No charge – clarity at last for receivables financiers operating in Ireland

In Bank of Ireland v Eteams (International) Ltd (in voluntary liquidation) (2017), the Irish High Court has confirmed that Irish law reflects English law principles in relation to the question of when the purchase of receivables will be re-characterised as secured loans.

True sale vs charge

This question is problematic to financiers who have purported to purchase receivables but risk the purchase being re-characterised as a loan secured over the receivables by charge.

Charges not registered in accordance with the provisions of the Companies Act are unenforceable against the borrower company's liquidator and other creditors. A purported purchase of receivables is extremely unlikely to have been registered as a charge. Thus, in an insolvency situation, which is where re-characterisation is most likely to occur, the effect of re-categorisation is profound. Whilst a purchaser could realise the receivables and liquidate any finance provided, an unregistered charge holder would be limited to sharing the proceeds with all other unsecured creditors. This is a particularly unattractive situation given that there can often be little or no proceeds remaining for unsecured creditors after payment of the liquidator's fees and expenses and the repayment of secured creditors. Therefore a financier who has purchased receivables is likely to recover a much higher proportion of their value than one who has charged the receivables but failed to register their charge. 

Whilst English law has an established approach to re-characterisation, this has been lacking in Irish law prior to this decision. Financiers operating in Ireland have previously had to rely on advice that whilst a transaction would likely be characterised as a true sale this would be conditional on the Irish courts following English law authorities.

The facts

The Bank of Ireland purported to have purchased debts owing to Eteams, a company providing translation services. Upon Eteam's liquidation, the liquidator sought to have the purchase of the debts re-characterised as an unregistered charge.

The law

In finding for the bank, the Irish court applied the 'inconsistency test' from the English Court of Appeal case, Welsh Development Agency v Export Finance Co. Ltd (1992). This test upholds the label given to a contract unless the terms of the contract are inconsistent with the label.

Another English case, Re George Inglefield Ltd (1933), provided guidance on what contractual provisions might constitute a charge and which are more consistent with a sale.

A key characteristic of a sale is that it is of a permanent rather than temporary nature. Therefore where a 'seller' can recover the assets by returning purchase monies this is likely a charge with the assets being released on repayment.

Another characteristic of a sale is that the purchaser enjoys any increase in value and bears the risk of the asset losing value. If a 'purchaser' is required to account to a 'seller' for any profit made on the sale of the asset or conversely if a 'seller' is required to make up the shortfall in any sale the transaction is likely to be a charge.

The decision

Applying the above principles, the court held that the Eteams agreement was consistent with a sale agreement as it did not appear to provide a loan or create a charge and thus was a true sale.

The court noted that the substance of the agreement should be looked at to determine whether it was a charge or a sale and that the form, object or economic effect of the transaction was not determinative. As such, the fact that a sale was made for the purpose of raising finance did not necessary make the transaction a charge. The court also noted that the purchaser's failure to assume the risk of the assets by obtaining guarantees or other security for the shortfall of the unpaid debts was not sufficient to re-characterise a sale as a charge.


This judgment provides welcome clarification for invoice financiers operating in Ireland, who will no longer be required to rely on heavily qualified legal opinions as to whether a sale of receivables is likely to be re-characterised as an unregistered charge under Irish law.