A charge was given over the benefits of hire purchase and leasing agreements. The terms of the charge entitled the chargee to require payments under the agreements to be paid into a special account, but the chargee never in fact did so and the chargor paid them into its own bank account from which it drew for its own purposes. The issue was whether the funds in that account were subject to a trust in favour of the chargee. It was conceded that the charge itself was a fixed charge.
Held: (obiter) This concession was wrongly made.
Millet LJ did not see how it could be possible to separate a debt or other receivable from the proceeds of its realisation. Unless and until the chargee intervened, the chargor had a contractual right to apply the proceeds of the charged assets in the ordinary course of its business. This right was ‘a badge of a floating charge’ and ‘inconsistent with the existence of a fixed charge’.
Millett LJ said: ‘The proper characterisation of a security as ‘fixed’ or ‘floating’ depends upon the freedom of the chargor to deal with the proceeds of the charged assets in the ordinary coure of business free from security. A contractual right in the chargor to collect the proceeds and pay them into its own bank account for use in the ordinary course of business is a badge of a floating charge and is inconsistent with the existence of a fixed charge.’
Judges:
Millett LJ
Citations:
[1996] 2 BCLC 682, [1996] BCC 613
Jurisdiction:
England and Wales
Cited by:
Cited – In Re Westmaze Ltd (In Administrative Receivership) ChD 15-May-1998
Westmaze were mechanical engineers. They gave a charge to secure borrowings, which described itself as a fixed charge.
Held: A Charge over a company’s book and trading assets was in fact floating even though described as a fixed charge unless . .
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 . .
Lists of cited by and citing cases may be incomplete.
Banking
Updated: 27 October 2022; Ref: scu.183203