Floating Charges—The Nature of the Security

Eilís Ferran

doi:10.1017/S0008197300118008

Floating Charges—The Nature of the Security

Published online by Cambridge University Press: 16 January 2009

Eilís Ferran

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Companies depend upon loan finance as one of their major sources of capital. However, banks and other financial institutions involved in the business of lending money to companies generally ensure that their exposure to the risk of non-repayment is minimised by taking security over the debtor company's property. One particularly important type of security which is available when money is lent to a company is the floating charge.

Type: Articles
Information: The Cambridge Law Journal , Volume 47 , Issue 2 , July 1988 , pp. 213 - 237

DOI: https://doi.org/10.1017/S0008197300118008 [Opens in a new window]
Copyright: Copyright © Cambridge Law Journal and Contributors 1988

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^{page 213 note 1} Fisher & Light wood, Law of Mortgages, 9th ed., 4.

^{page 213 note 2} Other than a mortgage of real property.

^{page 214 note 3} Farrar, Company Law, 212.

^{page 214 note 4} Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979 at 999 per Buckley L.J.

^{page 214 note 5} lllingworth v. Houldsworth [1904] A.C. 355 at 358 per Lord Macnaughten.

^{page 214 note 6} Company Charges; a view recently re-asserted by the same author in Equity and Commercial Relationships, P. D. Finn (ed.), Chapter 9. (Where relevant this chapter is referred to specifically so as to distinguish it from Company Charges, which is referred to as “op. cit.”).

^{page 214 note 7} Op. cit., 72.

^{page 214 note 8} “World Economic Stagnation puts the Floating Charge on Trial” (1980) 1 Co. Lawyer 83, and cases cited therein.

^{page 214 note 9} Sykes, The Law of Securities, 3rd ed., 11.

^{page 214 note 10} Op. cit., 16–17.

^{page 214 note 11} In Equity and Commercial Relationships, n.6, supra, at 279, McLelland J. suggests a pragmatic reconciliation of these arguments; since a floating charge is a creation of contract, he suggests that the parties may, on the one hand, agree that the charge is to give rise to an immediate proprietary interest or, on the other hand, that no such interest is to arise until the happening of some specified event.

^{page 215 note 12} Landall Holdings v. Caratti [1979] W.A.R. 97 at 108 per Wickham J.

^{page 215 note 13} Snell, Principles of Equity, 28th ed., 23.

^{page 215 note 14} Wheatley v. Silkslone & Haigh Moor Coal Co. (1885) 29 Ch.D. 715; English & Scottish Mercantile Investment Co. v. Brunton [1892] 2 Q.B. 700.

^{page 215 note 15} Pettit, Equity and the Law of Trusts, 5th ed., 15.

^{page 215 note 16} Re Benjamin Cope & Sons Ltd. [1914] 1 Ch. 800.

^{page 215 note 17} Cox v. Dublin City Distillery Co. [1906] I.R. 446.

^{page 215 note 18} Meagher, Gummow & Lehane, Equity, Doctrine and Remedies, 2nd ed., 98.

^{page 215 note 19} Driver v. Broad [1893] 1 Q.B. 744.

^{page 215 note 20} Anson, Law of Contract, 26th ed., 390.

^{page 215 note 21} Hadley v. Baxendale (1854) 9 Exch. 341.

^{page 216 note 22} Other than one who has obtained an equitable interest by the contract, e.g. a purchaser of land.

^{page 216 note 23} E.g. a writ of fi. fa. or a garnishce order.

^{page 216 note 24} If the charge does not contain a contractual right of sale or the statutory powers are not available.

^{page 216 note 25} Tennant v. Trenchard (1869) L.R. 4 Ch.App. 537 at 542 per Lord Hatherley L.C.

^{page 216 note 26} An example is where a creditor has the right to be paid out of a particular fund— Cummins v. Perkins [1899] Ch. 16.

^{page 216 note 27} Hubbuck v. Helms (1887) 56 L.J.Ch. 536.

^{page 216 note 28} Holroyd v. Marshall (1862) 10 H.L.C. 191 at 215 per Lord Chelmsford.

^{page 216 note 29} Re Lind [1915] 2 Ch. 345; also Goode, Legal Problems of Credit and Security, 7.

^{page 216 note 30} Re Morgan Pty. Ltd., Hamilton v. Westpac [1985] B.C.L.C. 314; followed by Vinelott J. in Re French's (Wine Bar) Ltd. [1987] B.C.L.C. 499.

