Nature of Company’s Debenture Charge
The court considered the nature of a debenture charge. Romer LJ said: ‘I certainly do not intend to attempt to give an exact definition of the term ‘floating charge’, nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics . . ‘. ‘I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1) If it is a charge on a class of assets of a company present and future; (2) if that class is one which, in the ordinary course of business of the company, would be changing from time to time; and (3) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.’ and (Vaughan Williams LJ) ‘ . . what you do require to make a specific security is that the security whenever it has once come into existence, and been identified or appropriated as a security, shall never thereafter at the will of the mortgagor cease to be a security.’
Romer LJ, Vaughan Williams LJ
 2 Ch 295
England and Wales
Appeal from – In re Yorkshire Woolcombers Association Ltd ChD 1903
Farwell J said: ‘A charge on all book debts which may now be, or at any time hereafter become charged or assigned, leaving the mortgagor or assignor free to deal with them as he pleases until the mortgagee or assignee intervenes, is not a specific . .
Appeal from – Illingworth v Houldsworth HL 1904
A clause in a floating charge allowing a company to continue to trade in the assets charged: ‘contemplates not only that it should carry with it the book debts which were then existing, but it contemplates also the possibility of those book debts . .
Cited – National Westminster Bank Plc v Spectrum Plus Ltd and others ChD 15-Jan-2004
The company granted a debenture to the claimant purporting to secure its book debts. The company went into liquidation. The liquidator challenged the bank’s charge.
Held: Siebe was wrongly decided. The charge was ineffective over the book . .
Cited – Supercool Refrigeration and Air Conditioning v Hoverd Industries Ltd ChD 1994
(New Zealand) The court noted a greater reluctance in Australia and Ireland than in England to accept the creation of a fixed charge over present and future book debts.
Tompkins J said:’ a requirement to pay the proceeds of the book debts . .
Cited – National Westminster Bank Plc v Spectrum Plus Ltd; In re Spectrum Plus CA 26-May-2004
The court was asked whether a charge given over book debts in a debenture was floating or fixed.
Held: Since the charge asserted some control over receipt of the payments, it was a fixed charge. Upon payment into the account, title to the . .
Cited – National Westminster Bank plc v Spectrum Plus Limited and others HL 30-Jun-2005
Former HL decision in Siebe Gorman overruled
The company had become insolvent. The bank had a debenture and claimed that its charge over the book debts had become a fixed charge. The preferential creditors said that the charge was a floating charge and that they took priority.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Updated: 19 November 2021; Ref: scu.191954