“The question is not merely one of construction. In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or a floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford[1985] AC 809 , 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder.”
“111. In my opinion, 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. On this point I am in respectful agreement with Lord Millett. Moreover, recognition that this is the essential characteristic of a floating charge reflects the mischief that the statutory intervention to which I have referred was intended to meet and should ensure that preferential creditors continue to enjoy the priority that section 175 of the 1986 Act and its statutory predecessors intended them to have.”
“112. If, as I think, the hallmark of a floating charge and a characteristic inconsistent with a fixed charge is that the chargor is left free to use the assets subject to the charge and by doing so to withdraw them from the security, how should the charge over book debts granted by the bank's debenture be categorised? The following features of the debenture and the arrangements regarding the bank account into which the collected debts had to be paid need to be taken into account: (1) the extent of the restrictions imposed by the debenture (para 81 above); (2) the rights retained by Spectrum to deal with its debtors and collect the money owed by them (para 81 above); (3) Spectrum's right to draw on its account with the bank into which the collected debts had to be paid, provided it kept within the overdraft limit (para 82 above); (4) the description "fixed charge" attributed to the charge by the parties themselves.”
“138. This passage brings us close to the issue of legal principle, that is the essential difference between a fixed charge and a floating charge. Under a fixed charge the assets charged as security are permanently appropriated to the payment of the sum charged, in such a way as to give the chargee a proprietary interest in the assets. So long as the charge remains unredeemed, the assets can be released from the charge only with the active concurrence of the chargee. The chargee may have good commercial reasons for agreeing to a partial release. If for instance a bank has a fixed charge over a large area of land which is being developed in phases as a housing estate (another example of a fixed charge on what might be regarded as trading stock) it might be short-sighted of the bank not to agree to take only a fraction of the proceeds of sale of houses in the first phase, so enabling the remainder of the development to be funded. But under a fixed charge that will be a matter for the chargee to decide for itself. 139. Under a floating charge, by contrast, the chargee does not have the same power to control the security for its own benefit. The chargee has a proprietary interest, but its interest is in a fund of circulating capital, and unless and until the chargee intervenes (on crystallisation of the charge) it is for the trader, and not the bank, to decide how to run its business. There is a detailed and helpful analysis of the matter, with full citation of authority, in Worthington's Proprietary Interests in Commercial Transactions (1996) pp 74-77; see also her incisive comment on this case ("An Unsatisfactory Area of the Law-Fixed and Floating Charges Yet Again") in (2004) 1 International Corporate Rescue 175. So long as the company trades in the ordinary way (a requirement emphasised by Romer LJ in the Yorkshire Woolcombers case[1903] 2 Ch 284 , 295, and by the Earl of Halsbury on appeal in the same case[1904] AC 355 , 357-358) the constituents of the charged fund are in a state of flux (or circulation). Trading stock is sold and becomes represented by book debts; these are collected and paid into the bank; the trader's overdraft facility enables it to draw cheques in favour of its suppliers to pay for new stock; and so the trading cycle continues.”
“[8] There is an abundance of recent high authority on the principles applicable to the construction of commercial documents, including Investors’ Compensation Scheme Ltd v West Bromwich Building Society, Investors’ Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society[1998] 1 All ER 98 ,[1998] 1 WLR 896 ; Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook Ltd and anor, Pt 20 defendants)[2009] UKHL 38 ,[2009] 4 All ER 677 ,[2009] 1 AC 1101 ; Re Sigma Finance Corpn[2009] UKSC 2 ,[2010] 1 All ER 571 ; Rainy Sky SA v Kookmin Bank[2011] UKSC 50 , [2012] 1 All ER (Comm) 1,[2011] 1 WLR 2900 ; Arnold v Britton[2015] UKSC 36 ,[2016] 1 All ER 1 ,[2015] AC 1619 ; and Wood v Capita Insurance Services Ltd[2017] UKSC 24 , [2018] 1 All ER (Comm) 51,[2017] AC 1173 . The court’s task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. The court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to the objective meaning of the language used. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. Interpretation is a unitary exercise; in striking a balance between the indications given by the language and the implications of the competing constructions, the court must consider the quality of drafting of the clause and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest; similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.”
