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Re Spectrum Plus: Difference between revisions
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Yes, you can take a {{tag|fixed charge}} over [[book debts]], but if you want to it to be enforceable, you must have practical control of the item, and a legal right to stop the [[chargor]] walking off with it. | Yes, you can take a {{tag|fixed charge}} over [[book debts]], but if you want to it to be enforceable, you must have practical control of the item, and a legal right to stop the [[chargor]] walking off with it. | ||
===Issues=== | ===Issues=== | ||
*[[Stare decisis]]: Does a newly decided strand of common law apply to contracts pre-dating its development, which were concluded on the assumption of contrary rules? | *'''[[Stare decisis]]''': Does a newly decided strand of common law apply to contracts pre-dating its development, which were concluded on the assumption of contrary rules? | ||
*[[Fixed charge|Fixed]] and [[Floating charge|floating]] [[charges]]: If you call it a [[fixed charge]], you know, ''is it''? | *'''[[Fixed charge|Fixed]] and [[Floating charge|floating]] [[charges]]''': If you call it a [[fixed charge]], you know, ''is it''? | ||
==[[Stare decisis]] and the possibility of [[prospective overruling]]== | |||
{{casenote1|Re Spectrum Plus}} overruled the earlier decision of {{cite|Siebe Gorman & Co Ltd|Barclays Bank Ltd|1979|2 Lloyd’s Rep|142}}. This meant charges drafted as fixed charges on honest reliance on that principle — that it didn’t matter so much if you didn’t have practical control — were suddenly questionable. Given the “time value” of charge registration — the first-in-time prevails, so if you have to re-take your [[charge]] you are going right to the back of the queue — this potentially invalidated — or at least ''weakened'' — a whole lot of security documents. So could the court apply “[[prospective overruling]]” such that existing charges entered into in good faith in reliance on ''Siebe Gorman'' would be upheld? | {{casenote1|Re Spectrum Plus}} overruled the earlier decision of {{cite|Siebe Gorman & Co Ltd|Barclays Bank Ltd|1979|2 Lloyd’s Rep|142}}. This meant charges drafted as fixed charges on honest reliance on that principle — that it didn’t matter so much if you didn’t have practical control — were suddenly questionable. Given the “time value” of charge registration — the first-in-time prevails, so if you have to re-take your [[charge]] you are going right to the back of the queue — this potentially invalidated — or at least ''weakened'' — a whole lot of security documents. So could the court apply “[[prospective overruling]]” such that existing charges entered into in good faith in reliance on ''Siebe Gorman'' would be upheld? | ||
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So no, fellas. Natwest, you are shit out of luck.<ref>Being shit out of luck is something of a habit of Natwest’s — see [[Greenclose v National Westminster Bank plc - Case Note|Greenclose]]</ref> | So no, fellas. Natwest, you are shit out of luck.<ref>Being shit out of luck is something of a habit of Natwest’s — see [[Greenclose v National Westminster Bank plc - Case Note|Greenclose]]</ref> | ||
==[[Fixed charge|Fixed]] and [[Floating charge|floating]] [[charges]]== | |||
Whether a {{tag|charge}} over present and future [[book debts]], where: | Whether a {{tag|charge}} over present and future [[book debts]], where: | ||
*the chargor cannot dispose of or charge the uncollected book debts but | *the chargor cannot dispose of or charge the uncollected book debts but | ||
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is capable in law of being a {{tag|fixed charge}}. | is capable in law of being a {{tag|fixed charge}}. | ||
==The facts== | |||
*Spectrum had an overdraft with the [[NatWest]]. | *Spectrum had an overdraft with the [[NatWest]]. | ||
*NatWest took a fixed charge over its book debts to secure the overdraft. it required Spectrum to pay the debts into the overdraft account. It did not prevent Spectrum withdrawing them. | *NatWest took a fixed charge over its book debts to secure the overdraft. it required Spectrum to pay the debts into the overdraft account. It did not prevent Spectrum withdrawing them. | ||
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So ...? | So ...? | ||
===Choice snippets=== | |||
'''Lord Hope of Craighead''': <br> | '''Lord Hope of Craighead''': <br> | ||
:“An account from which the customer is entitled to withdraw funds whenever it wishes within the agreed limits of any overdraft is not a blocked account. In ''Agnew v Commissioners of Inland Revenue'' [2001] 2 AC 710, 722, para 22 Lord Millett said that the critical feature which led the Irish Supreme Court in ''In re Keenan Bros Ltd'' [1986] BCLC 242 to characterise the charge on book debts as a fixed charge was that their proceeds were to be segregated in a blocked account where they would be frozen and ''unusable by the company without the bank’s written consent''<ref>Emphasis added.</ref>. I respectfully agree.” | :“An account from which the customer is entitled to withdraw funds whenever it wishes within the agreed limits of any overdraft is not a blocked account. In ''Agnew v Commissioners of Inland Revenue'' [2001] 2 AC 710, 722, para 22 Lord Millett said that the critical feature which led the Irish Supreme Court in ''In re Keenan Bros Ltd'' [1986] BCLC 242 to characterise the charge on book debts as a fixed charge was that their proceeds were to be segregated in a blocked account where they would be frozen and ''unusable by the company without the bank’s written consent''<ref>Emphasis added.</ref>. I respectfully agree.” | ||
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This hypothetical example assumes the chargor can withdraw all the assets from the account in the meantime. But what if the withdrawal is conditional on substitution with other assets? | This hypothetical example assumes the chargor can withdraw all the assets from the account in the meantime. But what if the withdrawal is conditional on substitution with other assets? | ||
==Ruling== | |||
“The correct conclusion, in my opinion, is that the debenture, although expressed to grant the bank a {{tag|fixed charge}} over Spectrum’s [[book debts]], in law granted only a {{tag|floating charge}}. | “The correct conclusion, in my opinion, is that the debenture, although expressed to grant the bank a {{tag|fixed charge}} over Spectrum’s [[book debts]], in law granted only a {{tag|floating charge}}. | ||
===Relevance to [[stock lending]]=== | ===Relevance to [[stock lending]]=== | ||