Charges, preferences, electronic signatures

Green (Liquidator of Stealth Construction Limited) -v- Ireland

Here the liquidator claimed a charge of land was given within the relevant time prior to the commencement of the company's winding up (presentation of a winding up petition in court) and should be set aside under Section 239 of the Insolvency Act 1986 as preferring the charge holder (creditor) over other creditors.

(As a quick aside here, the chargor and chargee were connected through sisters so the relevant prior time was two years rather than the ordinary period of six months; the family connection gives rise to a presumption that the company in entering into the charge (represented by one sister) was influenced by a desire to prefer the creditor (the other sister) over other creditors - a presumption which in this case the creditor,although innocent,could not rebut.)

The creditor/charge holder argued that there was an agreement to create a charge, which in itsef was a charge, embodied within emails occurring before the two years and thus she had a charge not caught by presumption of preference.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 says that the contract for land (this includes a charge of land) must be in writing, incorporate all terms agreed and be signed by the parties. The High Court found that the exchange of emails relied upon did not incorporate all of the terms agreed by the parties and therefore did not fulfill the statutory requirements under Section 2, and it was clear to the court that the parties had intended that a further document would be drawn up. Thus the creditor had only the formal charge document entered into during the two year period to rely carrying the adverse presumption of preference.

All parties were in agreement that an email or chain of e-mails could satisfy Section 2. On the aspect of signature, the Court accepted the reasoning in the Statute of Frauds case, J Pereira Fernandes SA -v- Mehta 2006, that the senders' insertion of their names at the end of the respective emails constituted "signing" by them for purposes of Section 2. The lender, for example, signed "Have a wonderful time in Rome. Lots and lots of love, Suzy" The borrower signed of simply with her name "Jo".

See also the case of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd 2011 which came to similar conclusions about formation and signature in the context of guarantees. There is a suggestion that a chain of e-mails is more likely to satisfy section 2 than several emails relating to each other but not within a chain. We're not sure this will be borne out in future decisions.

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