the true state of affairs
between the debenture-holder and the company unless unequivocal act of intervention? How
can it be said that the default by the company terminated its licence to carry on business when
in fact it was allowed by Brameda to carry on business for three years thereafter? If the
arguments were sound, the debenture-holder would be able to arrange the affairs of the
company in such a way as it renders it immune from executions. The debenture-holder would
have all the advantages of allowing the company to continue in business and all of the
advantages of intervening at one and the same time to the prejudice of all other creditors."

In deciding to recommend a statutory definition of crystallization which would not include

GHANA LAW

On the issue of crystallization, the Companies Code provides as follows:

"87 (1) A floating charge is an equitable charge over the whole or a specified part of the
company's undertaking and assets both present and future, so however that the charge shall
not preclude the company from dealing with such assets until,

(a) the security becomes enforceable and the holder thereof, pursuant to a power in that behalf
in the debenture or the deed securing the same appoints a receiver or manager or enters into
possession of such assets, or

(b) the court appoints a receiver or manager of such assets on the application of holder; or

(c) the company goes into liquidation.

(2) On the happening of any of such events the charge shall be deemed to crystallize and to
become a fixed equitable charge on such of the company's assets as are subject to the charge
...

88. (1) Whenever a fixed or floating charge has become enforceable the court shall have
power to appoint a receiver and, in the case of a floating charge, a receiver and manager of
the assets subject to the charge.

(2) In the case of a floating charge, the Court may, notwithstanding that the charge has not
become enforceable, appoint a receiver or manager if satisfied that the security of the
debenture-holder is in jeopardy.

(3) The security of the debenture-holder shall be deemed to be in jeopardy if the court is
satisfied that events have occurred or are about to occur which render it unreasonable in the
interests of the debenture-holder the company should retain power to dispose of its assets."

While the above-quoted statutory provisions basically codify the existing English Common
Law, they nevertheless contain two important modifications that need to be carefully noted.
First, there is no question of automatic crystallization under the Code. As can be seen from
Section 87 (1) (a), the fact that the security has become enforceable is not enough to
crystallize the charge; the holder must take positive steps to either get a receiver appointed or
enter into possession of the assets. It is only then that the charge will be regarded as having
crystallized. Thus default by the company or the occurrence of an event specified in the
debenture securing the charge only means that the security has become enforceable. The
holder must then take one of the steps specified under section 87 (1) (a) in order to have the
charge crystallized. Given the drawbacks associated with the adoption of automatic
crystallization, well articulated by Berger, J., the drafters of our Code certainly deserve our
commendation for their stance on this issue.

Second, unlike English law, our Code provides a definition of 'jeopardy', which is that:

"The security of the debenture-holder shall be deemed to be in jeopardy if the Court is satisfied
that events have occurred or are about to occur which render it unreasonable in the interests
of the debenture-holder that the company should retain power to dispose of its assets."

According to the drafters of the Code, the provision of this definition was necessitated by the
fact that under English law "it is not wholly clear what circumstances will be deemed to
establish 'jeopardy' and a somewhat restrictive interpretation has been given to this
expression."70 However, in spite of the drafters' desire for clarity, students of our company law,
it is submitted, will still find it difficult to determine the exact parameters of the definition.
Neither our courts nor the Scottish courts, which have adopted a similar definition under their
law,71 have so far offered us any guidance in this area. Our judges, however, need to be
reminded that in interpreting this provision, they should as much as possible try to give effect
to the intention of the drafters. One would, therefore, expect our courts to adopt a rather
liberal interpretation of the "jeopardy rule". A suggested rule of thumb in this area is that, in
addition to these circumstances in which even the English courts have applied the jeopardy
rule, any other circumstances which would ordinarily lead to the compulsory or official
liquidation of the company,72 should justify the application of the rule. After all, whenever a
court orders the official winding up of the company it is, in effect, stating to the whole world that
"it is unreasonable in the interest of the debenture-holder that the company should retain
power to dispose of its assets."

James Town Case

Let us now apply these rules to the facts of the James Town case.73 Clearly, the levying of
execution on the charged assets did not amount to automatic crystallization of the charge. It
only rendered it enforceable. If, therefore, the Bank had been able to enter into possession of
the assets before their attachment by the judgment creditor, its charge would have crystallized
first, thereby making the assets unavailable for attachment under a writ fi. fa. But since, as in
the case, the charged assets were already in the lawful possession of the judgment creditor, it
was legally untenable for the Bank to have demanded their release by merely disclosing the
existence of its debenture. As Taylor J. correctly pointed out in dismissing the Bank's claim, in
the absence of crystallization the Bank had no rights over the charged assets to warrant their
release from the lawful custody of the judgment creditor.

