The house of lords judgment in the spectrum plus case in summer 2005 marks an important landmark in settling a muchcontested english common law position on book debts. At first instance national westminster bank plc v spectrum plus ltd and others chd 2004 2 wlr 783, 2004 1 all er 981, 2004 bcc 51, 2004 1 bclc 335, bailii, 2004 ewhc 9 ch the company. Limited v barclays bank limited 1979 2 lloyds lr142, the house of lords has held that a charge over book debts where the chargor is free to draw on the account into which proceeds of such book debts are. Book debts are a current asset and whether or not there can be a valid fixed charge on book debts has been the subject of much legal discussion. The end of an era re spectrum plus despite romer ljs classic statement identifying the usual characteristics of a floating charge, 1 it has long been clear that the. The obligations of the company under the debenture were to pay the proceeds of any book debt into the companyos account with the bank, not to sell, factor, discount or otherwise charge or assign any such book debt in favour of any other person without the consent of the bank and, if called on to do so, to execute legal assignments of such book. In fact, in the spectrum plus litigation natwest bank forced the crowns hand by issuing its own application against the company, for a declaration that its charge over the companys book debts was. Dec 01, 2005 the house of lords judgment in the spectrum plus case in summer 2005 marks an important landmark in settling a muchcontested english common law position on book debts. The house of lords, with seven members given the constitutional issue of retrospective rulings, held that the charge over spectrum plus ltds book debts was floating, because the hallmark of a floating charge is that the business is free to deal with the assets in business as usual. The house of lords, with seven members given the constitutional issue of retrospective rulings, held that the charge over spectrum plus ltds book debts was floating, because the hallmark of a floating.
The spectrum plus judgment 1 introduction the house of lords recently gave their anticipated decision in the case of national westminster bank plc v spectrum plus limited. Related contentin the year since the house of lords decision in national westminster bank plc v spectrum plus limited, market practice in relation to charges over book debts has remained broadly unchanged in the context of ordinary bank lending but the case has had some impact in the context of more structured arrangements. In the siebe gorman case it was held that the charge over book debts was fixed. Re spectrum plus ltd wikimili, the free encyclopedia. In 1997 spectrum opened a current account with national westminster bank and obtained an overdraft facility of. The lords unanimously upheld the vice chancellors first. Free practical law trialto access this resource, sign up for a free trial of practical law.
The lords unanimously upheld the vice chancellors first instance decision and found that the banks debenture created a floating charge over book debts as opposed to a fixed charge. National westminster bank plc v spectrum plus limited and. The spectrum plus judgment 1 introduction the house of lords recently gave their anticipated decision in the case of national westminster bank plc v spectrum plus limited and others 2005 ukhl 41. Returning to the court of appeal in spectrum plus, lord phillips of maltravers also said in his postscript paragraph 99 it would seem beyond dispute that a requirement to pay book debts into a blocked account will be sufficient restriction to render a charge over book debts a fixed charge, even if the chargor is permitted to overdraw on. The law in this area is still vague and uncertain in australia. On 26 may, the court of appeal in national westminster bank v spectrum plus limited overturned a 2001 privy council ruling in the brumark investments case, thereby giving banks increased access to the book debts of insolvent companies. Charges over book debts in the united kingdom and australia. If all the elements of control are not met then the charge will only be a. Fixed charges over book debts david capper the court of appeals recent decision in national westminster bank plc v spectrum plus ltd was a great victory for banks in their efforts to keep fixed. House of lords national westminster bank plc respondents. Return to old law on book debts insolvencybankruptcyre.
Fixed charges over book debts david capper the court of appeals recent decision in national westminster bank plc v spectrum plus ltd was a great victory for banks in their efforts to keep fixed security over book debts alive. If the court declared it not a floating charge, the preferential creditors have no such priority, and the bank would be entitled to the whole of the proceeds. Book debt meaning in the cambridge english dictionary. In the decision of the house of lords in national westminster bank plc v spectrum plus limited in voluntary liquidation and others 2005 ukhl 41 it was suggested that a fixed charge over book debts. Yes, you can take a fixed charge over book debts, but if you want to it to be enforceable, you must have practical control of the item, and a legal right to stop the. Yes, you can take a fixed charge over book debts, but if.