^{page 216 note 31} Used interchangeably with “charge” in the judgment.

^{page 217 note 32} [1985] B.C.L.C. 314 at 318 per Hclman, C.J. in EqGoogle Scholar.

^{page 217 note 33} Originally, Insolvent Debtors Act 1729 and Set-Off Act 1735, together commonly referred to as “the Statutes of Set-Off”; these were repealed by the Civil Procedure Acts Repeal Act 1879. s.2 and schedule, part II, but by s.4 of that Act, the underlying rule established by the Statutes of Set-Off, namely, set-off of legal mutual debts, was retained; see now s.49(2). Supreme Courts Act 1981 and s.74. County Courts Act 1959.

^{page 217 note 34} Bennett v. While [1910] 2 K.B. 643 at 648 per Kennedy L.J.

^{page 218 note 35} Rees v. Walls (1885) 11 Ex. 410Google Scholar; Phillips v. MHowell [1901] 2 Ch. 773Google Scholar.

^{page 218 note 36} Re Pennington & Owen Ltd. [1925] Ch. 825.

^{page 218 note 37} Re Daintrey [1900] 1 Q.B. 546Google Scholar.

^{page 218 note 38} Lord Laneborough v. Jones (1716) 1 P.Wms. 325Google Scholar.

^{page 218 note 39} Ex p. Law, in re Kennedy (1846) Dc Gcx 378.

^{page 218 note 40} Clark v. Cort (1840) Cr. & Ph. 151Google Scholar; Thornton v. Maynard (1875) L.R. 10 C.P. 695Google Scholar.

^{page 218 note 41} Spry, , “Equitable Set-Offs.” (1969) 43 A.L.J. 265, 266 n.8Google Scholar.

^{page 218 note 42} Mathiesons Trustee v. Burrup, Mathieson & Co. [1927] 1 Ch. 562Google Scholar.

^{page 218 note 43} Forsterv. Wilson (1843) 12 M.&W. 191Google Scholar.

^{page 218 note 44} (1878)9 Ch.D. 595.

^{page 218 note 45} Ibid., at 597.

^{page 218 note 46} (1841) Cr. & Ph. 161.

^{page 219 note 47} Ibid., at 178.

^{page 219 note 48} Ibid., at 179.

^{page 219 note 49} Beasley v. D'Arcy (1800) 2 Sch. & Lef. 403Google Scholar; Piggott v. Williams (1821) 6 Mad. 95Google Scholar; O'Connor v. Spaight (1804) 1 Sch. & Lef. 305Google Scholar; Lord Cawdor v. Lewis (1835) 1 Y. & Coll. 427; the case to the contrary—Google ScholarWilliams v. Davies (1829) 2 Sim. 461Google Scholar was doubted.

^{page 219 note 50} [1977] 1 W.L.R. 185.

^{page 219 note 51} [1978] Q.B. 927; affd. by the House of Lords [1979] A.C. 757.

^{page 219 note 52} Ibid., at 981; Lord Denning M.R.'s judgment is somewhat ambiguous. He states (at 974–975) that only claims which are so closely connected that it would be manifestly unjust not to take them into account may be set off, but it is not clear whether this is intended to qualify his previous statement that claims arising out of the same contract may be set off. As the Master of the Rolls relied upon Morgan & Son Ltd. v. Martin Johnson & Co. Ltd. [1949] 1 K.B. 107Google Scholar and Hanak v. Green [1958] 2 Q.B. 8Google Scholar, such a qualification may not have been intended. These cases have been criticised (see Meagher, Gummow & Lehane, op. cit., 779 and Spry, op. cit., 172–173) as instances where the claims set off, although arising out of the same contract, did not appear to impeach each other. Cumming-Bruce L.J. agreed with both Lord Denning M.R. and Goff L.J. on the point.

^{page 219 note 53} Lightman & Moss, The Law of Receivers of Companies, 171–172.

^{page 219 note 54} Bankes v. Jarvis [1903] 1 K.B. 549Google Scholar; Hanak v. Green [1958] 2 Q.B. 9Google Scholar at 19.

^{page 219 note 55} (1804) 11 Ves. 24.

^{page 219 note 56} (1841) Cr. & Ph. 161 at 180.

^{page 220 note 57} (1840) 9 L.J. Ch. 258— ex p. Stephens was not apparently cited; see also Bechevaise v. Lewis (1872) L.R. 7 C.P. 372Google Scholar where again ex p. Stephens does not appear to have cited.

