The liquidator sought to recover his expenses from assets charged under a floating charge in priority to the chargee.
Held: Barleycorn was decided in error. The liquidators costs incurred in an insolvent winding up were not to be charged against the assets subject to the floating charge: ‘The winding up of a company is a form of collective execution by all its creditors against all its available assets. The resolution or order for winding up divests the company of the beneficial interest in its assets. They become a fund which the company thereafter holds in trust to discharge its liabilities . . . But the trust only applies to the company’s property. It does not affect the proprietary interests of others.’
Lord Hoffmann discussed whether assets covered by a floating charge which had crystallised were assets of the company: ‘When a floating charge crystallises, it becomes a fixed charge attaching to all the assets of the company which fall within its terms. Thereafter the assets subject to the floating charge form a separate fund in which the debenture holder has a proprietary interest. For the purposes of paying off the secured debt, it is his fund. The company has only an equity of redemption; the right to retransfer of the assets when the debt secured by the floating charge has been paid off. It is this equity of redemption which forms part of the fund held on trust for the company’s creditors which arises upon a winding up.
Putting aside any fixed charges, the position is therefore that if a company is in both administrative receivership and liquidation, its former assets are comprised in two quite separate funds. Those which were subject to the floating charge (‘the debenture holder’s fund’) belong beneficially to the debenture holder. The company has only an equity of redemption. Those which were not subject to the floating charge (‘the company’s fund’) are held in trust for unsecured creditors. In the usual case in which the whole of the company’s assets and undertaking are subject to the floating charge, the company’s fund will consist only of the equity of redemption in the debenture holder’s fund.’
Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Millett, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe
 UKHL 9, Times 05-Mar-2004, Gazette 25-Mar-2004,  2 WLR 582,  AC 298
House of Lords, Bailii
England and Wales
Cited – In re Regents Canal Ironworks Co 1875
Costs incurred by liquidators in realising charged assets are payable ahead of the debenture holder’s claims. As the debenture-holder is entitled to the proceeds, it is right that he should pay the cost of realisation. . .
Cited – In re David Lloyd and Co 1877
The secured claims of debenture holders are pursued, not in the winding up, but by enforcement of the debenture holders’ proprietary rights as chargees of the assets in question. A creditor is a person who ‘is to be considered as entirely outside . .
Cited – In re Brightlife Ltd ChD 1987
Parties contractual freedom to be respected
A clause in a debenture gave a charge which provided that the chargor should not: ‘deal with its book or other debts or securities for money otherwise than in the ordinary course of getting in and realising the same which expression shall not . .
Overruled – In re Barleycorn Enterprises Ltd; Mathias and Davies (a Firm) v Down CA 1970
The property comprised in a floating charge forms part of the assets of a company for the purposes of paying (1) costs and expenses of winding up as well as (2) preferential debts.
Phillimore LJ said: ‘Mr Wooton’s submission [for the . .
Cited – In re Calgary and Edmonton Land Co Ltd (In liquidation) 1975
Creditors in a liquidation have only a right to have the assets administered by the liquidator in accordance with the provisions of the Insolvency Act 1986. The trust applies only to the company’s property. It does not affect the proprietary . .
Cited – Ayerst (Inspector of Taxes) v C and K (Construction) Ltd HL 1976
A resolution or order for winding up of a company divests it of the beneficial interest in its assets. They become a fund which the company thereafter holds in trust to discharge its liabilities. Where a company is wound up in this country, its . .
Cited – In re Glyncorrwg Colliery Co Ltd 1926
In a receivership the costs of the receivership (including the cost of realising the property comprised in the charge) had priority to the claims of the charge holder. The preferential payments must be paid before the debenture holders ‘but not . .
Cited – In re Griffin Hotel Co Ltd ChD 1941
A company owned hotels, in Leeds and in Buxton. In 1937, it issued a debenture creating a floating charge over all its assets to secure andpound;45,000. In December 1938, an order was made in a debenture holder’s action, appointing a receiver over . .
Cited – In re M C Bacon Ltd ChD 1990
A liquidator claimed that the costs of an unsuccessful attempt to set a floating charge aside should be paid out of the assets subject to the charge in priority to the claims of the charge holder.
Held: The rule was a complete statement of the . .
Cited – In re Christonette International Ltd 1982
In the case of a compulsory liquidation the date on which a floating charge is crystallised was the date on which the winding up order was made and not the date on which the winding up petition was presented. . .
Appeal from – Buchler and Another v Talbot and others CA 22-Feb-2002
The company’s assets were subject to a floating charge. That had crystallised. The liquidators, after a voluntary winding up, sought to make the assets remaining after repayment of the sums secured, available to pay the costs of the winding up. The . .
Cited – Commissioners of Inland Revenue v The Wimbledon Football Club Limited, Ellis, Earp CA 28-May-2004
The Commissioners appealed against a refusal of their application for a revocation of the defendant’s voluntary arrangement in that it had failed to comply with section 4. They complained that the arrangement was unfair to them. It had been agreed . .
Cited – Quickson (South and West) Limited v Stephen Mark Katz, John Stephen Kelmanson (As Joint Liquidators of Buildlead Limited) ChD 25-Aug-2004
Various applications were made in the insolvency, including for removal of the liquidators and declarations that certain payments were a fraudulent preference on the creditors.
Held: No prejudice had been shown by any procedural irregularity. . .
Cited – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Cited – Hill (As Trustee In Bankruptcy of Nurkowski) v Spread Trustee Company Ltd and Another CA 12-May-2006
The defendants sought relief for transactions entered into at an undervalue. The bankrupt had entered into charges and an assignment of a loan account in their favour before his bankruptcy, and the trustee had obtained an order for them to be set . .
These lists may be incomplete.
Updated: 12 January 2021; Ref: scu.194125