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Decoding Judgements: Deciphering Company Law in Re Spectrum Plus Ltd

5 January 2023 | CaseSnappy Team

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Introduction

Hey there, CaseSnappy community! As we continue to dive deeper into the 'Decoding Judgements' series, today we explore the complex world of company law and secured lending. Our focus is Re Spectrum Plus Ltd [2005] UKHL 41, a case that delves into the distinctive nature of fixed and floating charges. So, let's unravel the judgement...

Debentures and Debacles: The Case Facts

In Re Spectrum Plus Ltd, the Bank of New York (BNY) provided a loan to Spectrum Plus Ltd, a retailer dealing in chemical products for the paint industry. The bone of contention arose when Spectrum Plus fell into insolvency, and payments made to BNY using Spectrum's book debts were questioned. This led to heated debates and differing views about whether the charge over the book debts was a fixed or floating one.

The Question of Charges: The Legal Issues

The quandary confronting the court was whether the charge over the book debts created by the debenture was a fixed or floating one. The Bank of New York argued that the charge was fixed as they had control over Spectrum's book debts. On the contrary, the Official Receiver contended the charge was floating, not fixed.

The Clear Decision: Fixed vs Floating

In a precedent-setting decision, the House of Lords ruled that the charge over the book debts was a floating charge, not a fixed one - thereby reversing previous decisions. The crux of this judgement was that for a charge to be deemed fixed, the chargeholder must, in essence, have control over the charged asset without needing further permission.

Key in this decision was the following passage: "...the essential characteristic of a floating charge, the characteristic that distinguishes it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime the chargor is left free to use the charged asset and to remove it from the security."

CaseSnappy: Turning the Complex Into the Simple

The Re Spectrum Plus case underlines the evolving interpretations and practical implications of fixed and floating charges in company law and secured lending. With 'Decoding Judgements', we strive to decode these legal debates, making them accessible to our readers.

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