Debentures

Re Yorkshire Woolcombers Association [1903]

floating charge has 3 general key attributes (not meant to be an exact definition):

i] charge on class of assets of a company present and future

ii] class changes from time to time in ordinary course of business

iii] company may carry on business in the ordinary way until some future event

Re Cimex Tissues Ltd. [1994]

floating charges attach to a “shifting fund of assets”

Dr. Gough

fixed charges create a proprietary interest, while floating charges only carry contractual rights until crystallization

Ferran, Floating Charges — the Nature of Security

floating charges create an equitable proprietary interest

Siebe Gorman & Co. Ltd. v Barclays Bank Ltd. [1979]

fixed charge to Barclays over book debts, but receivables were put in account that company could use —> no ability to place a charge on those funds + bank could take absolute control on notice

• Slade J —> bank’s control was “inconsistent” with a floating charge

Re Keenan Bros Ltd. [1986]

Siebe Gorman charge was interpreted as a “hybrid charge” —> fixed charge over debt itself, and floating charge over proceeds

• necessary that company’s ability to use proceeds was restricted

• analysis depended on factual nature of the charge

Re Brightlife Ltd. [1987]

a Siebe Gorman hybrid-charge required some kind of restriction being placed on company’s ability to use proceeds

note actual case applied argument of freedom of contract to suggest crystallization on notice is possible

Nourse LJ in CoA in Re New Bullas Trading Ltd. [1994]

Siebe Gorman fixed charge arose even if no restriction was placed on spending of proceeds

• didn’t believe criticism that separating debt and its proceeds was “unrealistic and artificial”

• contractual freedom meant we had to respect the party’s stated intention to create a fixed charge

Worthington, Fixed Charges over book debts and other receivables [1997]

floating charge was one where assets could be removed from ambit of chargee —> spending proceeds of book debt effectively did that

Re New Bullas Trading [1995] was wrong even without assuming that debt and proceeds were “indivisible”

UKPC in Re Brumark [2001]

two-stage process to determine floating charge v fixed charge:

i] ascertain the nature of rights and obligations that parties intended to grant each other

ii] what do those rights and obligations actually translate into?

rejected Nourse LJ’s “freedom of contract” argument

rejected idea that you could divide a book debt and its proceeds —> all the value of the book debt is in the proceeds

Siebe Gorman and Re Keenan were still fixed charges since money was not a part of the company cash flow

UKSC in Re Spectrum Plus Ltd. [2005]

accepted UKPC decision in Re Brumark [2001]

fixed charges necessarily arise when right to free disposal no longer exists —> thus Siebe Gorman should be overruled, not a fixed charge

Rimer J’s third test in Yorkshire Woolcombers Association [1903] would always mean a floating charge (“ability to carry on ordinary course of business”)

rejected CoA argument that Siebe Gorman debentures should be upheld due to “customary usage”

Worthington, An Unsatisfactory Area of the Law — Fixed and Floating Charges Yet Again [2004]

key difference between definition of “control” and “preservation” —> fixed charges meant to ensure preservation of the asset

Siebe Gorman debentures were problematic since they allowed banks to circumvent insolvency rules

• banks gained greater priority without sacrificing debtor flexibility

• unsecured creditors were left at greater risk

Re Avanti Communications (in liquidation) [2023]

reinforced idea of “ordinary course of business” —> limited/restricted ability to deal with asset is fine (Spectrum did not mean that absolute control is necessary)

consistent with Holyrod v Marshall [1862]