Make Up Your Mind!-BLG Banking Law Briefing

In the recent first instance†decision of Re Spectrum†Plus Ltd., sub nom†National Westminster†Bank Plc ("NatWest") v†Spectrum Plus Ltd†("Spectrum") (In†Creditors Voluntary†Liquidation) the Vice-†Chancellor, Sir Andrew†Morritt, dismissed an†application by NatWest for†a declaration that the†debenture granted to it by†Spectrum created a fixed†charge over Spectrum's†book debts and their†proceeds and an order that†the liquidators should†account to NatWest for†the same.

It had been decided that it was possible to create a fixed†charge over present and future book debts in another first†instance case, that of Siebe Gorman & Co Ltd. v Barclays†Bank Ltd [1979]. In that case, it was held that the†debenture granted to Barclays Bank Ltd had done so,†following which such debenture became more or less†standard form for lenders intending to take a fixed charge†over book debts. However, doubt was cast on whether†such debenture did in fact achieve such an effect by the†Privy Council in the subsequent case of Agnew v†Commissioner of Inland Revenue (The "Brumark" case)†[2001]. The application by NatWest was an opportunity to†clarify the position.

Spectrum had opened an account with NatWest in the†Autumn of 1997. NatWest granted Spectrum an overdraft†facility on a fully fluctuating basis to meet its working†capital requirements. Amounts outstanding pursuant to†the overdraft facility were secured by a debenture in the†standard form mentioned above, granted by Spectrum to†NatWest. Under the terms of the debenture, all book debts†were charged by way of specific charge. The debenture†contained the following term:

"ÖÖÖ..[Spectrum] shall pay into [Spectrum's] account†with [NatWest] all moneys which it may receive in respect†of such [book] debts and shall not without the prior†consent of [NatWest] sell factor discount or otherwise†charge or assign the same in favour of any other person or†purport to do so ÖÖÖÖÖ."

In practice, Spectrum collected the proceeds of the book†debts and paid them into its account with NatWest,†temporarily reducing amounts outstanding under the†overdraft facility and re-drawing such amounts as and†when they were needed. In October 2001, it was resolved†that Spectrum would go into creditors' voluntary†liquidation and liquidators were appointed. The†liquidators had collected in many of the book debts but†refused to account for them to NatWest.

Before reviewing the authorities on this issue, the Vice-†Chancellor noted that the Crown, which had...