“None of these impeded the company’s ability to trade as a management consultant without recourse to the shares. It is a striking feature of all the relevant cases to which I was referred that a charge over what was regarded as the company's circulating capital was inconsistent with a fixed charge”
“183.Further, there is a danger in the present case in laying too great an emphasis on the nature of the assets in question, namely the Licences and the OGL Shares. The fact that assets are not part of a company’s circulating capital or stock in trade, which it needs to sell as part of its ordinary business, can understandably have an important influence in the categorisation of a charge as a fixed charge, rather than a floating charge, in an appropriate case. In the present case, however, unlike, for example, Arthur D Little and Re Yorkshire Woolcombers Association, the parties have agreed an express provision permitting each of the Octagon Group Companies to dispose of assets in the ordinary course of its business. In accordance with Lord Millett’s two stage process, what must be ascertained at the first stage, as a matter of standard interpretation of written documents, is whether, on the language used, the express power to dispose of assets in the ordinary course of business was limited to particular assets or applied to all assets of the company. Whilst, of course, the nature of the assets in question forms part of the factual background against which the standard process of documentary interpretation takes place, the ordinary and natural meaning of the words used is the primary touchstone. By contrast, in the absence of an express provision permitting disposals in the ordinary course of business, the nature of the charged assets assumes a much greater significance in the process of establishing whether the intention was to create a fixed charge or a floating charge over the assets in question.”
“(2) I again remind myself that the company was not trading in shares and no one has suggested it did. The essential nature of its business cannot, in my judgment, be ignored. The shares in CCL were not part of the company's circulating capital and it did not need to sell them, to deal with them, or to substitute them as part of its ordinary business as a management consultant, C nor to improve or assist its cash flow as part of that business. The shares were not part of a fluctuating body of assets which changed from time to time in the ordinary course of the company's business.”
“I certainly do not intend to attempt to give an exact definition of the term 'floating charge', nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1) If it is a charge on a class of assets of a company present and future; (2) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.”
“This [Romer LJ’s description] was offered as a description and not a definition. The first two characteristics are typical of a floating charge but they are not distinctive of it, since they are not necessarily inconsistent with a fixed charge. It is the third characteristic which is the hallmark of a floating charge and serves to distinguish it from a fixed charge. Since the existence of a fixed charge would make it impossible for the company to carry on business in the ordinary way without the consent of the charge holder, it follows that its ability to do so without such consent is inconsistent with the fixed nature of the charge.”
“If the chargor is free to deal with the charged assets and so withdraw them from the ambit of the charge without the consent of the chargee, then the charge is a floating charge. But the test can equally well be expressed from the chargee's point of view. If the charged assets are not under its control so that it can prevent their dissipation without its consent, then the charge cannot be a fixed charge.”
“If the crucial difference between a fixed charge and a floating charge is in the nature of the interest of the chargee prior to any event of crystallisation, it would follow that a licence for the chargor to deal to some extent with the charged assets is not necessarily inconsistent with a fixed charge. If, however, the licence to deal given to the chargor is extensive, the charge will be floating, since in these circumstances there is in effect no attachment of the charge to any specific asset: see Goode, Legal Problems of Credit and Security, at p. 56. The extent to which the licence to deal is compatible with a fixed charge must depend on all the circumstances of the case, and in particular on the nature of the charged property. Where the charged property is stock, or book debts - i.e. where the assets are naturally fluctuating - the court will readily conclude that a liberty for the chargor to deal with the charged assets is inconsistent with a fixed charge. Where, as in the present case, the assets are specific and do not necessarily fluctuate, some liberty to release the charged assets may not be inconsistent with a fixed charge. Conversely, however, on this basis a floating charge over present goods, not extending to future goods, is not a conceptual impossibility.”
“3 My Lords, this appeal raises two questions of general importance. The first is whether a standard condition in the Institution of Civil Engineers ("ICE") form of contract which allows the employer, in various situations of default by the contractor, to sell his plant and equipment and apply the proceeds in discharge of his obligations, is a floating charge which should be registered undersection 395 of the Companies Act 1985 . The second is the effect of a failure to register when the contractor has gone into administration but the employer has nevertheless purported to exercise the power of sale.”
