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MacMillan v T Leith Developments Limited (in receivership and liquidation)

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MacMillan v T Leith Developments Limited (in receivership and liquidation)


01 February 2016

The interaction between diligence and floating charges has been the subject of significant debate since receivership was introduced to the law of Scotland in 1972. The legislation provides that the rights of the receiver are subject to the rights of a creditor who has “effectually executed diligence” on the property of the Company. In the case of Lord Advocate v Royal Bank of Scotland 1977 SC 155, the Inner House determined that an arrestment, not followed by furthcoming, was not an effectually executed diligence. This case has generally been interpreted as entitling a receiver to deal with the assets of a company without reference to diligence undertaken after the execution of the floating charge.

In the case of MacMillan v T Leith Developments Limited (In receivership and liquidation) the Court required to consider the rights of an inhibiting creditor in a receivership.  The inhibition was executed prior to the enactment of the Bankruptcy and Diligence (Scotland) Act 2007 (the “2007 Act). It was granted after the execution of the floating charge. However, the sums due by the debtor to the holder of the floating charge were all incurred after the registration of the inhibition.

Following consideration of the authorities, Lord Tyre determined that he was bound by the decision in Lord Advocate v Royal Bank of Scotland unless its force had been impugned by a subsequent higher authority. He did not consider that it had. Therefore, as the pursuer did not suggest that the decision could be distinguished, the inhibition was not an effectually executed diligence.

However, he found that the question of whether the inhibition was effectually executed diligence was not determinative of the inhibiting creditor’s rights.  As the inhibition pre-dated the execution of the floating charge, and was granted prior to the enactment of the 2007 Act, it conferred a preference on the inhibiting creditor in respect of debts contracted after registration of the inhibition. This preference applied to secured debts in the same manner as it did to unsecured debts. The consequence was that, as all sums secured by the floating charge were post inhibition debts, the inhibiting creditor was entitled to payment of his debt in preference to the sums due to the holder of the floating charge.

Axiom’s Kenny McBrearty QC and Elisabeth Roxburgh represented the pursuer.

MacMillan v T Leith Developments Limited (In receivership and liquidation https://www.scotcourts.gov.uk/search-judgments/judgment?id=9cf403a7-8980-69d2-b500-ff0000d74aa7