National Westminster Bank Plc v Spectrum Plus Ltd & Ors (2005)


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 restriction on the use that could be made of the balance on the account thereafter was a floating and not a fixed charge, Siebe Gorman & Co Ltd v Barclays Bank Ltd (1979) 2 Lloyd's Rep 142 overruled.


The appellant preferential creditors of a company (S) appealed against the decision ((2004) EWCA Civ 670) that a charge over book debts in a debenture given by S to the respondent bank (N) was a fixed charge. S had opened an account with N, obtained an overdraft facility of £250,000 and executed a debenture to secure its indebtedness to N. The debenture was expressed to create a specific charge of all book debts owing to S and required S to pay into its account with N all moneys which it received in respect of such debts, and not without the prior consent in writing of N to sell, factor, discount or otherwise charge or assign the same in favour of any other person or purport to do so, and required S if called upon to do so by N to execute legal assignments of such book debts and other debts to N. S had gone into creditors' voluntary liquidation owing £165,407 to the bank. Its liquidators had collected £113,484 in respect of book debts. S's unsecured creditors included £16,136 due to preferential creditors who claimed that the charge over book debts was only a floating charge and that accordingly they were entitled to be paid out of the proceeds in priority to the bank under the Insolvency Act 1986 s.175. N submitted that (1) the debenture created a fixed charge on book debts in accordance with the decision in Siebe Gorman & Co Ltd v Barclays Bank Ltd 2 Lloyd's 142; (2) in the interests of commercial certainty a debenture in the Siebe Gorman form should be held to create a fixed charge because it had been taken to have that effect for some 25 years; (3) if the court overruled Siebe Gorman it should do so only for the future and not in respect of transactions already entered into.


(1) It was possible to create a fixed charge over book debts, Tailby v Official Receiver (1888) 13 App Cas 523 applied. The debenture in this case did not create a fixed charge. The essential characteristic of a floating charge which distinguished it from a fixed charge was that the asset subject to the charge was 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 was left free to use the charged asset and to remove it from the security, Agnew v Commissioner of Inland Revenue (2001) UKPC 28 , (2001) 2 AC 710 applied. Where the chargor remained free to remove the charged assets from the security, the charge should, in principle, be categorised as a floating charge. It was not possible to create a charge on book debts which was fixed while they were uncollected but floating in respect of the proceeds when collected, New Bullas Trading Ltd, Re (1994) BBC 36 overruled. The debenture in the instant case and in Siebe Gorman required the proceeds of book debts to be paid into the bank account but placed no restriction on the use that could be made of the balance on the account thereafter. It did not matter whether the account was overdrawn or not. The fact that the charge was expressed as a fixed charge did not prevent S drawing on the account. The account was an ordinary account on which S could draw for normal business purposes. S's freedom to draw on the account was inconsistent with the charge being a fixed charge. (2) Siebe Gorman had stood unchallenged for many years but the construction placed on the debenture in that case was wrong. Like any other first instance decision, it had always been open to correction and those who relied upon it must be taken to have been aware of that. Siebe Gorman overruled. (3) The House of Lords had jurisdiction in an exceptional case to decide that its decision should only take effect for the future or should otherwise be limited but in the instant case there was no good reason for postponing the effect of overruling Siebe Gorman.

Appeal allowed.