Since the Bank itself had no power under the debenture to appoint a receiver and manager of
the assets out of court, it would appear that the only realistic course of action open to the Bank
was to have applied to the Court for the appointment of a receiver and manager of those
assets. Considering that the charge had become enforceable, the Court, it is suggested, would
have found it extremely difficult, in the light of section 88 (1) of the Code,74 to dismiss the
Bank's claim. But even if the charge had not become enforceable, the fact that execution had
actually been levied, it is further suggested, would have justified the appointment of a receiver
and manager on the grounds that the Bank's security was in jeopardy.75 The appointment of a
receiver and manager would have crystallized the charge and, as we suggest later, have given
the Bank priority over the judgment creditor in payment out of the proceeds of the sale of the
charged assets, provided the appointment was made before the sale of the assets by the
judgment creditor.

As regards the Bank's claim for the release of the goods from attachment, it is submitted that
since the main concern of both the debenture-holder and the judgment creditor is to sell the
assets to pay for the amounts owed them, the Court would only have to order the judgment
creditor to pay the Bank first, out of the proceeds of the sale of the charged assets and the
balance, if any, retained by him in satisfaction of his debt.

To those who might question why the court could not, suo motu, have made the appointment,
the simple answer is that section 87 (1) (b) of the code insists that such appointment can only
be made on the application of the holder. Whether this insistence on form and not substance is
desirable or not is, admittedly, highly debatable. But the conclusion to be drawn is that in the
light of the applicable statutory provisions, Ghana Commercial Bank, having gone to court with
"bare hands", it had nobody but itself to blame for losing a case which it could otherwise have
won.

REGISTRATION OF CHARGES

As already indicated, the other major issue which Taylor J. had to decide in the James Town
case was whether non-registration of a floating charge created in favour of a bank affects its
validity. As the learned judge so clearly explained, the companies code demands that
particulars of all charges, whether fixed or floating, created by a company on its property must
be registered within twenty-eight days after creation.76 The character or nature of the holder
or beneficiary of the charge is immaterial. Thus, once the charge is created by a company, its
particulars must be registered irrespective of whether the holder is a bank, another company, a
state corporation or an individual.77 The time for registration may, in certain cases, be
extended by the court.78 In the absence of any such registration, however, the Code provides
that the charge "shall be void so far as any security on the company's property is thereby
conferred"79 and "the money secured thereby shall become immediately payable
notwithstanding any provision to the contrary in the contract."80 The cumulative effect of these
rules therefore is that the holder of an unregistered debenture, like Ghana Commercial Bank in
the James Town case, is only an unsecured creditor of the company and cannot therefore
expect to be treated like a secured creditor in the recovery of his loan from the company.

PART III—SUGGESTED RULES TO GOVERN DETERMINATION OF COMPETING CLAIMS

As indicated at the beginning, the main purpose of the article is to help formulate rules and
principles to be applied in determining competing claims to priority between execution creditors
and holders of floating charges. Now that we have completed our detailed examination of
those areas of law which have a bearing on these issues, we present here below, in a
summary form, what, we perceive as the relevant rules and principles to guide our courts in
resolving such issues.

1. An unregistered debenture, whether fixed or floating, creates no rights in its holder. The
holder, who is to be regarded as an unsecured creditor of the company, cannot therefore
prevent a judgment creditor from levying execution on assets covered by the "non-existent"
charge.81

2. The mere existence of a debenture secured by a floating charge cannot defeat the claim of
a judgment creditor that his execution should be allowed to proceed or that he is entitled to a
garnishee order absolute.82

3. The fact that the security has become enforceable does not thereby vest any rights in the
holder. He therefore cannot defeat the claim of the judgment/execution creditor to the
company's assets.83

4. Where the charge crystallizes anytime before the actual sale of the assets seized under a
writ of fi:fa:, the holder acquires priority over the execution creditor, and is therefore entitled to
have those assets released to him. This is because, contrary to Taylor J.'s assertion in the
James Town case that "at the moment of time when the property was attached the legal
interest in it was in the judgment debtor and the attachment was therefore proper,"84 seized
assets are not the property of the execution creditor."85 So long as they remain in the custody
of the sheriff or the auctioneer, pending sale, they are assets in custodia legis and the property
therein is still vested in the company. If, therefore, the holder of the charge can "perfect" his
charge before sale, he becomes entitled to those assets.