“41 On these points I can be brief because I agree with Millett LJ for the reasons which he gave. I do not see how a right to sell an asset belonging to a debtor and appropriate the proceeds to payment of the debt can be anything other than a charge. And because the property subject to condition 63 (constructional plant, temporary works, goods and materials on the site) was a fluctuating body of assets which could be consumed or (subject to the approval of the engineer) removed from the site in the ordinary course of the contractor's business, it was a floating charge: see Agnew v Comr of Inland Revenue[2001] 2 AC 710 , 723-724.”
“The essence of a floating charge is that it is a charge, not on any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee. The question is not whether the chargor has complete freedom to carry on his business as he chooses, but whether the chargee is in control of the charged assets.”
“The business of the company was to carry out works of civil engineering. In the ordinary course of that business it entered into the contract with the council. In bringing plant and materials onto the site and carrying out the works for the council it was carrying on the ordinary course of its business. It is not to be supposed that its business was confined to the performance of its contract with the council; and if it wished to remove plant or materials from the site and deploy them elsewhere this too would be in the ordinary course of its business. In forbidding the company from removing from the site plant or materials required, whether immediately or not, for the completion of the works, the council was, therefore, placing a restriction on the way in which the company carried on business. Thus far I agree with the judge. Where I part company from him is that I do not regard this restriction as having any relation to the council's security. The council's purpose in imposing the restriction was not to protect its security but to ensure that the company would give proper priority to the completion of the works. A similar restriction would have been appropriate even if the council had not taken any security interest. In a case where the plant or materials are not immediately required, the engineer's consent is not to be unreasonably withheld. As Evans L.J. pointed out in argument, the fact that the decision is left to the engineer shows that it is to be made on operational grounds. If completion of the works will not be prejudiced or delayed by the removal of an item of plant or materials, then consent to its removal must be given; consent cannot be withheld on the ground that the remaining plant and materials would be insufficient security if the company were in default. In the course of argument it was pointed out that the council must give seven days' notice before expelling the company from the site, and it was suggested that once such notice has been given and while it has not yet expired the engineer may properly refuse his consent on the ground that the remaining security is insufficient. I do not agree with this; but even if I did it would make no difference. If the council's right to prevent removal on security and non-operational grounds arises only upon notice of expulsion, then in my judgment the effect of giving such notice is to crystallise the charge. Accordingly, and in disagreement with the judge, I hold the charge to be a floating charge.”
“How much freedom can the chargor be given to deal with charged assets if the charge is to retain its status as a fixed charge? Or to put the question another way, how far must the chargor’s power to manage the charged assets be restricted? It is not possible to give a completely exhaustive reply to this question, although some guidance is given by the Spectrum case. At one end of the spectrum is total freedom of management. This is plainly incompatible with a fixed security interest. A charge cannot claim a fixed security in an asset in one breath and then, in the next, allow the chargor to dispose of the asset as if it were the chargor’s own. At the other end of the spectrum, is a total prohibition on dealings of any kind in the asset or its proceeds. Clearly, in this case, the charge is a fixed charge. Between the two ends of the spectrum lies an infinite range of possibilities. However, it now looks as though virtually all those possibilities will result in the charge being characterised as floating. The House of Lords made in clear in Spectrum that where the chargor is able to remove the assets from the scope of the charge the charge must be floating. Thus only total prohibition of all dealings and withdrawals without permission is enough to create a fixed charge. Taken literally, this would mean that even a power to make item by item substitutions would prevent a charge from being fixed, since a power to substitute includes a power to dispose. Although this particular point is still uncertain, it is clear that, if any power to substitute at all is to be held to be consistent with a fixed charge, it would have to be very specific in only permitting disposal of an item if a substitute item was immediately acquired, so that the security is in no [way] reduced. It is clear that merely to label the charge “fixed” is not enough. The instrument must restrict the debtor’s dealing powers; and the restrictions must be meaningful, not a mere sham.”
