Lloyd's Maritime and Commercial Law Quarterly
CHARGES OVER BOOK DEBTS: THE END OF AN ERA
Re Spectrum Plus
Despite Romer LJ’s classic statement identifying the usual characteristics of a floating charge,1
it has long been clear that the essential difference between a fixed and a floating charge turns upon the extent to which the chargor is free to deal with the charged assets in the ordinary course of business.2
As the nature of the charged property is not essential to the characterization of the charge,3
the recognition that a lender may take a fixed charge over a company’s book debts is unobjectionable.4
Over the years, the courts have tied themselves in knots trying to distinguish in practice between fixed and floating charges over book debts and, despite recent authoritative guidance,5
doubts have persisted. In National Westminster Bank Plc
v. Spectrum Plus Ltd
(Re Spectrum Plus Ltd (in liquidation)
)6
a plenary committee of the House of Lords sought to bring order to this area.
The defendant, Spectrum Plus, was a manufacturer of dyes and paints. It had a current account and an overdraft facility with the claimant, National Westminster Bank. This facility was repayable on demand, fluctuated according to the defendant’s capital needs and was secured by an all moneys debenture over the company’s assets. The debenture was in a standard form and purported to charge “by way of specific
charge all book debts and other debts … now and from time to time due or owing to the company”7
and by way of “floating security … its undertaking and all its property, assets and rights whatsoever”.8
Furthermore, the debenture provided that, with respect to any book or other debts charged to the claimant, the defendant should “pay into the Company’s account with the Bank all moneys which it may receive in respect of such debts and shall not without the prior consent of the Bank sell factor discount or otherwise charge or assign the same in favour of any other person or purport to do so”.9
The defendant’s practice was to collect the proceeds of the book debts and pay them into its account with the claimant, in reduction of its overdraft. The defendant was entitled to draw on the current account whenever it required. After several years, the defendant resolved to go into creditors’
1. Re Yorkshire Woolcombers Association Ltd
[1903] 2 Ch 284, 295. Romer LJ indicated that a floating charge would usually be over a class of assets, including present and future property, would usually relate to assets that changed from time to time and would allow the chargor to use the charged assets in the ordinary course of business. For other attempts to distinguish fixed and floating charges: see Illingsworth
v. Houlsworth
[1904] AC 355, 358; Evans
v. Rival Granite Quarries
[1910] 2 KB 979, 999.
2. Agnew
v. IRC
(“Re Brumark
”) [2001] UKPC 28; [2001] 2 AC 710, [13].
3. See Smith
v. Bridgend County Borough Council
[2002] 1 AC 336. For a suggestion that the nature of the charged property may be relevant to the characterization of the charge when the instrument is otherwise silent as to whether the chargor may deal with the assets in the ordinary course of business, see S Atherton & R J Mokal, “Charges over Chattels: Issues in the Fixed/Floating Jurisprudence” (2005) 26 Co Law 10. See also Ashborder BV
v. Green Gas Power Ltd
[2004] EWHC 1517.
4. Siebe Gorman & Co Ltd
v. Barclays Bank Ltd
[1979] 2 Lloyd’s Rep 142.
5. Supra
, fn 2.
6. [2005] UKHL 41; [2005] 3 WLR 58.
7. See cl 2(v) of the debenture.
8. See cl 2(vii) of the debenture.
9. See cl 5 of the debenture. This clause also required the defendant “if called upon to do so by the bank from time to time to execute legal assignments of such book debts and other debts to the bank”. According to Lord Scott of Foscote, such a clause is frequently inserted in order to fortify the fixed nature of the charge in question: see at [104].
CASE AND COMMENT
441