Woodroffes (Muslcal lnsLrumenLs) LLdţ 8e

Also known asť

Chancery ulvlslon

22 lebruary 1983

Case Analysls

Where 8eporLed ż1986Ž ChŦ 366Ť ż1983Ž 3 WŦLŦ8Ŧ 343Ť ż1983Ž 2 All LŦ8Ŧ
908Ť ż1983Ž ÞŦCŦCŦ 318Ť (1983) 82 LŦSŦCŦ 3170Ť (1983) 129 SŦ!Ŧ 389Ť

Case ulgesL

Sub[ecLť
Company Law

keywordsť
lloaLlng chargesţ CrysLalllsaLlonţ 8uslness cessaLlon

CaLchphrasesť
Chargesţ floaLlng chargeţ cessaLlon of buslnessţ wheLher
auLomaLlc crysLalllsaLlon

AbsLracLť
1he cessaLlon of a companyƌs buslness causes an auLomaLlc
crysLalllsaLlon of any floaLlng charge creaLed by Lhe companyŦ W Co creaLed a
debenLure ln favour of P bank secured by a flxed and flrsL floaLlng chargeţ
whereby no furLher charge was Lo be creaLed wlLhouL P bankƌs consenLŦ P bank
was empowered by noLlce Lo converL Lhe floaLlng charge lnLo a speclflc charge
ln relaLlon Lo speclfled asseLsţ and Lhe debenLure was reglsLered wlLhouL P
bankƌs consenLŦ W Co creaLed a second debenLure secured by a second floaLlng
charge ln favour of xţ Lo rank lmmedlaLely afLer Lhe flrsL chargeŦ x was
empowered Lo converL Lhe charge lnLo a speclflc charge ln relaLlon Lo all Lhe
companyƌs underLaklngs and asseLsţ and Lhe debenLure was reglsLeredŦ Cn AugusL
27ţ x gave noLlce Lo converL Lhe chargeŤ on SepLember 1ţ P bank served a formal
demand for repaymenL and appolnLed recelversŦ 1here were lnsufflclenL asseLs Lo
repay all W Coƌs credlLorsŦ

Peldţ LhaL (1) Lhere was no ground for lmplylng LhaL Lhe bankƌs charge
crysLalllsed auLomaLlcally when xƌs dldŤ (2) Lhe cessaLlon of W Coƌs buslness
caused Lhe auLomaLlc crysLalllsaLlon of any floaLlng chargeţ buL (3)ţ Lhere was
no sufflclenL evldence LhaL W Co had ceased Lo carry on buslness prlor Lo
SepLember 1Ŧ P bankƌs charge Lherefore crysLalllsed on SepLember 1ţ and Lhe
order of prlorlLy wasť (a)ţ P bank Lo Lhe exLenL of xƌs chargeŤ (b)ţ
preferenLlal credlLorsŤ (c)ţ P bank Lo Lhe balance of lLs chargeţ and (d)ţ x
(dlcLum of !essel MŦ8Ŧ ln llorence Land and Þubllc Works Co Lx pŦ Moorţ 8e
(1878Ŵ79) LŦ8Ŧ 10 ChŦ uŦ 330 applledŤ SLeln v Saywell (1969) 121 CŦLŦ8Ŧ 329
explalned)Ŧ

ż1983Ž 3 WŦLŦ8Ŧ 343

*366 ln 8e Woodroffes (Muslcal lnsLrumenLs) LLdŦ v


Chancery ulvlslon

!Ŧ nourse

1983 lebŦ 20ţ 21ţ 22


CompanyŴuebenLureŴlloaLlng charge on asseLsŴnoLlce Lo converL lnLo flxed
chargeŴ8ankƌs prlor debenLure wlLh floaLlng chargeŴCompany noL ceaslng buslness
unLll appolnLmenL of recelverŴWheLher bankƌs floaLlng charge auLomaLlcally
crysLalllsed on crysLalllsaLlon of oLher charge or upon company ceaslng
buslnessŴÞrlorlLy beLween bank and preferenLlal credlLors

Cn 19 uecember 1980 Lhe company creaLed an allŴmoneys debenLure ln favour of a
bankţ whlch lncludedţ lnLer allaţ a floaLlng charge over all lLs asseLs and
underLaklngŦ 1he moneys Lhereby secured were lmmedlaLely repayable on demandţ
and Lhe bank had a rlghL Lo converL Lhe floaLlng charge lnLo a flxed charge on
any asseLs speclfled ln Lhe noLlceŦ Cn 9 AugusL 1982 Lhe company creaLed a
second debenLure Lo secure L23ţ000 advanced by WŦţ a dlrecLor of Lhe companyţ
LogeLher wlLh lnLeresL LhereonŦ 1he second debenLure was expressly sub[ecL Loţ
and ranked lmmedlaLely afLerţ Lhe bankƌs chargeŦ Llke Lhe bankƌs charge lL was
slmllarly converLlble lnLo a flxed charge on speclflc asseLs by glvlng noLlceŦ
Cn 27 AugusL 1982ţ WŦ gave such a noLlce converLlng lL lnLo a flxed charge on
Lhe whole of Lhe companyƌs underLaklng and asseLsţ whaLsoever and wheresoeverŦ
1he bank dld noL glve a slmllar noLlceŦ Cn 1 SepLember 1982 Lhe bank served a
formal demand for repaymenL of prlnclpal and lnLeresLţ LoLalllng L108ţ296Ŧ60ţ
and appolnLed [olnL recelvers under lLs floaLlng chargeŦ Cn 28 november 1983ţ a
compulsory wlndlng up order was madeŦ 1he [olnL recelvers collecLed L126ţ196ţ
whlch was avallable for dlsLrlbuLlon and of LhaL sum Lhe flrsL L30ţ330 was
payable Lo Lhe bank ln respecL of lLs flxed charges creaLed by Lhe 1980
debenLureŦ 1he remalnlng L93ţ846 was clearly lnsufflclenL Lo saLlsfy Lhe bankƌs
remalnlng clalmţ WŦƌs clalm and Lhe debLs owlng Lo preferenLlal credlLorsŦ

