Re New Bullas Trading Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 December 1994 |
| Date | 16 December 1994 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal
Before Lord Justice Nourse, Lord Justice Russell and Mr Justice Scott Baker
Company - debenture - agreement can convert a fixed to a floating charge
A debenture agreement could lawfully provide for the creation of a fixed charge over the book debts of a company while those debts were uncollected and a floating charge over the proceeds once paid into a specified bank account.
The Court of Appeal so held in a reserved judgment allowing an appeal by 3i plc from Mr Justice Knox's judgment ((1993) BCLC 1389) on an application brought by the administrative receivers of New Bullas Trading Ltd, Mr Roger Griffiths and Mr Andrew Pearce, two partners in Ernst Young, for the determination of the true construction of a debenture.
Also joined as respondents to the appeal were the Inland Revenue, the main preferential creditor, Customs and Excise, the Department of Employment and the Department of Social Security.
Clauses 3 and 4 of 3i's debenture contained a charge by the company of different categories of assets with the payment to 3i of all moneys and liabilities covenanted to be paid. The assets included book debts and the charges thereon were created as fixed charges.
Condition 12 in the debenture provided that the company was to get in debts in the ordinary course by demanding payment; that on a payment being received it was to be paid into a specified bank account where it had to be paid or otherwise dealt with in accordance with any written directions given by 3i; that prior to any crystallisation of the security and in the absence of any written direction by 3i the sum paid in would be released from the fixed charge and become subject to the floating charge.
On November 12, 1991 the administrative receivers were appointed, an event on the happening of which the debenture specified the moneys secured became immediately payable.
Proceeds from book debts were short of the claims of the company's preferential creditors. If the charge created by the debenture was a fixed charge then 3i plc would rank ahead of the preferential creditors and would be paid in full: if it did not achieve that result section 40 of the Insolvency Act 1986 operated to reverse the order of priorities.
Mr Jonathan Sumption, QC and Mr T D Chivers for 3i; Mr Launcelot Henderson for the Inland Revenue and the other preferential creditors.
LORD JUSTICE NOURSE said that he who lent money to a trading company neither...
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