The judgment in Bank of Ireland v Eteams (International) Ltd (in liquidation) has provided a helpful elucidation of the position of the Irish Courts in interpreting whether receivable sale agreements constitute true sales. The Court in this case rejected all of the arguments of the liquidator challenging the status of a debt purchase agreement (the "Agreement") and found that the Agreement constituted a true sale of the underlying receivables rather than a registerable security interest.
This Court reviewed the Agreement to determine whether it constituted a sale of book debts or whether the Agreement was to be characterised as a registerable charge over Eteam's book debts. The liquidator of Eteams sought to avoid Agreement on the basis it was not registered as a charge pursuant to Section 99 of the Companies Act 1963. The Court acknowledged that this question was of importance for creditors generally in the context of debt factoring and generally for agreements assigning debt.
Pursuant to the terms of the Agreement, Eteams sold certain of its debts to the Bank for a period of 12 months. The Bank advanced a sum equivalent to 60% of relevant sales invoices issued by Eteams and Eteams agreed to collect the receivables on behalf of the Bank and lodge them directly to a segregated account.
The primary question for consideration by the Court was whether the Agreement constituted a true sale of the debts of Eteams or whether the Agreement should be characterised as a secured loan. The Court in analysing the Agreement relied heavily on the judgments of In re George Inglefield Ltd [1933] CH1, Lloyds and Scottish Finance v Cyril Lord Carpet Sales [1992] BCLC 609 and The Welsh Development Agency v Export Finance Co. Ltd [1991] BCLC 936.
The Agreement included trust provisions whereby Eteams agreed to hold the receivables on trust for the Bank if the sale was not effective and risk mitigation provisions, each of which the Court found were consistent with a sale of the underlying receivables and did not result in the Agreement being a registerable security interest. The Court also noted that the absence of an equity of redemption was inconsistent with a charge.
In addition to the legal analysis, certain commercial features were identified by the court as evidence ownership by the Bank of the receivables, including the right of the Bank to collect debts and enforce payment of the applicable debts, the existence of a separate current account to which payments of the assigned debts were made and the segregation of acquired receivables from the other assets of Eteams.
The Court, in conclusion, determined that the Agreement as a whole bore the relevant attributes of a debt sale both in substance and in form and therefore did not constitute a registerable security interest.
This decision was heavily influenced by the decisions of the English Courts outlined above which are relied on in the provision of Irish true sale opinions. This judgment provides a helpful elucidation of the position of the Irish Courts on the interpretation of receivable sale agreements. It confirms that the position in Ireland is similar to that developed by the English Courts and that the Irish Courts will be slow to re-characterise an agreement for the sale of receivables as a registerable security interest. This confirmation provides additional certainty to those providing invoice discounting facilities and for the provision of Irish true sale opinions in securitisation and other transactions.
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