“Freedom to dispose of charged assets It has been clear for some time that a certain amount of restriction on disposal of charged assets by the chargor is consistent with a floating charge. A negative pledge clause in a charge prohibiting the creation of further charges ranking in priority to that charge, and a clause prohibiting the selling, factoring, or other disposal of charged book debts do not prevent a charge from being floating. In relation to some assets, the additional problem arises of identifying what it is that needs to be controlled by the charge, that is, what counts as “the charged assets”
“Subject to the existence of the Existing Debentures, each Initial Chargor, as continuing security for the payment of the Secured Obligations, charges in favour of the Primary Security Agent with full title guarantee the following assets, both present and future from time to time owned by it or in which it has an interest:”
“Equipment” means all plant, machinery, computers, office and other equipment, furnishings and vehicles and other chattels together with any spare parts, replacements or modifications and the benefit of all contracts, licences and warranties relating thereto and HYLAS 1, HYLAS 3 and Artemis (as well as HYLAS 4 once acquired) and associated equipment including all ground segment equipment for tracking, telemetry, control and monitoring of HYLAS 1, HYLAS 3 and Artemis (as well as HYLAS 4 once acquired), any equipment relating to the monitoring and/or maintaining of any Orbital Positions, transponders, including as specified in any relevant Security Accession Deed;”
“The Primary Security Agent is irrevocably authorised to and, upon the delivery to the Primary Security Agent of (i) a director's certificate from the relevant Chargor substantially in the form set out in Schedule 6 hereto and (ii) an English law legal opinion of external counsel stating that the conditions to such a release constituting a Permitted Release have been met; provided that in giving such opinion, such counsel may rely on the aforementioned director's certificate as to compliance with such conditions and as to any matters of fact, shall (at the cost of the relevant Chargor and without any consent, sanction, authority or further confirmation from any other Shared Collateral Creditor), release the Security created hereunder over any Charged Property in each case in accordance with the terms of the Intercreditor Agreement: (a) upon irrevocable and unconditional payment in full of principal, interest and all other Secured Obligations (b) by a Chargor upon the release of such Chargor from any Guarantee Liabilities that constitute Secured Obligations granted by such Chargor; (c) in connection with any disposition of Charged Property that is a Non-Distressed Disposal; and (d) as otherwise permitted under the terms of the Debt Documents, (such release, a "Permitted Release").”
“(a) Each Obligor shall, and the Parent shall ensure that each member of the Group shall, comply with the covenants set out in and the other provisions of Schedule 12 (Covenants) and each of the other Parties agree to be bound by the terms of Schedule 12 (Covenants) as if such terms were set out in the body of this Agreement which covenants shall remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.”
“(a) The Parent will not, and will not cause or permit any Subsidiary to, directly or indirectly, consummate an Asset Sale unless: (i) the Parent (or a Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and (ii) 100% of the consideration received in the Asset Sale by the Parent or such Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash:”
“(iv) the sale, lease or other transfer of satellite capacity, transponder capacity, backhaul services, related licensing arrangements and equipment ordered by customers and/or partners for use with the capacity, co-location or backhaul services sold by the Company in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets or assets that, in the good faith judgment of the Parent, are no longer useful in the conduct of the business of the Parent and the Subsidiaries taken as a whole (including the positioning of any satellite in an inclined orbit or the abandonment or other disposition or sale of any satellite (or satellite payload or component) or intellectual property that is in the reasonable good faith judgment of the Parent, no longer economically practicable to maintain or useful in the conduct of the business of the Parent and the Subsidiaries taken as a whole);”
“the sale, lease or other transfer of satellite capacity, transponder capacity, backhaul services, related licensing arrangements and equipment ordered by customers and/or partners for use with the capacity, co-location or backhaul services sold by the Company in the ordinary course of business” (2) Next, there is a disposal falling within the second part of sub-paragraph (iv), which is concerned with obsolete assets (“the Obsolete Exception”): “and any sale or other disposition of damaged, worn-out or obsolete assets” (3) Finally, there is a disposal falling within the third and last part of sub-paragraph (iv), which is concerned with assets which are no longer useful (“the Usefulness Exception”): “or assets that, in the good faith judgment of the Parent, are no longer useful in the conduct of the business of the Parent and the Subsidiaries taken as a whole (including the positioning of any satellite in an inclined orbit or the abandonment or other disposition or sale of any satellite (or satellite payload or component) or intellectual property that is in the reasonable good faith judgment of the Parent, no longer economically practicable to maintain or useful in the conduct of the business of the Parent and the Subsidiaries taken as a whole);”