Cn Lhe [olnL recelversƌ appllcaLlon for dlrecLlonsţ under secLlon 369(1) of
Lhe Companles AcL 1948ţ on Lhe quesLlon of prlorlLlesť Ŵ

(1)LhaLţ ln Lhe absence of an express Lerm ln Lhe 1980 debenLureţ Lhe bankƌs
floaLlng charge dld noL crysLalllse auLomaLlcally on 27 AugusL 1982ţ as Lhe
resulL of Lhe crysLalllsaLlon on LhaL daLe of WŦƌs floaLlng charge (posLţ ppŦ
373u Ŵ 3768ţ LŴl)ŦLlverpool ClLy Councll vŦ lrwln ż1977Ž AŦCŦ 239ţ PŦLŦ(LŦ) and
SLeln vŦ Saywell (1969) 121 CŦLŦ8Ŧ 329 conslderedŦ(2)1haL a cessaLlon of
buslnessţ whlch necessarlly puL an end Lo a companyƌs capaclLy Lo deal wlLh lLs
asseLsţ auLomaLlcally caused a floaLlng charge Lo crysLalllseŤ buL LhaLţ slnceţ
Lhe company had noL ceased buslness before Lhe appolnLmenL of Lhe recelver on 1
SepLember 1982ţ Lhe bankƌs charge crysLalllsed on LhaL daLe andţ Lhereforeţ lL
was only enLlLled Lo prlorlLy over Lhe preferenLlal credlLors Lo Lhe exLenL of
WŦƌs clalm of L23ţ000 wlLh lnLeresL (posLţ ppŦ 378AŴuţ 379CŴu)ŦCovernmenLs
SLock and CLher SecurlLles lnvesLmenL CoŦ LLdŦ vŦ Manlla 8allway CoŦ LLdŦ
ż1897Ž AŦCŦ 81ţ PŦLŦ(LŦ)Ť llllngworLh vŦ PouldsworLh ż1904Ž AŦCŦ 333ţ PŦLŦ(LŦ)
and Lvans vŦ 8lval CranlLe Cuarrles LLdŦ ż1910Ž 2 kŦ8Ŧ 979ţ CŦAŦ conslderedŦ
*367

1he followlng cases are referred Lo ln Lhe [udgmenLť

* CrompLon Ǝ CoŦ LLdŦţ ln re ż1914Ž 1 ChŦ 934

* uavey Ǝ CoŦ vŦ Wllllamson Ǝ Sons LLdŦ ż1898Ž 2 CŦ8Ŧ 194ţ uŦCŦŦ

* Lvans vŦ 8lval CranlLe Cuarrles LLdŦ ż1910Ž 2 kŦ8Ŧ 979ţ CŦAŦŦ

* llorence Land and Þubllc Works CoŦţ ln reţ Lx parLe Moor (1878) 10 ChŦuŦ
330ţ CŦAŦŦ

* CovernmenLs SLock and CLher SecurlLles lnvesLmenL CoŦ LLdŦ vŦ Manlla
8allway CoŦ LLdŦ ż1897Ž AŦCŦ 81ţ PŦLŦ(LŦ)Ŧ

* Pubbuck vŦ Pelms (1887) 36 LŦ!Ŧ ChŦ 336

* Llverpool ClLy Councll vŦ lrwln ż1977Ž AŦCŦ 239Ť ż1976Ž 2 WŦLŦ8Ŧ 362Ť
ż1976Ž 2 All LŦ8Ŧ 39ţ PŦLŦ(LŦ)Ŧ

* nelson (Ldward) Ǝ CoŦ LLdŦ vŦ laber Ǝ CoŦ ż1903Ž 2 kŦ8Ŧ 367

* 8obson vŦ SmlLh ż1893Ž 2 ChŦ 118

* SLeln vŦ Saywell (1969) 121 CŦLŦ8Ŧ 329

* vlcLorla SLeamboaLs LLdŦţ ln re ż1897Ž 1 ChŦ 138

* ?orkshlre Woolcombers AssoclaLlon LLdŦţ ln re ż1903Ž 2 ChŦ 284ţ CŦAŦŤ
sub nomŦ llllngworLh vŦ PouldsworLh ż1904Ž AŦCŦ 333ţ PŦLŦ(LŦ)Ŧ


1he followlng addlLlonal cases were clLed ln argumenLť

* ChrlsLoneLLe lnLernaLlonal LLdŦţ ln re ż1982Ž 1 WŦLŦ8Ŧ 1243Ť ż1982Ž 3
All LŦ8Ŧ 223

* Cope (8en[amln) Ǝ Sons LLdŦţ ln re ż1914Ž 1 ChŦ 800

* Lngllsh and ScoLLlsh MercanLlle lnvesLmenL CoŦ LLdŦ vŦ 8runLon ż1892Ž 2
CŦ8Ŧ 700ţ CŦAŦŦ

* Crlffln PoLel CoŦ LLdŦţ ln re ż1941Ž ChŦ 129Ť ż1940Ž 4 All LŦ8Ŧ 324

* Porne and Pellardţ ln re (1883) 29 ChŦuŦ 736

* lnland 8evenue Commlssloners vŦ ColdblaLL ż1972Ž ChŦ 498Ť ż1972Ž 2
WŦLŦ8Ŧ 933Ť ż1972Ž 2 All LŦ8Ŧ 202

* Lewls MerLhyr ConsolldaLed Colllerles LLdŦţ ln re ż1929Ž 1 ChŦ 498ţ CŦAŦ
Ŧ

* Manurewa 1ransporL LLdŦţ ln re ż1971Ž nŦZŦLŦ8Ŧ 909

* 8egŦ ln 8lghL of 8rlLlsh Columbla vŦ ConsolldaLed Churchlll Copper
CorporaLlon LLdŦ ż1978Ž 3 WŦWŦ8Ŧ 632Ť 90 uŦLŦ8Ŧ (3d) 337

