Member Article

National Westminster Bank plc v Spectrum Plus Limited and Others [2005] UKHL 41 Overruling the 25-year old judgement in Siebe Gorman & Co. Limited v Barclays Bank Limited [1979 2 Lloyd’s LR142], the House of Lords has held that a charge over book debts where the chargor is free to draw on the account into which proceeds of such book debts are paid, creates a floating charge, rather than a fixed charge. The House of Lords declined to make the judgement one with prospective effect only, while not ruling out that prospective effect rulings could, if the circumstances warranted, be made by the House of Lords. The Lords were of the opinion that a prospective ruling in this case would deny preferential creditors the priority to which they were entitled by statute. COMMENT: The Spectrum Plus decision clarifies the effect of the New Zealand decision in Brumark (Agnew v Inland Revenue (Privy Council) 2001) on English law, where doubt was cast on whether formal procedures or provisions, rather than actual control were all that were required to create a valid fixed charge (form over substance). In Spectrum Plus, the court quoted with approval the Irish case of In Re Keenan Brothers Ltd [1998] BCLC 242, in which it was held that demonstrable control had to be shown to satisfy the test. While subsequent Irish decisions (Re Wogan’s (Drogheda) Ltd [1993] IR 157 and Re Holidair Ltd [1994] IR416, have arguably relaxed the test for the valid creation of a fixed charge over book debts, it continues to be best practice, when purporting to take a valid fixed charge over book debts, to ensure that in both form and in substance, the demonstrable control test can be satisfied.