Litigation Letter
Fixed or floating charge on book debts?
National Westminster Bank v Spectrum Plus Ltd [2005] UKHL 41; NLJ 9 September
The House of Lords unanimously held that the decision in
Siebe Gorman v Barclays
[1979] 2 Lloyd’s Rep 142 was wrong and should be overruled. The standard form bank debenture does not create a fixed but only a floating charge over
book debts. A fixed charge over book debts is only created to the extent that the borrower does not have ‘freedom to deal’
with the book debts, for example if there is a contractual obligation on the chargor to cause those debts to be paid into
a blocked account. In a two-page article considering the decision in the
New Law Journal of 9 September Gregory Mitchell QC and Angharad Start observed that hundreds of litigations put on hold awaiting the decision
of the House of Lords can now proceed, and banks will recover substantially less.