Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd)
Whether a charge is fixed or floating depends on the rights the parties have created, and a charge is floating if the company can deal with the charged assets without the chargee's consent.
Facts
Brumark, a New Zealand company, granted a charge to its bank over its book debts, which was described as a fixed charge over the uncollected debts, but allowed Brumark to collect the debts and use the proceeds in its business, which then became subject to a floating charge. When Brumark went into receivership, the tax authorities, as preferential creditors, argued that the charge over the book debts was a floating charge, so they had priority over the bank.
Legal principle
The Privy Council held that the charge was a floating charge. Lord Millett said that the court must first construe the instrument to determine the rights and obligations that the parties intended to grant each other, and then categorise the charge as a matter of law, regardless of the label the parties used. If the chargor is free to deal with the charged assets and withdraw them from the security without the consent of the chargee, the charge is a floating charge. Since Brumark could collect the debts and use the proceeds as it wished, the charge over the debts was floating, because the debts and their proceeds could not sensibly be separated.
Related cases on company charges, insolvency and disqualification
- Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
- BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408
- Re Continental Assurance Co of London plc [2007] 2 BCLC 287
- Re Lo-Line Electric Motors Ltd [1988] Ch 477
- Re MC Bacon Ltd [1990] BCLC 324
- Morris v Bank of India [2005] EWCA Civ 693
- Re Panama, New Zealand and Australian Royal Mail Co (1870) LR 5 Ch App 318
- Re Patrick and Lyon Ltd [1933] Ch 786
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