^{page 220 note 58} Middleton v. Pollock (1875) L.R. 20 Eq. 515Google Scholar.

^{page 220 note 59} Hanak v. Green [1958] 2 Q.B. 9 at 26 per Morris, L.J.Google Scholar

^{page 220 note 60} [1896] 2 Ch. 93.

^{page 220 note 61} Ibid., at 101 per Lindley M.R.

^{page 220 note 62} Government Stock and Other Securities Investment Co. Ltd. v. Manila Rly. Co. Ltd. [1897] A.C. 81. 87Google Scholar; Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979 at 995, 997Google Scholar.

^{page 221 note 63} E.g. N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. [1963] 1 W.L.R. 1324Google Scholar, approved by the House of Lords in Security Trust Co. v. Royal Bank of Canada [1976] A.C. 503Google Scholar; Biggerstaff v. Rowan's Wharf [1896] 2 Ch. 93 at 101Google Scholar; the cases considered below; but note, there is some suggestion in Parsons v. Sovereign Bank of Canada [1913] A.C. 160Google Scholar that crystallisation does not have this effect.

^{page 221 note 64} George Barker (Transport) Ltd. v. Eynon [1974] 1 W.L.R. 462 at 471 per Stamp, L.J.Google Scholar

^{page 221 note 65} E.g.Kerr, Receivers, 16th ed., 308; Gough, op. cit., 171.

^{page 221 note 66} E.g. notice pursuant to s.39, Insolvency Act 1986 that a receiver has been appointed.

^{page 221 note 67} Dearie v. Hall (1823–28) 3 Russ. 1Google Scholar; Roxburghe v. Cox (1881) 17 Ch.D. 520, 526Google Scholar; Re Pinto Leite and Nephews, ex. p. Visconde des Olivades [1929] 1 Ch. 221, 223Google Scholar; Business Computers Ltd. v. Anglo-African Leasing Ltd. [1977] 2 All E.R. 741Google Scholar.

^{page 221 note 68} N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. [1963] 1 W.L.R. 1324Google Scholar; Ferrier v. Bottomer [1972] 46 A.L.J.R. 148Google Scholar.

^{page 221 note 69} N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd., [1963] 1 W.L.R. 1324, at 1337 per Russell, L.J.Google Scholar

^{page 221 note 70} Young v. Kitchen (1878) 3 Ex.D. 127Google Scholar.

^{page 221 note 71} The Govt. of Newfoundland v. Newfoundland Rly. Co. (1888) 13 App.Cas. 199Google Scholar.

^{page 221 note 72} (1852) 16 Beav. 113; see also, Watson v. Mid Wales Rly. Co. (1867) L.R. 2 C.P. 593, 598Google Scholar.

^{page 222 note 73} See p. 219, supra.

^{page 222 note 74} [1977] 1 W.L.R. 185.

^{page 222 note 75} Examples of this failure outside the area of company charges are Morgan & Son Ltd. v. Martin Johnson & Co. Ltd. [1949] 1 K.B. 107Google Scholar and Hanak v. Green [1958] 2 Q.B. 9Google Scholar; Kerr, op. cit., at 309 equates the two tests—“if a debtor becomes entitled to cross claims arising out of the same contract as the assigned claim, which may happen e.g. where the receiver elects not to cause the company carry it out, will afford a valid set-off.”

^{page 222 note 76} [1939]V.L.R. 132.

^{page 223 note 77} Gosling v. Gaskell [1897] A.C. 575Google Scholar; Rendell v. Doors & Doors Ltd [1975] 2 N.Z.L.R. 191Google Scholar.

^{page 223 note 78} [1974] Q.B. 1.

^{page 223 note 79} George Barker (Transport) Ltd. v. Eynon [1974] 1 W.L.R. 462 at 475 per Sir George Willmer; O'Donovan, Company Receivers and Managers, 77.

^{page 223 note 80} On the facts, the debtor had notice of this assignment at all relevant times.

^{page 223 note 81} This was not a case where the debt was in existence before assignment of the contract but had not become payable as yet—compare Christie v. Taunton, Delmard, Lane & Co. [1893] 2 Ch. 175Google Scholar.

^{page 223 note 82} Holroyd v. Marshall (1862) 10 H.L.C. 191Google Scholar; Tailby v. OR. (1888) 13 App. Cas. 523Google Scholar; N.W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. [1963] 1 W.L.R. 1324.