* SLephenson (8oberL) Ǝ CoŦ LLdŦţ ln re ż1913Ž 2 ChŦ 201ţ CŦAŦŦ

* WlllmoLL vŦ London Cellulold CoŦ (1886) 34 ChŦuŦ 147ţ CŦAŦŦ


C8lClnA1lnC SuMMCnS

8y an orlglnaLlng summonsţ daLed 30 Aprll 1984ţ AllsLalr lrancls !ones and
1lmoLhy AllsLalr Ldward 8rookesţ as [olnL recelvers appolnLed under a debenLure
daLed 19 uecember 1980 granLed by Woodroffes (Muslcal lnsLrumenLs) LLdŦ Lo Lhe
Pong kong and Shanghal 8anklng CorporaLlonţ applled Lo Lhe courL for dlrecLlons
as Lo whaL prlorlLyţ lf anyţ should be glven by Lhe recelvers ln maklng paymenL
from Lhe companyƌs asseLs ln Lhelr hands Lo (a) Lhe flrsL respondenLţ Pong kong
and Shanghal 8anklng CorporaLlonţ whlch clalmed prlorlLy over all oLher
credlLors by reason of Lhe charges conLalned ln Lhe debenLure of 19 uecember
1980ţ (b) Lo Lhe second respondenLţ MrsŦ Pelena !une Woodroffeţ who clalmed
prlorlLy over all oLher credlLors by reason of Lhe charge conLalned ln a
debenLure daLed 9 AugusL 1982 made beLween Lhe company and Lhe second
respondenLţ and (c) Lo Lhe Lhlrd and fourLh respondenLsţ Lhe CusLoms and Lxclse
Commlssloners and Lhe lnland 8evenue Commlsslonersţ and Lhe flfLh and slxLh
respondenLsţ Lhe ClLy of 8lrmlngham ulsLrlcL Councll and Lhe MeLropollLan
8orough of*368 WolverhampLonţ who clalmed prlorlLy by reason of Lhe facL LhaL
Lhey wereţ or clalmed Lo beţ preferenLlal credlLors by vlrLue of secLlons 94
and 319 of Lhe Companles AcL 1948Ŧ An order was also soughL LhaL Lhe cosLs of
Lhe appllcaLlon be provlded forŦ 1he appllcaLlon was made under secLlon 369(1)
of Lhe Companles AcL 1948 and 8ŦSŦCŦţ CrdŦ 102ţ rŦ1Ŧ

1he facLs are sLaLed ln Lhe [udgmenLŦ

!ohn CŦ 1aylor for Lhe [olnL recelversŦ

!ohn MŦ !arvls for Lhe flrsL respondenLŦ (1) 1he bank has a flxed charge
amounLlng Lo L30ţ330 ln respecL of whlch Lhere can be no dlspuLeŦ 1he bankƌs
LoLal clalm ls for L83ţ813 and Lhe quesLlon when Lhe bankƌs floaLlng charge
crysLalllsed becomes relevanLŦ 1he bank conLends LhaL Lhe relevanL daLe of
crysLalllsaLlon of Lhe bankƌs charge ls 27 AugusL 1982ţ belng Lhe daLe when
MrsŦ Woodroffe converLed her floaLlng charge Lo a flxed chargeţ pursuanL Lo
clause 6(b) of her debenLureŦ lrom LhaL daLeţ Lhe companyƌs acLual auLhorlLy Lo
deal wlLh lLs charged asseLs ceased and Lhe buslness came Lo an endŦ
Accordlnglyţ when Lhe bankƌs recelver was appolnLed on 1 SepLember 1982ţ Lhe
bankƌs charge was already flxedŦ

(2)1he prlorlLy beLween Lhe bank and MrsŦ Woodroffe does noL depend upon Lhe
prohlblLlon on Lhe creaLlon of morLgagesţ charges or llens conLalned ln Lhe
bankƌs debenLure buL on Lhe facL LhaL Lhe 1982 debenLure was expressed Lo be a
second floaLlng chargeţ sub[ecL Lo and ranklng afLer Lhe bankƌs debenLureŦ
CrysLalllsaLlon whlch ls slmply Lhe converslon of a floaLlng charge lnLo a
flxed charge does noL lLself affecL prlorlLyŦ 1here can be no doubL LhaL Lhe
noLlce glven by MrsŦ Woodroffe on 27 AugusL 1982 caused her debenLure Lo become
a second flxed charge lnsLead of a second floaLlng charge buL whlch ranked
sub[ecL Lo and lmmedlaLely afLer Lhe bankƌs debenLureŦ Poweverţ Lhe effecL of
MrsŦ Woodroffeƌs crysLalllslng her own charge alLers Lhe prlorlLles as beLween
Lhe bank and Lhe preferenLlal credlLorsť ln re 8oberL SLephenson Ǝ CoŦ LLdŦ
ż1913Ž 2 ChŦ 201Ŧ 1he order of prlorlLles ls as followsť (l) Lhe bankţ by
vlrLue of lLs flxed chargesŤ (ll) MrsŦ Woodroffeţ by reason of her second flxed
charge and (lll) Lhe preferenLlal credlLorsŦ

(3)1he leadlng case seLLlng ouL Lhe naLure of a floaLlng charge ls CovernmenLs
SLock and CLher SecurlLles lnvesLmenL CoŦ LLdŦ vŦ Manlla 8allway CoŦ LLdŦ
ż1897Ž AŦCŦ 81ţ per Lord MacnaghLen aL pŦ 86Ŧ And see also Coughţ Company
Charges (1978)ţ pŦ 84Ŧ 1he Manlla case was followed by llllngworLh vŦ
PouldsworLh ż1904Ž AŦCŦ 333ţ per Lord MacnaghLenţ aL pŦ 338Ŧ

