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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether section 78 of the Companies Act, 1929 excluded the operation of section 264(4)(b) in relation to preferential debts where a receiver had been appointed before winding up. (ii) Whether preferential creditors were entitled to priority over debenture holders only in respect of property still subject to the floating charge at the time of winding up.
Issue (i): Whether section 78 of the Companies Act, 1929 excluded the operation of section 264(4)(b) in relation to preferential debts where a receiver had been appointed before winding up.
Analysis: The statutory language did not show any exclusion of section 264(4)(b) by section 78. The preferential provisions remained capable of operating where the company entered winding up after the receiver's appointment. The question, however, was confined to the existence and extent of any floating charge at the relevant time.
Conclusion: Section 78 did not exclude the operation of section 264(4)(b).
Issue (ii): Whether preferential creditors were entitled to priority over debenture holders only in respect of property still subject to the floating charge at the time of winding up.
Analysis: A floating charge created by the debenture crystallised and became fixed on the property over which the receiver had been appointed, so that property was no longer subject to a floating charge at the date of winding up. Priority under section 264(4)(b) could therefore attach only to assets that remained comprised in or subject to the floating charge when the winding-up order was made.
Conclusion: Preferential creditors were not entitled to priority over the debenture holders in the property over which the receiver had been appointed, but were entitled to priority over any other property still subject to the floating charge at winding up.
Final Conclusion: The declaration was granted in a limited form, preserving the debenture holders' priority over the receiver-controlled assets while recognising preferential priority over any remaining charged property.
Ratio Decidendi: Preferential priority under section 264(4)(b) operates only against property that is still subject to a floating charge at the moment of winding up, and does not extend to property on which the charge has already crystallised.
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