^{page 224 note 83} Re Lind [1915] 2 Ch. 345Google Scholar.

^{page 224 note 84} [1896] 2 Ch. 93.

^{page 224 note 85} Holroyd v. Marshall (1862) 10 H.L.C. 191 at 211 per Lord, Westbury L.C.Google Scholar

^{page 224 note 86} This interpretation of “immediate” is supported by Gough in Equity & Commercial Relationships, n.6. supra at 253.

^{page 224 note 87} Gosling v. Gaskell [1897] A.C. 575Google Scholar.

^{page 224 note 88} Rother Iron Works Ltd. v. Canterbury Precision Engineering [1973] 1 All E.R. 394 at 396 per Russell, L.J.Google Scholar

^{page 224 note 89} Supra.

^{page 224 note 90} [1963] 1 W.L.R. 1324.

^{page 224 note 91} Rendell v. Doors & Doors Ltd. [1975] 2 N.Z.L.R. 191Google Scholar; Felt & Textiles of New Zealand v. Hubrich Ltd. [1968] N.Z.L.R. 716Google Scholar.

^{page 225 note 92} [1963] 1 W.L.R. 1324 at 1331, at 1324 per Sellers, L.J.Google Scholar

^{page 225 note 93} This is the approach taken by Meagher, Gummo w & Lehane, op. cit., 679–681.

^{page 225 note 94} Re Whitehouse (1878) 9 Ch.D. 595.

^{page 225 note 95} Lynch v. Ardmore Studios [1968] I.R. 183 can be similarly explained but it was decided on the basis that mutuality between the claims was lacking.

^{page 225 note 96} [1977] 2 All E.R. 741 at 747.

^{page 225 note 97} [1979] 1 N.S.W.L.R. 701.

^{page 226 note 98} Smith v. Parkes (1852) 16 Beau. 113.

^{page 226 note 99} E.g. Parsons v. Sovereign Bank of Canada [1913] A.C. 160.

^{page 226 note 1} [1977] 2 All E.R. 741.

^{page 226 note 2} Ibid., at 748.

^{page 226 note 3} See p. 219, supra.

^{page 227 note 4} Sec p. 220, supra.

^{page 227 note 5} Kerr, op. cit., at 308 certainly equates the two: see also Gough, op. tit., at 171.

^{page 227 note 6} [1979] 2 Lloyd's Rep. 142; followed in Re Keenan Bros [1986] B.C.L.C. 242.

^{page 227 note 7} ibid., at 159.

^{page 227 note 8} Lightman & Moss op. cit., at 176–7.

^{page 227 note 9} (1828) 3 Russ. 1.

^{page 228 note 10} [1984] J.B.L. 172.

^{page 228 note 11} Durham Brothers v. Robertson [1898] 1 O.B.765, 769 is authority for the view that in general a fixed charge gives rise to an assignment of the debt so charged and that this is not confined to the fixed charge which arises when a floating charge crystallises.

^{page 228 note 12} This agreement would in itself not enable a debtor to assert rights of set-off, since he is not a party thereto: Beswick v. Beswick [1968] A.C. 58.

^{page 228 note 13} There is, however, a dictum in Re Keenan Bros. [1986] B.C.L.C. 242 at 251 to the effect that the debts were assigned by the charge.

^{page 228 note 14} In Re Keenan Bros, supra, McCarthy J. did accept that the fixed charge in question was somewhat hybrid.

^{page 228 note 15} [1903] 2 Ch. 284, 293.

^{page 229 note 16} [1903] 2 Ch. 284.

^{page 229 note 17} Re Panama, New Zealand & Australia Royal Mail Co. (1870) 5 Ch.App. 318.

^{page 229 note 18} See also Re Florence Land & Public Works Co., ex p. Moor (1878) 10 Ch.D 53; Wallace v. Evershed [1899] 1 Ch. 1.

^{page 229 note 19} E.g. Siebe Gorman [1979] 2 Lloyd's Rep. 142 at 158–9.

^{page 229 note 20} E.g. Re Keenan Bros. Ltd. [1985] B.C.L.C. 302 at 306 per Keane, JGoogle Scholar.

^{page 229 note 21} Re Woodroffes (Musical Instruments) Ltd. [1986] Ch. 366.

^{page 229 note 22} Re Panama (1870) 5 Ch.App. 318 at 322.