5. Where the charge crystallizes after the property has been sold by the sheriff and the money
paid over to the execution creditor, or at least earmarked and set apart for him, the holder has
no claim against the execution creditor.86

6. Where, however, the assets seized in execution are cash, banknotes, cheques, etc.
belonging to the company, the money so seized, does not thereby become the property of the
execution creditor. Until it is paid over or earmarked or set apart for the execution creditor, it
is in custodia legis and is subject to the rights of the debenture-holder.87

7. Payments made by the execution-creditor company to satisfy judgment debt and costs and
thereby avoid sale of assets seized in execution are not subject to the rights of debenture-
holder, even if at the time of crystallization of the charge, the money is still in the hands of the
sheriff or auctioneer. Explaining the rationale behind this rule in one case, Salter J. said:

"the debtor company had of course an implied licence from the debenture-holders to vary on
its ordinary business. The debt in question was a trade debt due to the judgment creditors.
Under pressure of the execution, and to avoid a sale, the debtor paid their debt to the
judgment creditors, which it may be they might have done; they paid it to the sheriff in order
that he might pay it over to the judgment creditors. In that way they paid their debt."

Even if the debtor company is unable to pay the judgment debt and costs in full, but agrees
with the creditor to pay by instalments so as to avoid the sale of its assets, any money so paid
before crystallization remains the property of the execution-creditor, regardless of the fact that
it still remains in the sheriff's hands.88

Priority as Between a Debenture-Holder and a Landlord Distraining for Unpaid Rent on

One final issue that is worth discussing is whether under Ghana law a landlord "can distrain on
chattels in the leasehold premises if rent is unpaid, notwithstanding that the chattels are
comprised in a charge which has crystallized."89 A right given under English law by the
common law, by statute or by contract, distress is explained as:

"a summary remedy by which a person is entitled without legal process to take into his
possession the personal chattels of another person, to be held as a pledge to compel the
performance of a duty, the satisfaction of a debt or demand, or the payment of damages by
cattle."90

The rule under English law therefore is that:

"the debenture-holders can only take over the company's property subject to the rights of
anyone claiming by title paramount, so that a landlord can re-enter and can distrain on chattels
in the leasehold premises if rent is unpaid, notwithstanding that the chattels are comprised in a
charge which has crystallized. But if a receiver has been appointed by the court, the court's
leave must be obtained, for it is then in possession through its officer."91

Does the unpaid landlord have a power of distress under Ghana law? If he does, then it
means that whether his charge has crystallized or not, the holder of a floating charge under
Ghana law has no priority over a landlord distraining for unpaid rent on chattels comprised in
the charge. In the James Town case, Taylor J. believing that a landlord has such a right under
our law, proceeded to adopt the English rule. He observed:

"I think it now an accepted fact that the interest of a landlord distraining for rent is title
paramount. The debenture-holder therefore only takes over the company's property subject to
the rights of anyone claiming by title paramount, so that a landlord can re-enter and can
distrain on chattels in the leasehold premises if rent is unpaid notwithstanding that the chattels
are comprised in a charge which crystallized: See Re Roundwood Colliery Co. [1897] 1 Ch.
373 C.A."92

Of the action taken by the landlord-execution-creditor in the case, the learned judge was to
say:

"it must be remembered that although the judgment creditor had judgment for ¢1,045.00 this
was infact, judgment for arrears of rent and though he was proceeding by way of execution he
was in reality distraining for rent."93

He therefore ruled that:

"for these reasons it seems to me that, quite apart from the question of registration to be dealt
with presently, it was an error in law to order the properties seized by the judgment creditor to
be released from attachment as was done by the Circuit Judge."94

Contrary to the impression that Taylor J.'s acceptance of this principle seems to create, an
unpaid landlord, it is respectfully submitted, has no power of distress under Ghana law.
Indeed, perhaps the most remarkable feature of the Rent Act,95 which regulates the landlord-
tenant relationship in Ghana, is its insistence that the unpaid landlord resort to legal process,
in all cases, to recover arrears of rent. This principle has been so consistently applied by the
courts and has thus become so firmly established that it is easy to understand why the
landlord in the James Town case chose a rather cumbersome legal process to enforce his right
instead of simply exercising a power of distress, if indeed such a power exists.

