Judgments national westminster bank plc respondents v. Charges over book debts in the united kingdom and australia. Related contenta recent house of lords decision on how to characterise security over book debts will have. Credit and security, fixed charges, floating charges, charges over book debts jel classification. Section 1001, taxes consolidation act 1997, which applies only to fixed charges on the book debts of a company, states that where a fixed charge is placed over the book debts of a company, the holder of.
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. Jan 10, 2006 although the charge over the companys present and future book debts was expressed to be a fixed charge, the house of lords held that the banks debenture only created a floating charge and the commissioners of inland revenue and customs and excise had priority over the proceeds of the companys book debts. In brumark, the privy council held that it is not possible to have a fixed charge over book debts and a floating charge over the proceeds of the. Fixed charges over book debts and other receivables 1997. There has been considerable debates or whether it is possible to create a fixed charge over book debts and recycling proceeds. A number of judicial decisions gave conflicting interpretations over the characteristics that were definitive of a fixed charge, particularly with reference to charges over book debts and a fixed charge that did. Regulation of charges over book debts in nigeria semantic. Fixed charges over book debts and other receivables. News book debts fixed or floating charge book debts.
Debate about the differences between fixed charges and floating charges and the nature, particular of the latter, has been raging since the 1800s when the c. Although the charge over the companys present and future book debts was expressed to be a fixed charge, the house of lords held that the banks debenture only created a floating charge and. 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. 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. The question of what is or isnt a book debt often raises its head when lenders are looking to enforce their security. What are fixed and floating charges company rescue. Is the fixed charge over book debts a viable security.
Dec 01, 2005 the point to note is that what looks good on paper that is, a fixed charge might prove worthless if the essential condition of control over the asset is not in fact maintained for or on account of the secured creditor. In order to obtain finance from banks or lenders, hong kong companies will often create a charge over their assets by way of a fixed or a. Fixed charges operating as floating the priority of preferential creditors remains vulnerable. The question of what is or isnt a book debt often raises its head when lenders are looking to. The brumark case charge over book debts fixed or floating.
Section 1001, taxes consolidation act 1997, which applies only to fixed charges on the book debts of a company, states that where a fixed charge is placed over the book debts of a company, the holder of the fixed charge may become liable for the companys outstanding employer income taxprsiusclpt or vat liabilities. David capper this article discusses how far it is possible to take a fixed charge over book debts and, in particular, whether it is possible to. Book debts and the need for careful drafting of security documents print publication. 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. Charges on the book debts of a company, states that where a fixed charge is placed over the book debts of a company, the holder of the fixed charge may become liable for the companys outstanding payeprsi or vat liabilities. Banking law charges over book debts may no longer be fixed. Is it possible to create a fixed charge over book debts. Changes which impact transferees of fixed charges over book debts were introduced pursuant to section 72 of the finance act 2019 the 2019 act. The courts have clearly stated that it will go beyond the nomenclature. There still remains some doubt concerning how such a security should be framed in the debenture so as to ensure that what is created is indeed a fixed charge over the book debts and not a. A fixed charge is created where the proceeds of the debts are paid into an account with and controlled.
There are, as professor sarah worthington has pointed out, a limited number of ways to ensure that a charge over book debts is fixed. The battle by the banks to convert their floating charges over book debts into fixed charges really began in earnest in the 1970s when the enlargement of tax and employee claims seriously eroded realisations from an insolvent companys book debts. Fixed charges over book debts back to basics but how far back. Fixed and floating charges are a type of security that a lender has over assets. An unsatisfactory area of the law fixed and floating charges yet. Following the decision of the privy council in agnew v inland. The court of appeals recent decision in national westminster bank plc v spectrum. This article discusses the use of fixed charges over book debts as a form of security in the context of the decision of the privy council in the case of agnew v commissioner of inland revenue. How do the courts classify charges over book debts. English law lords sitting as the privy council in agnew v commissioner of inland revenue,6 a case on appeal from the new zealand court of appeal.
Free practical law trialto access this resource, sign up for a free trial of practical law. The earliest judgment to recognise a floating charge did so as a necessary inference of the. The decision of the privy council in brumark signalled the superior courts disapproval of this arrangement and also cast doubt on the extent to which fixed charges over book debts were ever. Case law on fixed charges over book debts has the following history. It is well documented that sections 92 and 98d of the companies accounting act 2017 by way of amendments to the companies act 2014 have provided clarity on the ranking of preferential creditors ahead of crystallised floating charge holders. The elusive floating charge the student journal of law. The former has priority over preferential creditors revenue, customs and excise and employees hence nat west banks concern as to its classification. Fixed charges on book debtsthe story continues the. 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. The conundrum of creating fixed charges over book debts. Charge over book debts the question of control w jessica young in agnew v commissioner of inland revenue, the privy council decided that for a fixed charge to be created over a companys present and future book debts, the chargee must exercise control over both the uncollected book debts and their realised proceeds. Fixed charges operating as floating the priority of.
