Re Spectrum Plus Ltd
A charge over book debts that allows the company to use the proceeds in the ordinary course of business is a floating charge, whatever the parties call it.
Facts
Spectrum Plus granted a debenture to its bank, National Westminster, which was described as a specific charge over its book debts. The debenture required Spectrum to pay the proceeds of the debts into its account with the bank, but Spectrum was free to draw on the account, which was overdrawn, for its business. When Spectrum went into liquidation, the question was whether the charge was fixed or floating, which determined whether preferential creditors, including the Crown, had priority over the bank.
Legal principle
The House of Lords held that the charge was a floating charge. Lord Scott said that the essential characteristic of a floating charge, distinguishing it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event, and in the meantime the chargor is left free to use the charged asset and to remove it from the security. Since Spectrum could draw on the account into which the proceeds were paid, the bank did not have the control needed for a fixed charge. The House overruled Siebe Gorman v Barclays Bank.
Related cases on company charges, insolvency and disqualification
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- 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
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