“licenses and sublicenses by the Parent or any Subsidiary in the ordinary course of business;”
“(b) A Guarantor (other than a Guarantor whose guarantee is to be released in accordance with any of the Finance Documents or paragraph 2.33 of Schedule 12 (Covenants)) will not, directly or indirectly: (1) consolidate or merge with or into another Person or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of such Guarantor and the Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:”
“(a) Subject to the terms of the Intercreditor Agreement or any Additional Intercreditor Agreement, the Agent and the Security Agent(s) shall, at the request of the Parent or a Guarantor (if the Parent or such Guarantor has provided the Agent an Officer's Certificate and Opinion of Counsel certifying compliance with this paragraph 2.32) (i) release the relevant Collateral and (ii) execute and deliver appropriate instruments evidencing such release (in the form provided by and at the expense of the Parent), in each case, under one or more of the following circumstances:”
“(i) in connection with any sale, assignment, transfer, conveyance or other disposition of such property or assets to a Person that is not (either before or after giving effect to such transaction) the Parent or a Subsidiary, if the sale or other disposition does not violate the "Asset Sale" provisions of this Agreement or paragraph 2.22 of this Part A of Schedule 12;”
“The Parent will not, and will not cause or permit any Subsidiary to, take or omit to take, any action which action or omission would have the result of materially impairing the security interest with respect to the Collateral (it being understood that the incurrence of Liens on the Collateral permitted by the definition of "Permitted Collateral Liens" shall under no circumstances be deemed to materially impair the security interest with respect to the Collateral) for the benefit of the Agent and the Finance Parties, and the Parent will not, and will not cause or permit any Subsidiary to, grant to any Person other than the Security Agent(s), for the benefit of the Agent and the Finance Parties and the other beneficiaries described in the Security Documents, any interest whatsoever in any of the Collateral; provided that…”
“the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress of either party, determined in good faith by any responsible accounting or financial officer of the Parent.”
“The assets sold by ACL that were individually valued by GT comprise those assets that are most material and which are considered to be subject to fixed charge security: — Satellite asset [Hylas 3]: Value has been assessed on a value in use methodology, which estimates the value of an asset by calculating an NPV of cash flows under a specific use, payload only mission hosted on the ESRS-C satellite. The asset is valued at$3.5m to$3.7m . — Ground station and network assets [the Network and Ground Station Assets]: Given a lack of transferability for both of these asset types, GT have relied upon the Group assessment of NBV for these assets which equates to c$3m . — Orbital slots [the Satellite Network Filings]: These have been compared to available market acquisition benchmarks. Particular value has been placed on the slot used for Group operations. Based on these benchmarks, the value assessed is$20m to$50m (with the directors of ACL considering these to have a fair market value of$35m ). — Other licenses [the PES Licenses]: GT do not consider there is separable value to other licenses required to conduct Avanti’s business as these are not transferrable to third parties. Therefore, the value assessed is $nil.”
“In Re Spectrum Plus Ltd ([2005] 2 AC 680 [2005] UKHL 41 [2005] All ER (D) 368 (Jun)), the House of Lords approved this approach and held that the essential difference between a fixed and a floating charge turns upon the ability of the chargor/debtor to deal with the charged assets. The charge is fixed if and only if the chargor is required to preserve the charged assets, or their permitted substitutes, for the benefit of the charge. Without this requirement, the charge is floating. In particular, the charge is floating if the chargor is free to remove the charged assets, and their permitted substitutes, from the scope of the security, and use them for its own benefit in the course of its business (at least until the charge crystallises or the chargee intervenes to enforce the floating security) (see Lord Scott at [107], Lord Walker at [138], [139].”
“The test adopted by the House of Lords now provides a relatively easy answer to the characterisation question: the charge is floating unless the chargor is barred from removing the charged assets and their permitted substitutes from the scope of the security and using them for its own benefit in the course of its business.It follows that the imposition of some restrictions on use in the ordinary course of business, but not amounting to a total embargo, simply will not do to attract the label of fixed charge. Because of this, fixed charges over many assets are now often commercially and operationally unattractive to the debtor.”
