Where Spectrum Plus leaves book debt charges

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...