Supreme Court considers the phrase ‘Close of Business’ in the context of a Receiver Appointment

In McCann -v- Halpin & anor [2016] IESC 11, the receiver applied to the High Court for directions pursuant to Section 316(1) of the Companies Act 1963, in relation to the exercise of his powers as receiver over the property and assets of Elektron and Crossplan (the Companies). The appeal before the Supreme Court dealt with one issue - whether the receiver was validly appointed.

High Court
Prior to the appointment of the receiver, IBRC issued a letter of demand.  That letter stated that payment could be effected by electronic transfer to a specified account or by delivery of a bank draft to a specified address. The letter of demand also stated:

“In the event that payment is not received by close of business on 17 February 2012, we are entitled to and reserve the right to enforce any security given to us to secure the facilities made available under the Offer Letters, to take all such actions as are permitted under the said security (including, without limitation, the appointment of a receiver) and to take such steps, as we are lawfully entitled to, to recover all monies due by you to us.”

The Deed of Appointment of the receiver was dated 17 February 2012 at 4pm.

Evidence was given by IBRC that in order for payment to have been received by them on 17 February 2012, any payment would have to have been made by 4pm and this was at all times made clear to the borrowers including at a meeting that day with directors of the Companies. IBRC stated that the Directors informed them that there was no possibility of the borrowers being able to meet the demand for repayment. IBRC also emphasised that at no stage since the demand was served was there any payment.

The borrowers argued that the receiver was not validly appointed because, at the time the Deed of Appointment was executed the power to appoint a receiver was not exercisable as the demand had not expired. The receiver was appointed at 4pm, which was not ‘close of business’. The borrowers did not contend that if the bank had waited longer the money could have been repaid.

The borrowers also submitted that a court should be vigilant to ensure that there is scrupulous compliance with legal requirements for the appointment of a receiver, given the serious consequences for any company by such appointment, citing the decision of the High Court in The Merrow Limited v Bank of Scotland Plc [2013] IEHC 130.

The trial judge made some general observations on the phrase “close of business”, stating:

“The phrase ‘close of business’ is not a term of art, and is not defined in the debenture deed. Neither is it a phrase for which a definition is provided in the Schedule to the Interpretation Act, 2005, or even in any of the standard texts on statutory interpretation, or the meaning of words and phrases. It is simply a phrase commonly used in everyday language to describe a time at which a business might reasonably be expected to close its doors to the public or to clients. It does not mean that thereafter no personnel may remain on the premises. . . .

The phrase covers a range of different contexts depending on the nature of the business in question. Close of business for a pub or a restaurant might be midnight or even later, just to take a very simple example. Nevertheless one thinks of so-called normal business hours as being 9am to 5pm, but businesses vary in nature, and for some businesses normal business hours are different, and therefore ‘close of business’ will not necessarily be 5pm or 5.30pm. What is ‘close of business’ in any particular case will depend upon the nature of the business in question. It is a flexible phrase to be seen in any particular context.”

The particular context in which he was addressing the meaning of “close of business” was then considered by the trial judge:

“The context for the present case is a banking context where the relationship is that of bank and bank customer. Each party signed up to the terms of the debenture. Any letter of demand is in the context of monies owing to the bank and secured by the debenture on the companies’ assets. Where a letter of demand requires repayment forthwith, and threatens that if the funds are not received on a particular day by ‘close of business’, that must be interpreted as meaning the end of the banking business day. I do not require expert evidence to know that traditional banking hours have for many years been 10 am to 4pm. There have been instances where a particular bank might advertise itself as staying open until 5pm on a particular day of the week in order to convenience its customers, or be open at 9.30am instead of the normal 10am, or perhaps even open on Saturday mornings. But it is reasonable to interpret and understand the phrase ‘close of business’ in the banking context as being the time at which banks have traditionally and normally closed their doors to customers. If money is to reach the bank by close of business, that can be fairly and reasonably interpreted as meaning by not later than 4pm, in the absence of any other specific arrangement made. It is not reasonable to interpret it as meaning 5pm or 5.30pm simply because there may be bank staff working away inside the bank up to either of those times or later, or because other types of business might regard ‘close of business’ as meaning some time later than 4pm.”

Supreme Court
The only ground of appeal was whether the receiver was validly appointed. It was argued by the borrowers that the trial judge was incorrect in concluding that close of business meant close of banking hours and also that banking hours were from 10am to 4pm.  An alternative argument advanced was that, even if the trial judge was correct and close of business meant close of banking hours and that it occurred at 4pm, the power to appoint the Receiver was not exercisable at 4pm because the demand letter stipulated that IBRC was entitled to appoint a receiver if payment was not received “by close of business”, which it was suggested meant at or before 4pm. Therefore, it was suggested that the power was not exercisable until after 4pm.

Counsel for the Appellants also submitted that, if there was an ambiguity in the demand letter, having regard to the contra proferentem rule of construction, the demand letter was to be construed against the Receiver.

The Supreme Court held that the trial judge was correct in finding, in the context of the demand letter, that the expression by “close of business" meant by 4pm.  The Supreme Court noted that the borrowers could not identify any statutory provision or authority which would be of assistance in the interpretation of the phrase “close of business”. That being the case, the phrase had to be given its ordinary meaning, which was to be interpreted in the particular context in which it was used.

The Court held that the end of the banking business day is the point in time when the relevant bank ceases to do banking business with its customers.  In the case of IBRC, the end of banking business occurred at 4pm. That is what any customer of IBRC would have understood to be the meaning of “close of business” and given the meeting between the directors of the Companies and IBRC that day, it must have been their understanding also.

The Supreme Court also held that the argument that, when the deadline was reached at 4pm, IBRC had to wait for some period of time after 4pm to exercise its power to enforce the security did not stand up to scrutiny. If IBRC was in a position to move to make the appointment once the deadline was reached, applying the ordinary meaning of “by” 4pm, it must have been entitled to do so when the deadline was reached and the prerequisite of non-receipt by IBRC of the payment demanded was satisfied.

As there was no ambiguity in the demand letter the contra proferentem rule of construction had no application.

For more information please contact Paula Mullooly.

Date published: 22 March 2016