“So long as the company trades in the ordinary way (a requirement emphasised by Romer LJ in the Yorkshire Woolcombers case[1903] 2 Ch 284 , 295, and by the Earl of Halsbury on appeal in the same case[1904] AC 355 , 357-358) the constituents of the charged fund are in a state of flux (or circulation). Trading stock is sold and becomes represented by book debts; these are collected and paid into the bank; the trader's overdraft facility enables it to draw cheques in favour of its suppliers to pay for new stock; and so the trading cycle continues.”
“111. In my opinion, 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. On this point I am in respectful agreement with Lord Millett. Moreover, recognition that this is the essential characteristic of a floating charge reflects the mischief that the statutory intervention to which I have referred was intended to meet and should ensure that preferential creditors continue to enjoy the priority that section 175 of the 1986 Act and its statutory predecessors intended them to have.”
“107. I respectfully agree. Indeed if a security has Romer LJ's third characteristic I am inclined to think that it qualifies as a floating charge, and cannot be a fixed charge, whatever may be its other characteristics. Suppose, for example, a case where an express assignment of a specific debt by way of security were accompanied by a provision that reserved to the assignor the right, terminable by written notice from the assignee, to collect the debt and to use the proceeds for its (the assignor's) business purposes, ie, a right, terminable on notice, for the assignor to withdraw the proceeds of the debt from the security. This security would, in my opinion, be a floating security notwithstanding the express assignment. The assigned debt would be specific and ascertained but its status as a security would not. Unless and until the right of the assignor to collect and deal with the proceeds were terminated, the security would retain its floating characteristic. Or suppose a case in which the charge were expressed to come into existence on the future occurrence of some event and then to be a fixed charge over whatever assets of a specified description the chargor might own at that time. The contractual rights thereby granted would, in my opinion, be properly categorised as a floating security. There can, in my opinion, be no difference in categorisation between the grant of a fixed charge expressed to come into existence on a future event in relation to a specified class of assets owned by the chargor at that time and the grant of a floating charge over the specified class of assets with crystallisation taking place on the occurrence of that event. I endeavoured to make this point in Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council[2002] 1 AC 336 , 357, para 63. Nor, in principle, can there be any difference in categorisation between those grants and the grant of a charge over the specified assets expressed to be a fixed charge but where the chargor is permitted until the occurrence of the specified event to remove the charged assets from the security. In all these cases, and in any other case in which the chargor remains free to remove the charged assets from the security, the charge should, in principle, be categorised as a floating charge. The assets would have the circulating, ambulatory character distinctive of a floating charge.”
“If the chargor is free to deal with the charged assets and so withdraw them from the ambit of the charge without the consent of the chargee, then the charge is a floating charge. But the test can equally well be expressed from the chargee's point of view. If the charged assets are not under its control so that it can prevent their dissipation without its consent, then the charge cannot be a fixed charge.”
“If the crucial difference between a fixed charge and a floating charge is in the nature of the interest of the chargee prior to any event of crystallisation, it would follow that a licence for the chargor to deal to some extent with the charged assets is not necessarily inconsistent with a fixed charge. If, however, the licence to deal given to the chargor is extensive, the charge will be floating, since in these circumstances there is in effect no attachment of the charge to any specific asset: see Goode, Legal Problems of Credit and Security, at p. 56. The extent to which the licence to deal is compatible with a fixed charge must depend on all the circumstances of the case, and in particular on the nature of the charged property. Where the charged property is stock, or book debts - i.e. where the assets are naturally fluctuating - the court will readily conclude that a liberty for the chargor to deal with the charged assets is inconsistent with a fixed charge. Where, as in the present case, the assets are specific and do not necessarily fluctuate, some liberty to release the charged assets may not be inconsistent with a fixed charge. Conversely, however, on this basis a floating charge over present goods, not extending to future goods, is not a conceptual impossibility.”