^{page 230 note 23} Wheatley v. Sitkstone & Haigh Moor Coal Co., (1885) 29 ChD 715.

^{page 230 note 24} [1901] 1 Ch. 326, 342.

^{page 230 note 25} [1926] Ch. 412, 421.

^{page 230 note 26} Re Borax Co. [1901] 1 Ch. 326; Re Vivian & Co. Ltd. [1900] 2 Ch. 654.

^{page 230 note 27} (1887) 56 L.J. Ch. 536.

^{page 230 note 28} Re Woodroffes [1986] Ch. 366 at 377‐378; For a contrary view, see Pennington, , “The Genesis of the Floating Charge” (1960) 23 M.L.R. 630 at 645CrossRef Google Scholar.

^{page 231 note 29} (1982–1983) 7 A.C.L.R. 295.

^{page 231 note 30} (1983–1984) 8 A.C.L.R. 429.

^{page 231 note 31} See Gough in Equity and Commercial Relationships, n.6, supra at 259, fn. 91.

^{page 231 note 32} (1887) 56 L.J. Ch. 536.

^{page 231 note 33} Re Woodroffes [1986] Ch. 366 at 377.

^{page 232 note 34} Pennington, “The Genesis of the Floating.Charge” (1960) M.L.R. 630Google Scholar.

^{page 232 note 35} [1898] 2 Q.B. 194.

^{page 232 note 36} [1906] 2 K.B. 745; also Norton v. Yates [1906] 1 K.B. 112Google Scholar.

^{page 232 note 37} [1910] 2 K.B. 979.

^{page 232 note 38} Ibid., at 995 per Fletcher Moulton L.J.

^{page 232 note 39} Ibid., at 999 per Buckley L.J.

^{page 233 note 40} Ibid., at 997 per Fletcher Moulton L.J.; Re Woodroffes [1986] Ch. 366 at 377Google Scholar.

^{page 233 note 41} [1910] 2 K.B. 979 at 1000–1001.

^{page 233 note 42} [1898] 2 Q.B. 194.

^{page 233 note 43} [1971] N.Z.L.R. 909.

^{page 233 note 44} Dicta, in Edward Nelson & Co. Ltd. v. Faber & Co. [1903] 2 K.B. 367Google Scholar and Government Stock and Other Securities Investment Co. v. Manila Ry. Co. Ltd. [1897] A.C. 81Google Scholar also seem to reject the possibility of automatic crystallisation.

^{page 233 note 45} [1986] B.C.L.C. 418.

^{page 234 note 46} Para. 1579.

^{page 234 note 47} Compare Re Brightlife [1986] B.C.L.C. 418Google Scholar and R. v. Consolidated Churchill Copper Corpn. Ltd.[1978] 5 W.W.R. 652Google Scholar.

^{page 234 note 48} Hubbuck v. Helms (1887) 56 L.J. Ch. 536.

^{page 234 note 49} Or the debentureholder is estopped from denying the apparent position, namely that the charge has not crystallised.

^{page 234 note 50} See p. 231, supra.

^{page 234 note 51} Unless the limitation upon the company's trading power is held to be an equity and consequently binding upon third parties—discussed in the context of negative pledges below.

^{page 235 note 52} Re Benjamin Cope & Sons Ltd. [1914] 1 Ch. 800.

^{page 235 note 53} See p. 233. supra.

^{page 235 note 54} See Farrar, (1974) 38 Conv. 315.

^{page 235 note 55} [1915] 1 I.R. 345.

^{page 235 note 56} Union Bank of Halifax v. India & General Investment Trust [1980] 40 S.C.R. 510 at 520 per Duff, J.Google Scholar

^{page 236 note 57} Siebe Gorman [1979] 2 Lloyd's Rep. 142 at 160.

^{page 236 note 58} [1903] 2 Ch. 654; also English and Scottish Mercantile Investment Co. v. Brunton [1892] 2 Q.B. 700; Re Castell & Brown [1898] 1 Ch. 315.

^{page 236 note 59} [1980] I.R. 251.

^{page 236 note 60} [1965] 2 All E.R. 472.

^{page 236 note 61} [1974] Q.B. I at 6.

^{page 236 note 62} See Everon, (1976) 40 Conv. 209.

^{page 236 note 63} National Provincial Bank v. Ainsworth [1965] 2 All E.R. 472 at 488 per Upjohn, LordGoogle Scholar.

^{page 237 note 64} See Goode, Legal Problems of Credit and Security, 49.

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