The principle established in Re Roundwood Colliery Co., it is submitted, does not apply under
Ghana law. A landlord, under Ghana law, has no "title paramount" in the assets of the tenant-
company. So long as he remains unpaid, he is to be considered as an ordinary, unsecured
creditor of the company, and can obtain priority over the holder of a floating charge only if he
levies execution on or disposes of the assets before the crystallization of the floating charge.

But even if there exists a power of distress under Ghana law, it is still submitted that it was
wrong for Taylor, J. to have applied this principle in the James Town case. By proceeding by
way of execution, the landlord clearly was not distraining for rent, for, as already explained, the
exercise of this power involves no legal process. An exercise of a power of distress and a
resort to judicial process to enforce one's rights are mutually exclusive, and the learned judge,
it is submitted should have taken note of this difference.

CONCLUSION

That our Companies Code is a well-thought out piece of legislation is one point which clearly
emerges from the foregoing discussion. Attention must, however, be drawn to the fact that
even though the Code borrows heavily from English law, it contains many major departures
from English norms. Consequently, English cases need to be critically examined before they
are applied to our circumstances. It is hoped that this article's clarification of a dark corner of
our law will, at least, sharpen awareness of the precise nature of the floating debenture-
holder's rights and the extent to which our courts can help him to enforce these rights. It is true
that our Code does not contain specific rules on priority claims between debenture-holders and
judgment creditors, but, as we have tried to establish, there exists under the Code enough raw
material from which these rules can be moulded and applied in concrete cases.

FOOTNOTES

*The author wishes to thank Temple Law School for its financial support and secretarial
assistance.

1. A debenture is defined under the Companies Code, 1963, Act 179 S. 80 (2) as "a written
acknowledgement of indebtedness by the company setting out the terms and conditions of the
loan." Section 80 (6) of the same Code extends this definition to cover "debenture stock",
which is explained under Section 80 (4) as a loan funded by the creation of debenture stock of
a prescribe amount parts of which, represented by debenture stock certificates may be issue
to separate holders instead of issuing debentures acknowledging separate loans to the
company.

2. Companies Code, 1963 Act 179 S. 86 (1).

3. Ibid., S. 86(2).

4. For a detailed discussion of fixed charges, See L.C.B. Gower, Modern Company Law (3rd
ed. London, 1969) Chaps. 16 and 19, Palmer's Company Law (23rd ed. Stevens & Sons Ltd.,
London, 1892) pp. 563 et. seq.

5. L.C. B. Gower, op. cit; at p. 420.

6. [1978] 1 G.L.R. 453. This case shall hereinafter be referred to simply as the "James Town
case".

7. Supra (Cmnd 8558, 1983) para. 105.

8. Ibid; para. 107. For other views on the floating charge, see A.J. Sim "The Receiver and
Effectually Executed-Diligence" 1984 J.L.T. (News) pp.25-29.

9. Gower, op.cit., at p. 427.

10. Pennington's Company Law (4th ed. Butterworths, London 1979) at p. 386.

11. Op. cit., at p. 78. For further discussions on this issue, see R.R. Pennington "The Genesis
of the Floating Charge" (1960) 23 M.L.R. 630.

12. Supra S. 87 (1).

13. Government stock and Other Securities Investment Co. v. Manila Railway Co. Ltd. [1897]
Act 81 at p. 86.

14. Illingworth v. Houldsworth [1904] AC 355 at p. 358.

15. Ibid S. 80 (2).

16. Re Yorkshire Woolcombers Association Ltd. [1903] 2 CL. 284 at 295.

17. Ibid. S. 7.

18. [1966] G.L.R. 777.

19. (7th ed.) p. 242.

20. (2nd ed.) at p. 390.

21. [1910] 2 K.B. 979, C.A.

22. Per Edusei J. (ibid.) at pp. 778-779.

23. Republic v. James Town Circuit Judge Ex parte Annor, [1978] 1 G.L.R. 453.

24. [1966] G.L.R. 780.

25. No. 49 of 1952.

26. No. 19 of 1957.

27. 1969 C.C. 224 at p. 226.

28 1978 1 G.L.R. 453.

29 Ibid., at p. 462.

30. Ibid., at p. 462.

31. Standard: Manufacturing Co. Re [1891] 1 Ch. 627 Opera, Re [1891] 3 Ch. 260 Wheatly v.
Silkstone & Haigh Moor Coal Co. (1885) 29 Ch. D. 715, Robson v. Smith [1895] 2 Ch. 118,
Duck v. Tower Galvanizing Co. [1901] 2 K.B. 314 Heaton & Dugard Ltd. v. Cutting Bros. Ltd.
[1925] 1 K.B. 655, Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979.

