Categorisation of charge

Re Armagh Shoes Ltd,

Categorisation of a charge as fixed or floating is based on the substance of the arrangement
between the parties.
Evans v Rival Granite Quarries Ltd,
The fact that an instrument does not purport to create a floating charge is irrelevant. If there is
a charge and that charge has the characteristics of a floating charge, it matters not what the
drafter of the instrument chose to call it. It is the essence and nature of the security and not
the label placed upon it that matters.

Re Brightlife Ltd,
Court held that despite the company created a fixed charge over its book debts, but the
company continued to have freedom to deal with the proceeds. The name given to the charge
is not conclusive.

Book debt (floating or fixed)

UMBC Bhd v Aluminex (M) Bhd,
The court affirmed the creation of a fixed charge on a company’s book debts.
Re New Bullas Trading Ltd, (overruled)
The court held that it is possible to create a fixed charge over book debts while they were
uncollected and a floating charge over proceeds after collected.
Agnew v Commissioner Inland Revenue (Re Brumark Investments Ltd),
Disapproved Re New Bullas Trading Ltd and held that it was wrongly decided.
National Westminster Bank v Re Spectrum Plus Ltd,
Spectrum (S) appealed against the decision that a charge over book debts in a debenture
given by S to the respondent National Westminster 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 (fixed 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 could not charge in favour of
other person debts. But there were no restrictions on Spectrum’s operation of the account.
Spectrum’s account was always overdrawn but it used the proceeds of the debts as and when
it was necessary. When Spectrum went into liquidation, N argued that the charge was a fixed
charge over book debts and proceeds. The Inland Revenue, which was a major creditor,
argued the debenture was merely a floating charge.
Held:
It was possible to create a fixed charge over book debts. However, in this case, Charge over
Spectrum Plus Ltd's book debts was floating, because the hallmark of a floating charge is that
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 as in Agnew v Commissioner Inland
Revenue (Re Brumark Investments Ltd).
The business is free to deal with the assets in business as usual in this case. The fact that the
charge was expressed as a fixed charge did not prevent S drawing on the account in this case.
In fact, 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.
It is not when book debts were paid into a separate account, then a charge over them would
be deemed to be fixed. 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 as in the case of re new bullas trading ltd.
Thus, it overruled the case of re new.