Kwame Nkrumah University of Science and Technology

College of Art and Social Sciences

Faculty of Law

Company Law 2: Law 356

Index Number: 1713807

Assignment 2

Question: The House of Lords decision in Re Spectrum Plus Ltd

[2005] for All ER 209 has been touted as having settled a lot of
controversies surrounding creation of charge over book debts or
receivables.
Are there any lessons that Ghanaian Company Law could learn from
Re Spectrum Plus Ltd. [5 marks]
The House of Lords decision in Re Spectrum Plus Ltd [2005] for All ER 209 has been
touted as having settled a lot of controversies surrounding creation of charge over book
debts or receivables. Are there any lessons that Ghanaian Company Law could learn
from Re Spectrum Plus Ltd?
Much controversy exists surrounding the creation of charge over book debts or receivables.
The crux of this controversy lies with the determination of whether a particular charge created
over book debts is fixed or floating. The decision of the House of Lords in Re Spectrum Plus
Ltd.1 is labelled as that which settled the contention surrounding the creation of charge over
book debts. In discussing how Ghanaian law could benefit from this decision, it is important
to briefly explain how this case settled the controversies over the subject of this discussion.
A book debt is an uncollected debt owed to a company and the realised proceeds of such
debts. It is because of the general priorities that fixed charges possess over floating charges
that the controversy surrounding the creation of charges over book debts exist. This is because
most creditors seek to create fixed charges over book debts to better secure their interest in
case of insolvency. They have however been mostly unsuccessful as courts may discard the
label of ‘fixed charge’ given in the debenture contract and after consideration of the true
substance and nature of the charge re-characterise it as a floating charge to the dismay of
lenders. A brief exposition of case law surrounding this subject matter is in good order.
It is generally agreed that Re Yorkshire Woolcombers2 was the first case to deal specifically
with the problem of book debts. The issue in that case was whether a charge on uncollected
book debts was fixed or floating. At every level of the decision it was held to be a floating
charge. The deciding factor in reaching this decision was the company’s freedom to receive
the book debts for its own account and deal with the proceeds without reference to the charge
holder.
In Siebe Gorman & Co. v. Barclays Bank.3 , Siebe Gorman sued Barclays Bank and a
company called R.H. McDonald (hereinafter referred to as “RHM”) in an attempt to recover
the money RHM owed them. RHM had entered a debenture with Barclays which gave the
bank a fixed charge over the company’s book debts and other debts, and also ensured that
RHM would be unable to “dispose of” the charged assets except by a sale in the ordinary
course of business. The issue was whether or not the debenture created a fixed charge over
book debts and thereby gave Barclay’s Bank priority over Siebe Gorman’s assignment. The
court held that It was possible to grant an equitable specific charge on the proceeds of book
debts. Though the courts established that the chargee needed to have sufficient control over
the disposal, collection and use of the proceeds so as to create a fixed charge over the debts, it
failed to elaborate on what would qualify as sufficient and thereby increased the confusion.

In Re Brightlife4 the court held that if the chargor was allowed to collect its book debts and
place them outside in a bank account that was not within the control of the chargee, then the
charge would be construed as a floating charge. This holding was evidence of movement
away from favouring charges over book debts as in Siebe Gorman. In Re Keenan Bros5, it

1 [2005] All ER 209

2 [1903] 2 Ch 284

3 [1979] 2 Lloyd’s Rep 142

4 [1987] Ch 200

5 [1986] BCLC 242

was held that a mere terminology was not determinative of whether a charge was fixed or
floating.
Re New Bullas6 placed a slightly different spin on the law of fixed charges. It was held that
the debenture was a contract, and the fact that there was a floating charge over the collected
book debts did not undermine the fixed charge on the uncollected book debts. The decision
was made on a right to contract theory, stating that “unless some authority of law prevents
them from agreeing, the agreement must prevail.” If the parties wanted to create such a
debenture, the court was going to allow the debenture to stand.

In Re Brumark7 (Agnew v Commissioner of Inland Revenue), a case with similar facts

as the Bullas case, the Privy Council disposed of the argument in New Bullas that it was
possible to separate book debts and their proceeds. Their Lordships considered that New
Bullas was wrongly decided and this further aggravated the contentions surrounding the
creation of charges over book debts. This is until the House of Lords decision in Re Spectrum
Plus Ltd.

The main issue in the Re Spectrum Plus case was whether or not the debenture granted over
book debts was secured with a floating or fixed charge. Most of its facts were on the same line
as the Siebe Gorman case. At first instance it was concluded that the charge was a floating
charge and that Siebe Gorman was wrongly decided. On appeal to the Court of Appeal it was
held that the charge was a fixed charge. On further appeal, the House Lords held that Siebe
Gorman was wrongly decided and should be overruled. The court concluded that the
overdraft facility could be drawn by the company at will and this was inconsistent with the
charge being a fixed charge. Accordingly, the debenture, although expressed to be a fixed
charge over the company’s book debts, had in law only granted a floating charge. The
essential point of all of these cases is that appropriate control must be exercised over the book
debts at all stages – prior to collection and post collection to maximize a finding of a fixed
charge.

The important judgment in Re Spectrum Plus finally clears up the long debated issue of book
debts and the certainty it creates is to be welcomed. The importance of the decision in the Re
Spectrum Plus case to Ghanaian Company law is discussed.

This case and all the many other cases surrounding it discuss into detail the concept of
creating charges over book debts and the effect of labelling these charges as either fixed or
floating. It is evidence that the courts will characterise a charge if deems it lawfully so. From
this case it obvious that the concluding factor in deciding what labels to be attached to a
charge over book debts depend on the element of control. A lender had to exercise much
control (as in the form of a blocked account) for his charge to be labelled a fixed charge.

Lenders in Ghana, especially the banks, are reminded through this decision that the charges
they may hold over book debts could in law be found to the floating charges despite the label
of fixed charge assigned to them. This is because Ghanaian case law and statute seem to be
quite silent on this topic and thereby if need arises a Ghanaian court would only have this
landmark English decision to follow. What lenders could do in order not to protect their
interest would be to renegotiate the terms of the securities so they can exercise better control
on the book debts granted to companies. In the alternative they may also insist that directors
give personal guarantees for future overdrafts

6 [1994] 1 BCLC 449

7 [2001] 2 AC 710
The expected effect of any of these suggestions is to make it quite undesirable for banks to
grant overdraft facilities to companies. The result of this would be that small companies
would have problems in raising capital and operating freely in their normal cause of business.

As this outcome would be detrimental to the development of Ghanaian Company law, it is

suggested that Ghanaian legislators’ attention would be drawn to the problems encountered in
this most unsatisfactory area of law through this case, for proper legislations to be enacted on
the issue in order to create more precision and certainty in that area of Company law in
Ghana.

Though it may be argued that the Re Spectrum Plus decision is limited in value because it is
confined to a special set of facts dealing with creation of charges over book debts, it is still
invaluable as it an eye opener to Ghanaian company law.
 Bibliography
1. Company Law in Ghana, Professor
P.E. Bondzi- Simpson
Second Edition
2. Mozley & Whiteley’s Law Dictionary
J.E. Penner
12th Edition

3. Spectrum Plus And Book Debts: The Final Chapter? James Hanlon
[2006] 1 WEB JCLI
4. The Spectrum Plus Case: Lauren Pogue
Fixed or Floating Charges over Book Debts in England?
North Carolina Banking Institute Journal.
Volume 9.

[20