(4)1he vlLal quesLlon ls when does a floaLlng charge crysLalllse? 1he Lrue
poslLlon was sLaLed by Lord MacnaghLen ln Lhe Manlla case ż1897Ž AŦCŦ 81ţ 86Ť a
floaLlng charge wlll crysLalllse auLomaLlcally on Lhe company ceaslng Lo be a
golng concernŦ 1hls should noL be LranslaLed lnLo Lhe cessaLlon of Lhe carrylng
on of Lhe buslness of Lhe companyţ whlch ls Lhe oblLer dlcLum of lleLcher
MoulLon LŦ!Ŧ ln Lvans vŦ 8lval CranlLe Cuarrles LLdŦ ż1910Ž 2 kŦ8Ŧ 979ţ 993Ŧ

(3)1he proper approach ls Lo see wheLher on Lhe appolnLmenL of a recelver Lhe
company ceases Lo operaLe as a golng concernŦ 1he basls of*369 Lhe floaLlng
charge ls Lo enable Lhe company Lo carry on lLs buslness and Lo deal wlLh
properLy whlch ls Lhe sub[ecL of Lhe debenLure for Lhe purpose of lLs buslnessţ
Lo have Lhe power Lo sell lLs goodsţ power Lo use varlous asseLs from day Lo
day and Lhe power and rlghL Lo manage lLs buslness wlLhouL any lnLerference
from Lhe debenLure holderŦ 1hls presupposes Lhe conLlnuance of Lhe company as a
golng concern under Lhe managemenL of lLs dlrecLorsŦ 1he appolnLmenL of a
recelver has a qulLe dlfferenL effecL and Lhe company ceases Lo be a golng
concern ln Lhls senseŦ 1he recelver musL deal wlLh Lhe companyƌs asseLs noL ln
Lhe ordlnary course of lLs buslness buL for Lhe express purpose of collecLlng
ln Lhe asseLs for Lhe beneflL of Lhe debenLure holderŦ Cnce lL ls accepLed LhaL
on Lhe appolnLmenL of a recelver Lhe company ceases Lo be a golng concern and
aL LhaL polnL Lhe charge crysLalllsesţ even lf Lhe company ls sLlll Lradlngţ
Lhen wheLher Lhe effecL on Lhe buslness ls caused by Lhe appolnLmenL of a
recelver or by Lhe chargee hlmself or by anoLher secured credlLorţ Lhe
underlylng prlnclple ls Lhe sameţ and resulLs ln a cessaLlon of Lhe companyƌs
powers of managemenLţ so LhaL lL ceases Lo operaLe as a golng concernŦ
Accordlngly Lhe flxlng of Lhe floaLlng charge by MrsŦ Woodroffe has Lhe effecL
LhaL Lhe company cannoL sell or morLgage any parL of Lhe properLy affecLed by
LhaL flxed charge so LhaL Lhe company ceases Lo operaLe as a golng concernŦ 1he
followlng cases are clLed ln supporL of Lhese proposlLlonsť ln re vlcLorla
SLeamboaLs LLdŦ ż1897Ž 1 ChŦ 138Ť Ldward nelson Ǝ CoŦ LLdŦ vŦ laber Ǝ CoŦ
ż1903Ž 2 kŦ8Ŧ 367 and SLeln vŦ Saywell (1969) 121 CŦLŦ8Ŧ 329Ŧ See also Lhe new
Zealand case of ln re Manurewa 1ransporL LLdŦ ż1971Ž nŦZŦLŦ8Ŧ 909ţ whlch shows
LhaL Lhe prlnclples apply Lo auLomaLlc crysLalllsaLlonţ and whlch ls a case
lnvolvlng successlve floaLlng charges over Lhe same asseLsŦ

(6)An alLernaLlve argumenL ls LhaL lL was an lmplled Lerm of Lhe debenLure
LhaL lL should crysLalllse auLomaLlcally ln Lhe evenL LhaL anoLher debenLure
holder caused lLs charge Lo crysLalllseŦ Such a Lerm ls necessary Lo glve
buslness efflcacy Lo Lhe debenLureţ slnce oLherwlse Lhe debenLure would cease
Lo be a Lrue floaLlng chargeŦ 1hls ls conslsLenL wlLh Lhe fourLh varleLy of
lmpllcaLlon ldenLlfled by Lord Wllberforce ln Llverpool ClLy Councll vŦ lrwln
ż1977Ž AŦCŦ 239ţ 234Ŧ As Lo Lhe quesLlon of wheLher ln facL Lhere was a
cessaLlon of Lhe companyƌs buslness Lhe bank relles on paragraph 3 of MrŦ
ColdsmlLhƌs affldavlLŦ normal buslness cannoL have been carrled on afLer 27
AugusL 1982Ŧ

(7)A secondary quesLlon ls Lhe effecL of secLlon 94(1) of Lhe Companles AcL
1948Ŧ 1here are Lwo vlewsť (l) SecLlon 94 should be read wldely Lo lnclude
anyone whose rlghLs derlve from a floaLlng chargeţ even Lhough lL had become
flxedŦ 1hls vlew ls supporLed by lnland 8evenue Commlssloners vŦ ColdblaLL
ż1972Ž ChŦ 498ţ 309ţ and 8arwlck CŦ!Ŧ ln SLeln vŦ Saywellţ 121 CŦLŦ8Ŧ 329ţ 344Ŧ
(ll) a conLrary vlew ls LhaL Lhe leglslaLlon has drawn a llneţ and LhaL lL
would need clear words Lo supporL Lhe flrsL vlewŤ see Mc1lernan and Menzles !!Ŧ
aL pŦ 332ţ klLLo !Ŧ aL pŦ 336ţ and Cwen !Ŧ aL ppŦ 360Ŵ361Ŧ See also ln re
ChrlsLoneLLe lnLernaLlonal LLdŦ ż1982Ž 1 WŦLŦ8Ŧ 1243Ŧ 1he second vlew musL be
rlghL on Lhe clear wordlng of Lhe secLlonŦ 1he flrsL vlew would provlde an
absurdlLyţ slnce a charge could have sLarLed as a floaLlng chargeţ sayţ 20*370
years agoţ and could have become flxed Lwo years laLerŦ lL would be wrong Lo
look aL Lhe orlglnal form of Lhe charge Lo declde wheLher lL fell wlLhln Lhe
secLlonţ because a chargee mlghL have allowed a flxed chargeţ onţ sayţ book
debLs Lo floaL and lf Lhe flrsL vlew prevalled lL would be descrlbed as a flxed
chargeŦ SecLlon 94 ls a pragmaLlc vlew whereby Lhe leglslaLure has drawn a
llneŦ

