In this Issue:-

  • Endeavours Obligations
  • In the Matter of Cognotec Limited (In Receivership)

ENDEAVOURS OBLIGATIONS

Introduction

The terms "all reasonable endeavours", "reasonable endeavours" and "best endeavours" are regularly used in the drafting of commercial agreements and contracts. Despite this widespread use, the actual obligations imposed by each of these terms are unclear. Recent UK case law has provided further guidance on the obligations imposed by parties contracting to use "all reasonable endeavours".

Please see the Dillon Eustace publication entitled article "Endeavours Obligations" for further information on this matter.

IN THE MATTER OF COGNOTEC LIMITED (IN RECEIVERSHIP)

A recent High Court judgement in the above matter has provided clarification on whether transactions are voidable by companies under section 60 (14) of the Companies Act, 1963 in circumstances where the necessary statutory declaration under section 60 (2) has not been filed by a company within the statutorily prescribed time limit and the person seeking to rely and enforce the transaction is not actually aware of the company's default.

Section 60 (1) prohibits the giving by a company of financial assistance for the purpose of, or in connection with, the purchase of its own shares. Under section 60 (14), a transaction in breach of section 60 is voidable at the instance of the company against any person with notice of the facts which constitute the breach. The prohibition under section 60 (1) does not apply to financial assistance given by a company which has complied with the statutory conditions under section 60 (2) (generally known as the "whitewash procedure").

In the present case Barclays Bank Ireland plc ("the Bank") provided a loan to shareholders to purchase the shares of an exiting shareholder in Cognotec Limited ("the Company"). The loan was secured by a guarantee from the Company and a debenture over its assets. The whitewash procedure was complied with except for the delivery by the Company of the statutory declaration to the Registrar of Companies within 21 days after the financial assistance was given. Four years later the Company sought to avoid the transaction on the basis of this late filing. The Bank was unaware that the statutory declaration was not filed on time until such time as a receiver was appointed to the Company earlier this year.

The receiver brought an application under section 316 of the Companies Act, 1963 seeking a declaration that the security provided to the Bank by the Company was not invalidated by the failure of the Company to file the statutory declaration within 21 days as the Bank had no notice of this breach. Mc Govern J. upheld the validity of the charge and accepted that the Bank in this case did not have actual notice of the breach and that any failure to deliver the statutory declaration for registration within the time allowed merely taints the validation procedure and will only become relevant if the Bank had actual notice of this failure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.