Floating Charges—Cosslett in the House of Lords

Extract

Here we are concerned with two cases involving the same parties. The first is reported as Re Cosslett (Contractors) Ltd. [1997] Ch. 23, [1998] Ch. 495, and was noted in [1997] C.L.J. 257 and [1998] C.L.J. 22. Cosslett, an engineering firm, had brought two large coal-washing machines on to a site belonging to the local council pursuant to a contract to reclaim land on which colliery waste had been dumped. Cosslett ran into financial difficulties and abandoned the work, and was later put into administration. The council, acting under a power conferred by the contract, used the machines to finish the job (employing a second contractor, Burrows). The first action was brought by Cosslett’s administrator under the Insolvency Act 1986, s. 234, demanding summarily that the machines be handed over to him. The Court of Appeal held that the contract did indeed authorise the council to use the machines in this way, and that so long as the work was continuing the administrator’s claim must fail. But there was a second point. Another provision in the contract (Clause 63) gave the council power to sell the abandoned machines and use the proceeds to discharge any debts owed to it by Cosslett. The Court of Appeal held that this clause created a floating charge which, not having been registered under the Companies Act 1986, s. 395, was void in the ensuing administration. However, this did not affect the council’s right to use the machines, and judgment was given in favour of the council.