uavld CŦ MŦ Marks for Lhe second respondenLŦ 1he argumenL advanced for Lhe
bank ls adopLedŦ AlLhough Lhe courLs lean agalnsL Lhe concepL of auLomaLlc
crysLalllsaLlonţ Lhere ls no Lngllsh auLhorlLy whlch ls squarely on Lhe polnLŤ
cfŦ ln re Porne and Pellard (1883) 29 ChŦuŦ 736ţ a case crlLlclsed ln Lngllsh
and ScoLLlsh MercanLlle lnvesLmenL CoŦ LLdŦ vŦ 8runLon ż1892Ž 2 CŦ8Ŧ 700Ŧ lL
has been sLaLed [udlclally LhaL Lhe Lngllsh cases do noL embrace Lhe concepL of
auLomaLlc crysLalllsaLlonţ buL Lhe case ln whlch Lhls was sLaLed ls
dlsLlngulshableţ as on Lhe facLs Lhe clause dld noL provlde for auLomaLlc
aLLachmenLť 8egŦ ln 8lghL of 8rlLlsh Columbla vŦ ConsolldaLed Churchlll Copper
CorporaLlon LLdŦ ż1978Ž 3 WŦWŦ8Ŧ 632Ť 90 uŦLŦ8Ŧ (3d) 337Ŧ 1he presumed
lnLenLlon of Lhe parLles Lo Lhe earller debenLure of 1980 was LhaL should Lhe
buslness cease Lradlng or should some oLher crysLalllslng evenL occur under and
by vlrLue of Lhe second floaLlng chargeţ Lhen Lhe flrsL floaLlng charge would
also crysLalllseť see ln re 8en[amln Cope Ǝ Sons LLdŦ ż1914Ž 1 ChŦ 800Ŧ 1here
should be no dlfference beLween Lhe appolnLmenL of a recelver under a
subsequenL debenLure and Lhe cessaLlon of Lhe companyƌs buslnessţ as
crysLalllslng evenLs under a prlor floaLlng chargeŦ 1he effecL ln boLh cases ls
Lo paralyse Lhe companyƌs ordlnary Lradlng rlghLs and ablllLy Lo LradeŦ
Slmllarly Lhere should be no dlfference ln Lhe case of Lhe second debenLure
holder seeklng Lo converL lLs floaLlng charge lnLo a flxed charge by wrlLLen
noLlceŦ As Lo whaL acLs or paymenLs consLlLuLe Lradlng ln Lhe ordlnary course
of buslnessţ see WlllmoLL vŦ London Cellulold CoŦ (1886) 34 ChŦuŦ 147Ŧ As Lo
Lhe effecL of secLlon 94(1) of Lhe Companles AcL 1948ţ see ln re Lewls MerLhyr
ConsolldaLed Colllerles LLdŦ ż1929Ž 1 ChŦ 498Ŧ


!ohn lŦ Mummery for Lhe Lhlrd and fourLh respondenLsŦ As Lo Lhe respecLlve
daLes of crysLalllsaLlon of Lhe floaLlng charge ln Lhe 1980 debenLure ln favour
of Lhe bank and Lhe floaLlng charge ln Lhe 1982 debenLure ln favour of MrsŦ
Woodroffeţ Lhe commlssloners make Lwo alLernaLlve submlsslonsŦ (1) 1he prlmary
submlsslon ls LhaL Lhe floaLlng charge ln Lhe 1980 debenLure dld noL
crysLalllse unLll 1 SepLember 1982ţ when Lhe [olnL recelvers were appolnLed by
Lhe bankŦ lL ls accepLed for Lhe purposes of Lhls argumenL aL Lhls hearlng LhaL
Lhe floaLlng charge ln Lhe 1982 debenLure had already crysLalllsed on 27 AugusL
1982ţ on Lhe servlce of Lhe noLlce by MrsŦ Woodroffe under clause 6(b) of LhaL
debenLureŦ 1he resulL of Lhls submlsslon ls LhaL secLlon 94 of Lhe Companles
AcL 1948 appllesŦ 1he debLs owlng by Lhe company Lo Lhe commlssloners are
preferenLlal debLs and oughL Lo be pald ln prlorlLy Lo Lhe debL owlng Lo Lhe
bankŦ

As Lo Lhe conLenLlon of Lhe bank and MrsŦ Woodroffe LhaL Lhe floaLlng charge
ln Lhe 1980 debenLure crysLalllsed on 27 AugusL 1982ţ lŦeŦ before Lhe
appolnLmenL of Lhe [olnL recelversţ (l) a floaLlng charge ls governed by Lhe
Lerms of Lhe conLracL creaLlng lLţ lŦeŦ Lhe 1980 debenLure*371 made beLween Lhe
company and Lhe bankŦ (ll) 1hose conLracLual Lerms dld noL provldeţ elLher
expressly or by lmpllcaLlonţ LhaL Lhe floaLlng charge should crysLalllse
auLomaLlcally on Lhe subsequenL of a flxed charge or crysLalllsaLlon of anoLher
floaLlng chargeŦ (lll) 1he servlce of Lhe noLlce under Lhe 1982 debenLure by
MrsŦ Woodroffe on 27 AugusL 1982 dld noL crysLalllse Lhe floaLlng charge Lo Lhe
bank ln Lhe 1980 debenLureŦ 1he 1982 debenLure was creaLed wlLhouL Lhe consenL
of Lhe bankŦ 1he power Lo glve noLlce under clause 6(b) of LhaL debenLure was
exerclsed wlLhouL Lhe consenL of Lhe bankŦ lL ls conLrary Lo prlnclple LhaL Lhe
conLracLual relaLlons beLween Lhe company and Lhe bank shouldţ ln Lhe absence
of express provlslon Lo LhaL effecLţ be changed by whaL ls done under a
dlfferenL conLracL (lŦeŦ Lhe 1982 debenLure) Lo whlch Lhe bank was noL a parLy