32. Davey & Co. v. Williamson & Son Ltd. [1898] 24 K.B. 194.

33. See Lord Macnaghten in Government Stock Co. v. Manila Railway [1897] A.C. 81 at p. 80.

34. Ibid., at p. 462.

35. Ibid., at p. 461.

36. Ibid., at p. 199.

37. Ibid., at p. 199.

38. Ibid., at p. 199.

39. Ibid., at p. 199.

40. [1891] 1 Ch. 627 C.A.

41. [1891] 3 Ch. 260.

42. Ibid., at p. 263 Author's emphasis.

43. Robson v. Smith [1895] 2 Ch. 118 at p. 126.

44. [1910] 2 K.B. 979 at pp. 996-997 Author's emphasis.

45. Ibid., at p. 997.

46. Ibid., at p. 997.

47. Draft Report of the Commission of Enquiry into the Working and Administration of the
present Company Law of Ghana (Guinea Press Ltd., Accra 1959) at p. 89.

48. Gower, op cit. at p. 321. See also Pennington, op cit. at p. 380, Palmer's Company Law, op
cit. pp. 573-574. See also the following cases; Re Panama New Zealand and Australian Royal
Mail Co. (1870) 5 App. 318; Wallace v Universal Automatic Machines [1884] 2 Ch 574 CA, Re
Crompton and Co. [1914] 1 Ch. 954; Re Opera Limited [1891] 3 Ch. 260; Re Standard
Manufacturing Co. [1891] 1 Ch. 627; Re Colonial Trusts Corporation [1897] 15 Ch. D. 465;
Wheatley and Silkstone and Haigh Mooroad Co. (1885) 29 Ch. D. 715.

49. Re Panama New Zealand and Australian Royal Mail Co. (1870) 5 Ch. App. 318; Re
Florence Land and Public Works, ex parte Moar (1878) 10 Ch. D. 530.

50. McMahon v. North Kent Iranworker [1891] 2 Ch. 148.

51. Edwards v. Standard Rolling Stock Syndicate [1893] 1 Ch. 574.

52. Re Victoria Steamboats [1897] 1 Ch. 158.

53. Rex Tilt Core Copper Co. [1893] 2 Ch. 588.

54. Re Panama New Zealand and Australian Royal Mail Co. (1875) 5 Ch.

55. [1891] 1 Ch. 133.

56. Ibid., at p. 137.

57. [1893] 1 Ch. 574.

58. Ibid., at pp. 576-577.

59. Palmer's Company Law, op. cit., at p. 574 for a further discussion of this issue. See A.J.
Boyle "The validity of Automatic Crystallization Clauses" [1979] J.B.L, 231. The case of Davey
and Co. v. Williamson and Sons Ltd. [1898] 2 B. 194 contained a similar provision. The
conditions indorsed on the debenture contained, inter alia, the following: "(4) the principal
moneys hereby secured shall become payable immediately on the happening of any of the
events, hereinafter specified, and also all rights of the company to deal for any purpose with
any of the property shall forthwith case on the happening of any such events . . . . (c) if an
order is made or an effective resolution is passed for winding up the company." The trust deed
in the case also permitted "the company and assignees to hold and enjoy the premises, and to
carry on this business . . . of the company until the happening of one or more of the events
upon which the security thereby constituted became enforceable . . . if any execution,
sequestration, extent or other process of any court or authority is issued out against the
property of the company for any suit whatsoever" ibid., at pp. 195-196.

60. Supra at p. 379. He cites as his authorities Buckley L.J.'s observation in the Evans case.
See Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979 at pp. 999-1000; and the New
Zealand case of Re Manurewa Transpory Limited [1971] N.Z.L.R. 909 in which Speight J.
expressly upheld the view that crystallization can take place without intervention on the
happening of an automatic crystallization event.

61. Op. cit., at p. 421. He relies on the cases of Nelson and Co. v. Faber and Co. 1903] 2 K.B.
367 and Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979.

62. Palmer's Company Law op. cit. pp. 519-609, contributed by Mr. J.H. Farrar.

63. Per Pearson J. in Re Horne and Holland (1885) 29 Ch. D. 736 per Matthew J. and Lord
Russell, C.J. in Darey and Co. v. Williamson and Sons [1898] 2 Q.B. 194 at pp. 200-201.