“Spectrum was a case concerning debts. Its analysis has general application, but the case can easily be misapplied in considering how to characterise charges over other revenue-generating assets. Many assets generate revenue; land, shares, insurance contracts, contractual performance rights, equipment put out for hire, leasing agreements. If the chargor is entitled to use the revenue at will, is the charge over the underlying asset properly characterised as fixed or floating? Some of these cases are easy. The trick is to remember to focus on the charged asset, and ask whether that asset (or its substitute) has to be preserved for the benefit of the chargee. A charge over land, for example, will be a fixed charge, notwithstanding that the income from any commercial operations taking place on the land is at the disposal of the chargor, not the chargee. The same is true of a charge over a fleet of vehicles run by a car-hire company, or a charge over equipment (such as computers, televisions, furniture) that may be hired out to customers. It is only if the charged asset itself (the land or equipment) is at the free disposal of the chargor that the charge is floating. The same approach is appropriate if the charge is over shares, even if the chargor is entitled to use the dividends at will (Arthur D Little (in admin) v Ableco Finance LLC[2002] EWHC 701 Ch). In all of these cases, the charged assets are themselves preserved intact for the benefit of the chargee, so that the charge is fixed.”
“In my judgment, bearing that passage I have just quoted in mind, Mr Moss is right on this aspect of the case for the following reasons. (1) Although clause 3.1(d) referred quite generally to all the subsidiary shares, it is plain from the definition of "subsidiary shares" in clause 1.1, from the reference in clause 7.3 and the identification of the shares in schedule 2, that at the time the debenture was made the only shares intended to be covered at that time by the debenture were specifically the CCL shares; that is, the shares that I have to consider. These are the only shares mentioned. I do not, therefore, regard this aspect as inconsistent with a fixed charge. (2) I again remind myself that the company was not trading in shares and no one has suggested it did. The essential nature of its business cannot, in my judgment, be ignored. The shares in CCL were not part of the company's circulating capital and it did not need to sell them, to deal with them, or to substitute them as part of its ordinary business as a management consultant, C nor to improve or assist its cash flow as part of that business. The shares were not part of a fluctuating body of assets which changed from time to time in the ordinary course of the company's business. (3) The shares did not remain under the management and control of the chargor in a manner which meant the company was free to withdraw them from the security, despite the charge, and to deal with them as part of its stock in trade: see In re Cosslett (Contractors) Ltd[1998] Ch 495 , 510, per Millett LJ, and the passages I have cited in Agnew v Comr of Inland Revenue[2001] 2 AC 710 , 719, 725, paras 13, 32. The shares could not be sold: see clause 6 and clause 8.5(a) and (b), entitling Ableco to secure transfer of the shares.”
“The position is less clear where the charge is over an income-generating asset. Where the asset is clearly separate from the income generated, for example, a chattel which could be hired out, control of the income is not required for a fixed charge over the asset itself. It is a matter of construction of the fixed charge as to whether it is over the asset itself, or over the lease by which the asset is hired out. If it is over the former alone, there is no need for the charge to control any rental income.”
“42. Their Lordships turn finally to the questions which have exercised academic commentators: whether a debt or other receivable can be separated from its proceeds; whether they represent a single security interest or two; and whether a charge on book debts necessarily takes effect as a single indivisible charge on the debts and their proceeds irrespective of the way in which it may be drafted. 43. Property and its proceeds are clearly different assets. On a sale of goods the seller exchanges one asset for another. Both assets continue to exist, the goods in the hands of the buyer and proceeds of sale in the hands of the seller. If a book debt is assigned, the debt is transferred to the assignee in exchange for money paid to the assignor. The seller's former property right in the subject matter of the sale give him an equivalent property right in its exchange product. The only difference between realising a debt by assignment and collection is that, on collection, the debt is wholly extinguished. As in the case of alienation, it is replaced in the hands of the creditor by a different asset, viz its proceeds.”
“46. While a debt and its proceeds are two separate assets, however, the latter are merely the traceable proceeds of the former and represent its entire value. A debt is a receivable; it is merely a right to receive payment from the debtor. Such a right cannot be enjoyed in specie; its value can be exploited only by exercising the right or by assigning it for value to a third party. An assignment or charge of a receivable which does not carry with it the right to the receipt has no value. It is worthless as a security. Any attempt in the present context to separate the ownership of the debts from the ownership of their proceeds (even if conceptually possible) makes no commercial sense.”