SLeln vŦ Saywell 121 CŦLŦ8Ŧ 329 does noL asslsLŦ lL ls clear from Lhe facLs ln
LhaL case LhaL Lhere was an express provlslon ln Lhe conLracL creaLlng Lhe
second floaLlng charge LhaL lL should crysLalllse on Lhe appolnLmenL of a
recelver under an earller floaLlng chargeŦ

(lv) 1here was no auLomaLlc crysLalllsaLlon of Lhe floaLlng charge ln Lhe 1980
debenLure by reason of a cessaLlon of Lhe companyƌs buslness before 1 SepLember
1982Ŧ 1here ls no blndlng declslon LhaLţ ln Lhe absence of an express Lerm Lo
LhaL effecLţ a floaLlng charge auLomaLlcally crysLalllses on a company ceaslng
Lo be a golng concern or ceaslng Lo carry on lLs buslnessŦ lL ls accepLed LhaL
Lhere are dlcLa Lo LhaL effecLŦ ln any evenLţ Lhe evldence ln Lhls case does
noL show LhaL Lhe company dld ln facL cease Lo carry on lLs buslness before 1
SepLember 1982Ŧ

(2)lfţ conLrary Lo Lhe prlmary submlsslon ln (1) aboveţ Lhe floaLlng charge ln
Lhe 1980 debenLure and Lhe 1982 debenLure boLh crysLalllsed on 27 AugusL 1982ţ
on Lhe Lrue consLrucLlon of secLlon 94 of Lhe Companles AcL 1948ţ Lhe
preferenLlal debLs owlng Lo Lhe commlssloners should be pald ln prlorlLy Lo Lhe
debLs owlng Lo Lhe bank and MrsŦ WoodroffeŦ (l) 1he asseLs comlng Lo Lhe hands
of Lhe recelvers were lnlLlally sub[ecL Lo floaLlng charges conLalned ln Lhe
1980 and 1982 debenLuresŦ (ll) 1he recelvers were appolnLed on behalf of
holders of debenLures ƍsecured by a floaLlng chargeƍ aL Lhe daLe when Lhe
debenLures were granLedŦ lL ls accepLedţ for Lhe purposes of Lhls argumenLţ
LhaL boLh floaLlng charges had subsequenLly crysLalllsed before Lhe daLe of Lhe
recelversƌ appolnLmenLŦ (lll) 1he expresslon ƍsecured by a floaLlng chargeƍ ln
secLlon 94 ls noL lnLended Lo ldenLlfy Lhe properLy sub[ecL Lo Lhe chargeŦ lL
ls lnLended Lo ldenLlfy Lhe naLure of Lhe debenLure holders by whom Lhe
recelver ls appolnLedŦ 1helr naLure ls deLermlned aL Lhe daLe of creaLlon of
Lhe debenLures and noL aL Lhe daLe of Lhe appolnLmenL of Lhe recelversŦ (lv)
1he declslons on secLlon 319(3) of Lhe Companles AcL 1948 are of llLLle
asslsLanceŦ SecLlon 319(3) applles Lo a wlndlng upŦ 1he wordlng ls
slgnlflcanLly dlfferenL from secLlon 94Ŧ lL ls accepLed LhaL for Lhe purposes
of secLlon 319(3) properLy ls noL ƍcomprlsed ln or sub[ecL Loƍ any floaLlng
charge creaLed by Lhe company lf LhaL floaLlng charge has crysLalllsed before
Lhe daLe of Lhe commencemenL of Lhe wlndlng up (ln re Crlffln PoLel CoŦ LLdŦ
ż1941Ž ChŦ 129) or before Lhe maklng of Lhe wlndlng up order (ln re
ChrlsLoneLLe lnLernaLlonal LLdŦ ż1982Ž 1 WŦLŦ8Ŧ 1243)Ŧ (v) 1he submlsslon on
Lhe*372 consLrucLlon of secLlon 94 ls supporLed by lnland 8evenue Commlssloners
vŦ ColdblaLL ż1972Ž ChŦ 498Ť SLeln vŦ Saywellţ 121 CŦLŦ8Ŧ 329ţ and Lhe reporL
of Lhe 8evlew CommlLLee on lnsolvency Law and ÞracLlce (1982) (CmndŦ 8338)Ŧ

1he flfLh and slxLh respondenLs dld noL appear and were noL represenLedŦ

nCu8SL !Ŧ

1hls ls an appllcaLlon for dlrecLlons under secLlon 369(1) of Lhe Companles
AcL 1948 by Lhe [olnL recelvers of a company called Woodroffes (Muslcal
lnsLrumenLs) LLdŦ 1he company ls also ln compulsory llquldaLlonŦ

1he recelvershlp ls vlrLually aL an endŦ Pavlng compleLed all reallsaLlonsţ
Lhe recelvers have a balance ln hand buL do noL know Lo whom Lhey should pay
lLŦ 1here ls a dlspuLe as Lo prlorlLles beLween Lwo debenLure holders and Lhe
companyƌs preferenLlal credlLorsŦ 1here wlll noLţ on any fooLlngţ be anyLhlng
lefL for Lhe companyƌs unsecured credlLors whose debLs are noL preferenLlalŦ
1he maln quesLlon for declslon ls wheLher Lhe cessaLlon of Lhe companyƌs
buslness causes an auLomaLlc crysLalllsaLlon of a floaLlng chargeŦ