64. See Palmer's Company Law, op. cit., pp. 574-578.

65. Ibid., at p. 578.

66. [1978] 5 W.W.R. 652.

67. Ibid., at p. 664.

68. Ibid., pp. 665-666.

69. Supra (Cmnd 8558, 1982) para. 1580.

70. Draft, report op. cit., at p. 89.

71. Incidentally, our definition is basically the same as the one provided under Section 4 of the
Companies (Floating Charges or Receivers) (Scotland) Act, 1972. Under the previous law,
Companies (floating charges) Scotland Act, 1961 crystallization took place only on winding up
of the company. There was no provision for crystallization or the appointment of receivers by
either the holder or the court. Section 4 (1) of that Act therefore provided that in addition to the
"normal" grounds for winding up contained in the Companies Act, 1948, the court had
jurisdiction to wind up the company if it was satisfied that the security of the floating charge
was in jeopardy. The 1972 Act, while introducing a power to the holder or the court to appoint a
receiver under Section 11, nevertheless re-enacts S. 4 from the 1961 Act providing an
additional ground for winding up in cases of jeopardy. See also George L. Gretton "what went
wrong with floating charges?" 194 S.L.T. (News) 172; R. J. Reed "Aspects of the Law of
Receivers in Scotland, 1982 S.L.T. News 229.

72. See Bodies Corporate (Official Liquidations) Act, 1963, Act 180. Some of the grounds spelt
out under the Act are: (1) where the Company does not commence its business within a year
from its incorporation or suspended business for a whole year; (2) where the company had no
members; (3) where the company is unable to pay its debts; (4) where the objects of the
company are unlawful or the company is being operated for an illegal purpose; and (5) where
the court considers it just and equitable so to do.

73. This part of our discussion is without prejudice to the fact that the debenture was
unregistered.

74. This section provides as follows: "Whenever a fixed or floating charge has become
enforceable the Court shall have power to appoint a receiver and, in the case of a floating
charge, a receiver and manager of the assets subject to the charge."

75. See Edwards v. Standard Rolling Stock Syndicate [1893] 1 Ch. 574 where the English
Court made such an appointment on precisely the same grounds.

76. Ibid., S. 107 (1). No registration is however, required in the case of any pledge of, or
possessory lien on, goods, or to any charge, by way of pledge, deposit, letter of hypothecation
or trust receipt of, bills of lading, doct warrants or other documents of title to goods, or of bills
of exchange, promissory notes or other negotiable securities for money. See Section 107
(3).

77. Per Annan J. in Ashanti Curls and Lumber Producers Ltd. v. Ghana Timber Board
Management Committee, High Court, Kumasi, 12 June 1969 unreported; digested in (1969)
C.C. 138.

78. Ibid., S. 115 (1).

79. Ibid., S. 107 (1).

80. Ibid., S. 107 (2).

81. See Companies Code S. 107 at 115; Republic v. James Town Circuit Court Judge [1978] 1
G.L.R. 453; Ashanti Curls and Lumber producers Ltd. v. Ghana Timber Markets Board
Management Committee (1969) C.C. 138.

82. Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979; James Town case.

83. Companies Code, 1963, Act 179 S. 87(1) (a).

84. Supra at p. 460.

85. Collingridge v. Paxton (1851) 11 C.D. 683, 138 C.R.643; Robson v. Smith 1895] 2 Ch. 118;
Wood v. Wood 114 E.R. 948.

86. Collingridge v. Paxton (1851) 138 E.R. 643.

87. Heaton and Dugard Ltd. v. Cutton Bros Ltd; Pain Claimant [1925] 1 K.B. 655 at 658.

88. Robinson v. Burnell's Vienna Bakery Co. [1904] 2 K.B. 624. This judgment received the
approval of Vaughan Williams L.J. in Evans Rival Granite Quarries Ltd. 1910] 2 K.B. 979 at 97.

89. L.C.B. Gower, op. cit., at p. 423.

90. Hill and Redran's Law of Landlord & Tenant [15 ed. Butterworths & Co. Ltd. 1970] at p.
367.

91. L.C.B. Gower, op. cit., at p. 423. This principle was applied in Re Roundwood Colliery Co.
[1897] 1 Ch. 373 C.A.

92. Ibid., at p. 462.

93. Ibid., at p. 462. Author's emphasis.

94. Ibid., at p. 462.

95. Rent Act, 1963 Art. 220. See sections 17 and 25.

Legal Library Services Copyright - 2003 All Rights Reserved.