The Supreme Court of Mauritius, sitting in its appellate jurisdiction, held that a fixed charge which resulted from the crystallisation of a floating charge which had been duly registered and inscribed with the Registrar General/Conservator of Mortgages of Mauritius, was not valid and enforceable under the terms of the Civil Code because at the time of crystallisation the ‘property’ subject to the now fixed charge had not yet come into existence and, this was not permissible under the Civil Code.
This case concerned what was known as ‘Le Meritt Elipsis Project’ which was developed by Societe Civile Immobiliere D’attribution Octria (SCIA). As part of the security package, a floating charge was created by Octria Ltd in favour of Bank One Limited (Bank One) in respect of eleven well identified apartments in Towers A and B which were to be attributed to Octria Ltd once SCIA was dissolved.
As a result of the liquidation of SCIA which commenced in October 2014, the floating charge was crystallised into a fixed charge in accordance with the terms of the Civil Code. However, in 2015 Bank One was informed that the liquidator of SCIA had accepted an offer of USD 15 million from the contractor of Le Meritt Project Beijing Construction Engineering Group Co. Ltd to complete ‘Le Meritt Elipsis Project’.
Bank One challenged the sale on the grounds that its consent to the sale should have been requested considering its status as a secured creditor of SCIA by reason of the fixed charge. However, the liquidator argued that the floating charge which was created by SCIA was void because at the time of creation of the charge, the properties were in fact future properties of SCIA as opposed to Octria Ltd and, amounted to an ‘hypotheque de la chose d’autrui” ie a charge created over property belonging to a third party. The liquidator further argued that the since floating charge did not capture the ‘parts sociales’ of Ocria Ltd it did not require the consent of Bank One in order to proceed with the sale of ‘Le Meritt Elipsis Project.’ Accordingly, the liquidator did not require the consent of Bank One in order to proceed with the sale.
The Supreme Court held that Bank One, as lender, could not give effect to the floating charge which had crystallised into a fixed charge as the ‘future properties’ which were subject to the now fixed charge were still the ownership of SCIA as opposed to Octria Ltd, the borrower, whose name was mentioned in the floating charge as the owner of the ‘future properties’. However, this would have been possible if Bank One had ensured that the floating charge instrument had mentioned SCIA and included the parts sociales’ which Octria Ltd held in SCIA which would then have been bound to meet the obligations of Octria Ltd. Accordingly, it followed that SCIA could not at this stage be called upon to meet the obligations of the borrower so much so that Bank One was debarred from enforcing the fixed charge against SCIA. The net result as a matter of Mauritius law was that Bank One ranked as an unsecured creditor which could not have priority over other claims.
For further information, please contact:
Sharmilla Bhima, Partner, Appleby