Re Spectrum Plus

Re Spectrum Plus [2005] UKHL 41 is an important case about fixed charges.

Issue

Whether a charge over present and future book debts, where:

• the chargor cannot dispose of or charge the uncollected book debts but
• the charger can deal with debtors and collect the debts and
• the chargor must deposit collected debts in a designated account with the charge, but
• the chargor can then freely draw on the account as long as it doesn't exceed the overdraft

is capable in law of being a fixed charge.

The facts

• 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.
• The bank never sought to exercise any control over Spectrum’s withdrawals from the account.
• Spectrum never exceeded its overdraft. Nor did Spectrum ever go into credit.

You can see where this is going, can’t you.

When Spectrum, inevitably, went bust, it owed NatWest £165,407 on the account. Its uncollected book debts had a face value of £291,293, and a likely collection value of £156,544. You know, like roughly. Other unsecured creditors wanted a piece of the action.

So ...?

Ruling

“The correct conclusion, in my opinion, is that the debenture, although expressed to grant the bank a fixed charge over Spectrum's book debts, in law granted only a floating charge.

In other words

• Beware of magic words.

”==See also==

Re Lehman Brothers International