The debenture contained a charge over book debts in very similar terms to the corresponding charge in a debenture in an earlier case, siebe gorman 2 lloyds rep 142. The second is to construe statutory expression floating charge to ascertain whether that expression ap. That debenture has since become a more or less standard form and little criticism. The following are examples of what constitutes a book debt. Returning to the court of appeal in spectrum plus, lord phillips of maltravers also said in his postscript paragraph 99 it would seem beyond dispute that a requirement to pay book debts into a blocked. To secure its indebtedness on the overdraft, the company issued a debenture. The debenture contained a charge over book debts in very similar terms to the corresponding charge in a debenture in. Related contentthe court of appeal has overturned the first instance decision in national westminster bank. It held, somewhat controversially, that it was possible to separate a book debt from its. The end of an era re spectrum plus despite romer ljs 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. Re new bullas trading ltd 1994 1 bclc 485 is a uk insolvency law case, concerning the definition of a floating charge. Appeal from national westminster bank plc v spectrum plus ltd and others chd 2004 2 wlr 783, 2004 1 all er 981, 2004 bcc 51, 2004 1 bclc 335, bailii, 2004 ewhc 9 ch the company. However, the recent case of re spectrum plus limited 2005 the house of lords have confirmed that fixed charges over book debts in a standard bank debenture was, in fact, a floating charge since there was no real restriction on the manner in which the proceeds of book debts were used by the customer after those proceeds were paid into the account. Spectrum plus limited 2004 ewhc 9 ch united kingdom 15.
The potentially precedentsetting spectrum plus lawsuit regarding the legal treatment of a charge over book debts has taken a surprising turn. Book debts and the need for careful drafting of security. The debenture granted by spectrum plus limited to natwest was, in material terms, no different to that. Where a fixed charge over book debts provides that the collection of debts are paid into a separate bank account and the company is not free to deal with the proceeds in the ordinary course of business the official receiver may be. When spectrum went into liquidation, natwest argued that the charge was a fixed charge over book debts and proceeds. Since the house of lords decision in re spectrum plus ltd 2 ac 680, a fixed charge is only capable of being created over book debts if the money received is paid into a blocked designated account over which the lender has control both on paper and in practice. Fixed and floating charges over a companys book debts. Where a fixed charge over book debts provides that the collection of debts are paid into a. The application before me was issued by the bank on 10th july 2003.
Spectrum plus has finally ended this particular kind of fixed charge over book debts but still leaves unanswered the wider question of the precise circumstances in which a fixed charge over book debts is ever possible. The charge was over all present and future book debts and the terms of the charge provided that the company should not sell factor discount or otherwise charge or. The facts in brief were that spectrum plus ltd had granted a debenture to its bank. Fixed charges on book debts re spectrum plus limited. The spectrum case concerned a charge that had been granted to spectrum plus ltd the company to natwest the bank to secure an overdraft of. Since the house of lords decision in re spectrum plus ltd 2005 2 ac 680, a fixed charge is only capable of being created over book debts if the money received is paid. If held to a floating charge, spectrums preferential creditors including the crown creditors would be entitled to have their debts paid out of the proceeds of the book debts in priority to the banks claims insolvency act 1986 s 175. If the court declared it not a floating charge, the preferential creditors have no such priority, and the. On 26 may, the court of appeal in national westminster bank v spectrum plus limited overturned a 2001 privy council ruling in the brumark investments case, thereby giving banks increased access to the. This necessarily implies that, in ascertaining the nature of a charge over book debts, the court would. Spectrum plus, a manufacturer of dyes, paints and related products, operated current and overdraft accounts with natwest. Spectrum plus house of lords decides that the bank.
A charge over book debts in a debenture which required the proceeds of the book debts to be paid into an account with the bank but placed no. Court of appeal overturned a recent high court ruling that an unrestricted right to collect and make use of the proceeds of book debts is inconsistent with a fixed charge rate. To secure its indebtedness to the bank, spectrum granted to the bank a debenture. To secure its indebtedness to the bank, spectrum granted to the bank a debenture which included a fixed charge over book debts. In doing so, emphasis will be placed on the genesis of case law and significant body of jurisprudence surrounding charges over book debts, culminating in the house of lords decision of spectrum plus and the effect of the approach the english courts have taken in relation to this issue. The house of lords judges gave their decision in national westminster bank plc v spectrum plus limited and others 2005 ukhl 41. Recently, a siebe gormantype debenture came under judicial scrutiny in national westminster bank plc v spectrum plus limited. He held that the charge granted to the bank over spectrums book debts was, notwithstanding that it was expressed to be a fixed charge, in law a floating charge.
