Chapter 4 - Case Flashcards
Re New Bullas Trading Ltd (Overruled by spectrum)
Security of a debt
3i had a debenture secured by a fixed and floating charge over book debts of New Bullas. When New Bullas went into liquidation, the issue of whether a charge over book debts can be divided into two categories arise.
The Court held that the charge may be divisible and unless there is some authority or principle of law which prevented them from agreeing what they have agreed, their agreement must prevail.
Orion Finance Ltd v Crown Financial Management Ltd
Millett LJ: “In deciding into which category a transaction falls, the term which the parties used to describe the transaction are not necessarily determinative. For example, if they describe a charge as fixed when it is in fact floating, then ‘their ill-chosen language must yield to substance’”
Re Panama, New Zealand and Australian Royal Mail
A steamship company, having power to issue mortgages, bonds or debentures, issued mortgage debentures, charging the “undertaking, and all sums of money arising therefrom,” with the repayment at a specified time of the money borrowed. Before the debentures were due, the company wound up.
The Court held that the debenture holders acquired a charge upon all the property, past and future, by the term “undertaking;” and that they were entitled to be paid in priority to the general creditors.
Re Yorkshire Woolcombers Assoc
Floating Charge
Yorkshire Woolcombers borrowed money from various guarantors. On behalf of some guarantors, Mr Frederick agreed with the association to have a charge over the company’s book debts, present and future. When they appointed a receiver for the debts, other creditors followed suit. The other creditors contended that Mr Frederick’s agreement was void as it was a floating charge and was not registered.
The Court held that it was a floating charge and was void as it was not registered. This removed Mr Frederick’s priority to the repayment of his and some other’s debts. The HL reaffirmed the Court’s decision.
A charge is floating if:
- It is a charge on present and future assets
- The class of assets changes in the ordinary course of business
- The company can deal with the assets in business as usual.
Re Spectrum Plus Ltd, National Westminster Bank plc v Spectrum Plus Ltd
A charge over book debts in a debenture which required proceeds of book debts to be paid into a designated account but placed no restriction on the use will be considered a floating charge.
National Westminster Bank are debenture holders of Spectrum Plus Ltd. Their debentures requires spectrum to pay its proceeds from debts into a specific account and not without the prior consent of Westminster Bank to sell, factor, discount or charge or assign in favor of anyone to do so. The liquidators of Spectrum claimed that these were not fixed charges.
The House of Lord held that the charge was a floating charge. Despite not being able to sell the debts, Spectrum was free to remove the charged assets and thus in principle, should be categorised as a floating charge. It was not possible to create a charge on book debt which was fixed while they were uncollected but floating in respect of the proceeds when collected.
Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County BC
Cosslett entered into a contract with Bridgend to rehabilitate a coal dump site. For this purpose, Cosslett purchased two coal washing plants with help of advances from B. The contract allowed B on seven days notice if C went into liquidation or abandoned the site. C later went into administration and B engaged a new company to complete the work using the washing plants. Its administrator, Mr Smith, applied to have the property returned.
The HL held that the clause in the contract operates as a floating charge and it was void as it was not registered.
Cosslett Ltd v Bridgend County BC
A contractual right enables a creditor to sell his debtors’ goods and apply the proceeds in or towards satisfaction of the debt is a right of a security character. The conclusion does not depends on the parties’ intention to create security. Their intention, objectively ascertained is relevant to the construction of their contract.
Re Leyland Daf, Buchler v Talbot
Floating Charge:
- Costs of preserving and realising the assets;
- Receiver’s remuneration and costs of receivership;
- debts which are preferential in receivership;
- the principal and interest secured by floating chage; and only then
- the company
Free Assets:
- Costs of preserving and realising the assets;
- Liquidators remuneration and costs;
- Preferential debts in winding up;
- The floating charge holder if preferential debts have been paid from the floating fund;
- The general creditors; and only then
- The company
Siebe Gorman v Barclays (Overruled by spectrum)
Fixed charge if it is paid into a designated account and can’t use without the permission of the debenture holder.
A fixed charge is one that fastens over ascertainable property. A floating charge is ambulatory and hovers over the property until some event occurs causing it to settle.
Agnew v Comm of IR
To decide whether fixed or floating there is a two stage process:
- Construe the instrument of charge to seek the parties intentions to ascertain the rights and obligations created;
- Then a matter of categorisation and law.
Re Keenan Bros
A floating charge is dormant and hovering. A fixed charge takes effect from the date of its creation.