1he company was lncorporaLed ln Aprll 1966 wlLh Lhe prlnclpal ob[ecL of
carrylng on Lhe Lrade of selllng muslcal lnsLrumenLs and elecLronlc ampllflersŦ
Cn 19 uecember 1980 lL creaLed an allŴmoneys debenLure (Lhe ƍ1980 debenLureƍ)
ln favour of Lhe Pong kong and Shanghal 8anklng CorporaLlon (ƍLhe bankƍ)Ŧ 8y
clause 4(1) Lo (4) Lhe company creaLed flrsL flxed charges ln favour of Lhe
bankţ and by clause 4(3) a flrsL floaLlng charge on all Lhe underLaklng and all
Lhe properLy asseLs and rlghLs of Lhe company whaLsoever and wheresoever boLh
presenL and fuLure noL sub[ecL Lo a flxed charge LhereunderŦ Clause 3 was ln
Lhe followlng Lermsť

ƍ1he company shall noL durlng Lhe conLlnuance of Lhe securlLy hereby
consLlLuLedţ wlLhouL Lhe prevlous consenL ln wrlLlng of Lhe bankţ creaLe or
permlL Lo subslsL any morLgageţ charge or llen on any of Lhe companyƌs properLy
and asseLsţ nor sellţ Lransfer or oLherwlse dlspose of lLs underLaklngţ or any
porLlon Lhereofţ nor deal wlLh Lhe companyƌs bookţ or oLher debLs or securlLles
for money oLherwlse Lhan by geLLlng ln and reallzlng Lhe same ln Lhe ordlnary
and proper course of Lhe companyƌs buslness and so LhaL for Lhls purposeţ Lhe
reallzaLlon of debLs by means of block dlscounLlngţ facLorlng or Lhe llke shall
noL be regarded as deallng ln Lhe ordlnary courseŦƍ Clause 7 provlded LhaL all
moneys lnLended Lo be Lhereby secured should become lmmedlaLely repayable lf
Lhe bank should glve Lo Lhe company noLlce demandlng repaymenLŦ Clause 8(a)
provlded LhaL Lhe bank mlghL aL any Llmeţ by noLlce ln wrlLlng Lo Lhe companyţ
converL Lhe floaLlng charge lnLo a speclflc charge as regards any asseLs
speclfled ln Lhe noLlceŦ Clause 11 provlded LhaL aL any Llme afLer Lhe bank
should have demanded paymenL of any moneys securedţ or lf requesLed by Lhe
companyţ Lhe bank mlghL appolnL any person or persons Lo be a recelver or
recelvers of all or any parL of Lhe companyƌs properLy and asseLsŦ l*373 need
noL refer Lo any oLher provlslon of Lhe 1980 debenLureŦ l should perhaps add
LhaL Lhe companyƌs common seal was afflxed Lo lL ln Lhe presence of MrŦ !Ŧ AŦ
Woodroffe and MrsŦ PŦ !Ŧ Woodroffeţ boLh of whom were dlrecLors of Lhe companyţ
MrsŦ Woodroffe also belng lLs secreLaryŦ 1he 1980 debenLure was duly reglsLered
under secLlon 93 of Lhe AcL of 1948Ŧ

Cn 9 AugusL 1982ţ Lhe company creaLed a second debenLure (Lhe ƍ1982
debenLureƍ) ln favour of MrsŦ Woodroffe Lo secure an advance of L23ţ000 Lhen
made by her Lo Lhe companyţ LogeLher wlLh lnLeresL LhereonŦ 8y clause 4 Lhe
company chargedţ by way of second floaLlng chargeţ all lLs underLaklng and
properLy whaLsoever and wheresoever boLh presenL and fuLure lncludlng lLs
uncalled caplLal wlLh Lhe paymenL of all sums covenanLed Lo be pald by Lhe
company Lo MrsŦ Woodroffe Lhereunderţ lL belng expressly provlded LhaL Lhe
charge should be sub[ecL Lo and rank lmmedlaLely afLer Lhe charge creaLed by
Lhe 1980 debenLureŦ 8y clause 6(b) lL was provlded LhaL MrsŦ Woodroffe mlghL aL
any Llme by noLlce ln wrlLlng Lo Lhe company converL Lhe floaLlng charge lnLo a
speclflc charge as regards any asseLs speclfled ln Lhe noLlceŦ l need noL refer
Lo any oLher provlslon of Lhe 1982 debenLureŦ lL was duly reglsLered pursuanL
Lo secLlon 93 of Lhe AcL of 1948Ŧ Poweverţ Lhe company dld noL obLaln Lhe
bankƌs prevlous wrlLLen consenL Lo lLs creaLlon pursuanL Lo clause 3 of Lhe
1980 debenLure or oLherwlseŦ lndeedţ Lhe bank knew noLhlng abouL Lhe 1982
debenLure unLll some Llme laLerŦ

1here ls no evldence as Lo Lhe clrcumsLances ln whlch Lhe 1982 debenLure came
Lo be creaLedŦ Poweverţ on 27 AugusL 1982ţ less Lhan Lhree weeks laLerţ MrsŦ
Woodroffe gave Lhe company noLlce ln wrlLlng under clause 6(b) of Lhe 1982
debenLure Lo converL Lhe floaLlng charge forLhwlLh lnLo a speclflc charge as
regards all Lhe companyƌs underLaklng and properLy whaLsoever and wheresoeverŦ
1haL was on Lhe lrlday before Lhe AugusL 8ank Pollday ln 1982Ŧ no noLlce of
converslon was glven by Lhe bank pursuanL Lo clause 8(a) of Lhe 1980 debenLureŦ
Poweverţ flve days laLerţ on Wednesdayţ 1 SepLemberţ a number of furLher evenLs
occurredŦ llrsLţ Lhe bank served on Lhe company a formal demand for paymenL
forLhwlLh of Lhe prlnclpal and lnLeresL Lhen ouLsLandlng under Lhe 1980
debenLure amounLlng Lo L108ţ296Ŧ60 ln LoLalŦ Secondlyţ aL a meeLlng of Lhe
board of Lhe company lL was resolved LhaL ln vlew of lLs flnanclal poslLlon Lhe
bank should be lnvlLed Lo appolnL a recelver and manager under Lhe Lerms of Lhe
1980 debenLureŦ 1hlrdlyţ Lhe bank duly appolnLed MrŦ AŦ lŦ !ones and MrŦ 1Ŧ AŦ
LŦ 8rookesţ Lhe appllcanLs ln Lhese proceedlngsţ Lo be [olnL recelversţ buL noL
managersţ of all Lhe premlses charged by or comprlsed ln or sub[ecL Lo Lhe 1980
debenLureŦ 1he only oLher facL whlch l should sLaLe aL Lhls sLage ls LhaL Lhe
company was ordered Lo be compulsorlly wound up by an order of Lhls courL made
on 28 november 1983Ŧ