The court of appeal has upheld the siebe gorman decision, meaning clearing banks can continue to take fixed charges on book debts. Charge over book debts the question of control 231 as well as in the use of the realised proceeds. Yes, you can take a fixed charge over book debts, but if you want to it to be enforceable, you must have practical control of the item, and a legal right to stop the chargor walking off with it. The house of lords ruled that the charge over present and future book debts granted by spectrum plus to natwest under a. When spectrum, inevitably, went bust, it owed natwest. Appeal from national westminster bank plc v spectrum plus ltd and others chd 2004 2 wlr 783, 2004 1 all er 981, 2004 bcc 51, 2004 1 bclc 335, bailii, 2004 ewhc 9 ch the company granted a debenture to the claimant purporting to secure its book debts. Related contentthe court of appeal has overturned the first instance decision in national westminster bank plc v spectrum plus limited, clarifying who has the better entitlement to the proceeds of book debts. Book debts have been defined as all such debts accruing in the ordinary course of a mans trade as are usually entered in trade books but to constitute. Following the decision of the privy council in agnew v inland. Re spectrum plus ltd 2005 ukhl 41 was a uk company law decision of house of lords which settled a number of outstanding legal issues relating to floating charges and recharacterisation risk under the. At first instance national westminster bank plc v spectrum plus ltd and others chd 2004 2 wlr 783, 2004 1 all er 981, 2004 bcc 51, 2004 1 bclc 335, bailii, 2004 ewhc 9 ch the company granted a debenture to the claimant purporting to secure its book debts.
It held, somewhat controversially, that it was possible to separate a book debt from its proceeds, and that it was possible to create a fixed charge over the book debt but only a floating charge over the proceeds. Spectrum plus has finally ended this particular kind of fixed charge over book debts but still leaves unanswered the wider question of the precise circumstances in which a fixed charge over book debts. Re spectrum plus limited international corporate rescue. Since the house of lords decision in re spectrum plus ltd 2005 2 ac 680, a fixed charge is only capable of being created over book debts if the money received is paid into a blocked designated account over which the lender has control both on paper and in practice. The spectrum case is the latest instalment in the debate that has been continuing since the judgment of the privy council in the new zealand brumark case two years ago. If held to a floating charge, spectrum s preferential creditors including the crown creditors would be entitled to have their debts paid out of the proceeds of the book debts in priority to the banks claims insolvency act 1986 s 175. The question for decision, therefore, is whether a charge over present and future book debts, where the chargor cannot dispose of or charge the uncollected book debts but can deal with its debtors and collect the debts and where the chargor is obliged to place the payments made to it by its debtors in a designated account with the chargee bank but can freely draw. Spectrum plus has finally ended this particular kind of fixed charge over book debts but still leaves unanswered the wider question of the precise circumstances in which a fixed charge over book. Hanlon, j and heywood, rob 2006 spectrum plus and book debts. The terms of the charge restricted spectrums ability to deal with the book debts as follows. The debenture contained a charge over book debts in very similar terms to the corresponding charge in a debenture in an earlier case, siebe gorman 1979 2 lloyds rep 142. Spectrum opened an overdraft facility, and made an agreement with, national westminster bank plc natwest that said it was granting a fixed charge, or in the words of the contract, a specific charge of all book debts and other debts now and from time to time due or owing to spectrum to secure a.
The elusive floating charge the student journal of law. To secure its indebtedness on the overdraft, the company issued a debenture expressed to create a fixed charge over the companys book debts and a floating charge over the current account, into which proceeds of the. Limited v barclays bank limited 1979 2 lloyds lr142, the. Related contentin the year since the house of lords decision in national westminster bank plc v spectrum plus limited, market practice in relation to charges over.
730 1034 1039 586 275 1086 81 172 1066 1192 429 50 668 52 813 1219 529 225 1051 1441 493 1291 718 976 1185 539 1469 919 1359 489