Where Spectrum Plus leaves book debt charges
August 01, 2004
The Court of Appeal has upheld the Siebe Gorman decision, meaning clearing banks can continue to take fixed charges on book debts. Geoffrey Yeowart tracks the progress of case law on a controversial topic
The Court of Appeal in the UK has moved closer to resolving
doubts about the validity of fixed charges over the book debts of a
borrower. In a recent test case, Re Spectrum Plus Ltd, the
Court upheld a fixed charge taken by a clearing bank.The Privy
Council in the Agnew decision of 2001 had highlighted that a
charge holder must exercise a substantial degree of control over
book debts if a fixed charge is to be effective. The decision was
seen to cast doubt on clearing banks' practice of taking a fixed
charge and directing that the book debt proceeds be paid into the
company's account with the bank.
The treatment of book debts matters because, even though the
position has been altered by recent legislation, a fixed charge
continues to have several advantages over a floating charge under
English law (see box). The claims of preferential creditors have
priority over a...
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