Is a security on book debts and proceeds a single indivisible charge or two charges. This section, published this month, amends section 1001 of the taxes consolidation act 1997 tca and came into force on 22 december 2019. The solution was an ingenious bit of drafting by virtue of. Changes which impact transferees of fixed charges over book debts were introduced pursuant to section 72 of the. In practice, in the majority of situations of fixed charges being claimed over book debts which the official receiver is likely to encounter, will involve the collection of the book debts by the company, the payment of the proceeds of realisation into an account operated for the company by the bank debenture holder and then the drawing on that. In agnew v commissioner of inland revenue, the privy council decided that for a fixed charge to be created over a companys present and future book debts. Banking law charges over book debts may no longer be. Fixed charges over book debtsback to basics but how far back. Historically, series of cases have developed the applicability of charges over book debts. Charges on the book debts of a company, states that where a fixed charge is placed over the book debts of a company, the holder of the fixed charge may become liable for the companys outstanding. The pendulum swung back and forth according to the degree of. Where a fixed charge over book debts provides that the collection of debts are paid into a.
The cases analysed here both fixed and floating charges over book debts. In light of spectrum, it is evident that the key determinant and pivotal distinction between fixed and floating charges over book debts is that of control over both the account and its proceeds. In re new bullas the debenture was expressed to operate as a fixed charge over uncollected book debts with the fixed charge being released and replaced by a. A fixed charge is created where the proceeds of the debts are paid into an account with and controlled by the bank chargee re siebe gorman v barclays 1979. It is accepted practice that banks will take a fixed charge over company book debts on condition that the proceeds of those debts are paid.
Jan 23, 2020 changes which impact transferees of fixed charges over book debts were introduced pursuant to section 72 of the finance act 2019 the 2019 act. Fixed charges over book debts capper 2004 the modern. The question for decision was whether the charge over the book debts had been created as a fixed charge, in which event it would have priority over the claims of preferential creditors, or a floating. This question was recently decided by the house of lords in national westminster bank. When a business borrows money from a lender such as a bank or another financial institution, it is not unusual for the lender to ask for security for the debt. Fixed charges on book debts re spectrum plus limited. Distinction between fixed and floating charges generally. Jan 22, 2020 changes which impact transferees of fixed charges over book debts were introduced pursuant to section 72 of the finance act 2019 the 2019 act.
The battle by the banks to convert their floating charges over book debts into fixed charges really began in earnest in the 1970s when the enlargement of tax and employee claims seriously eroded. For the purposes of creating consensual security interests, are a debt and its proceeds a single indivisible asset or can they be separated. David capper this article discusses how far it is possible to take a fixed charge over book debts and, in particular, whether it is possible to take a fixed charge over uncollected book debts while leaving the debtor company free to collect those debts and use them on its own behalf. It will be suggested that the position taken in spectrum plus, though likely to be unpopular amongst commercial parties, is the right one and should also be the law in singapore. It analyses the views expressed in the judgement in the light of the historical development of charges and the theoretical frameworks within which. This was logical as the value of the book debts lay in its proceeds, rendering the security worthless if there was no control over the proceeds. The courts have clearly stated that it will go beyond the nomenclature ascribed by the parties to the debenture and ascribe its own interpretation on the debenture, it follows that the intentions of the parties is not useful in the categorisation of charge over book debts. A number of judicial decisions gave conflicting interpretations over the characteristics that were definitive of a fixed charge, particularly with reference to charges over book debts and a fixed charge that did not contain those characteristics would be recharacterised as a floating charge. A typical debenture will purport to create a fixed charge over a companys book debts. It is well documented that sections 92 and 98d of the companies accounting act 2017 by.
Book debts and the need for careful drafting of security. 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. Changes impacting transferees of fixed charges over book debts. 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. That helps to protect the lenders position as it can seize and sell the asset that has been given as security if the loan cannot be repaid. Related contenta recent house of lords decision on how to characterise security over book debts will have wide implications for banks and insolvency practitioners. The floating charge originated in a series of chancery division decisions in the 1870s21. Mar 27, 2002 this article discusses the use of fixed charges over book debts as a form of security in the context of the decision of the privy council in the case of agnew v commissioner of inland revenue. A fixed charge is over a nonchanging asset like property whereas a floating charge is where the security is on assets that can change like a debtor book or stock. If it is a single indivisible charge, can it be a convertible charge, that is a charge which is fixed so long as it attaches to unrealised debts but floating in respect of proceeds of the debts. Section 1001 fixed charges on book debts guidelines for.
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