1he presenL poslLlon ls LhaL when one small furLher paymenL has been recelved
Lhe recelvers wlll have L131ţ196 ln handţ from whlch musL be deducLed L3ţ000 as
an esLlmaLed provlslon for furLher cosLsţ leavlng an esLlmaLed balance for
dlsLrlbuLlon of L126ţ196Ŧ CuL of LhaL lL ls agreed on all sldes LhaL Lhe flrsL
L30ţ330 musL be pald Lo Lhe bank as represenLlng Lhe neL proceeds of asseLs
whlch were sub[ecL Lo Lhe flxed*374 charges ln clause 4(1) Lo (4) of Lhe 1980
debenLureŦ 1haL wlll leave abouL L93ţ846 Lo saLlsfy Lhe balance of Lhe bankƌs
clalm for L83ţ813 plus lnLeresLţ l Lhlnk from Aprll 1984ţ MrsŦ Woodroffeƌs
clalm for L23ţ000 plus lnLeresL from Lhe daLe of Lhe 1982 debenLureţ esLlmaLed
Lo amounL Lo L9ţ300ţ and Lhe debLs of Lhe preferenLlal credlLorsţ whlch amounL
Lo L69ţ044Ŧ 1here ls clearly noL enough Lo go round beLween all Lhreeţ so Lhe
quesLlon of prlorlLles ls lmporLanL Lo all of LhemŦ 1he preferenLlal credlLors
conslsL of Lhe CusLoms and Lxclseţ Lhe lnland 8evenue and Lwo local
auLhorlLlesţ all of whom are parLles Lo Lhe proceedlngsţ and also some former
employees of Lhe company whose clalms for wages are preferenLlal Lo Lhe exLenL
of L1ţ701Ŧ 1he former employees are noL parLles Lo Lhe proceedlngsŦ

1he bankţ MrsŦ Woodroffeţ Lhe CusLoms and Lxclse and Lhe lnland 8evenue have
all been represenLed by counsel on Lhls appllcaLlonŦ 1he Lwo local auLhorlLles
have noL been represenLedŦ Poweverţ Lhelr lnLeresLs and also Lhose of Lhe
former employees are ldenLlcal Lo Lhe lnLeresLs of Lhe CusLoms and Lxclse and
Lhe lnland 8evenueŦ 1he argumenLs advanced by MrŦ Mummery on behalf of Lhe
laLLer Lwo parLles can sLand for all of LhemŦ

1he baslc quesLlon ln dlspuLe ls wheLherţ alLhough lL dld noL lLself glve
noLlce of converslonţ Lhe bankƌs floaLlng charge crysLalllsed on 27 AugusL
1982Ŧ ln facLţ Lhe resulLs would be Lhe same lf lL crysLalllsed on any daLe
before 1 SepLember when Lhe recelvers were appolnLedŦ AlLhough MrsŦ Woodroffe
and Lhe bankţ ln my vlew very properlyţ have been separaLely represenLedţ Lhere
has noL ln Lhe end been any dlspuLe beLween Lhem as Lo Lhelr respecLlve
prlorlLlesŦ 1haL ls because MrsŦ Woodroffe accepLsţ wlLhouL doubL correcLlyţ
LhaL even lf Lhe bankƌs charge dld noL crysLalllse unLll Lhe appolnLmenL of Lhe
recelvers on 1 SepLemberţ lLs charge musL rank ln prlorlLy Lo her own for all
purposesŦ Accordlnglyţ Lhe dlspuLe has been beLween Lhe bank and MrsŦ Woodroffe
on Lhe one hand and Lhe preferenLlal credlLors on Lhe oLherŦ

1he nexL polnL l should make ls ln regard Lo Lhe crysLalllsaLlon of MrsŦ
Woodroffeƌs floaLlng chargeŦ MrŦ Mummery accepLsţ for Lhe purposes of Lhe
hearlng before meţ LhaL Lhls Look place on Lhe glvlng of her noLlce of
converslon on 27 AugusLţ buL he reserves Lhe rlghL Lo argue Lhe conLrary Ŵ ln
Lhls case aL some hlgher level Ŵ or ln any oLher case aL any levelŦ So far as l
am concernedţ MrsŦ Woodroffeƌs floaLlng charge crysLalllsed on 27 AugusLŦ


lf Lhe bankƌs charge also crysLalllsed on 27 AugusLţ Lhere arlses a second
dlspuLed quesLlon whlch ls wheLher secLlon 94(1) of Lhe AcL of 1948
neverLheless glves Lhe preferenLlal credlLors prlorlLy over Lhe bank and MrsŦ
WoodroffeŦ lf lL doesţ Lhen Lhe order of prlorlLy ls (1) Lhe preferenLlal
credlLorsţ (2) Lhe bank and (3) MrsŦ WoodroffeŦ Cn Lhe basls of Lhe flgures
already glvenţ LhaL would mean LhaL Lhe preferenLlal credlLors were pald ln
fullŦ 1here would be abouL L26ţ802 for Lhe bank and noLhlng for MrsŦ WoodroffeŦ
lfţ on Lhe oLher handţ secLlon 94(1) does noL glve Lhe preferenLlal credlLors
prlorlLyţ Lhen Lhe order of prlorlLy ls (1) Lhe bankţ (2) MrsŦ Woodroffe and
(3) Lhe preferenLlal credlLorsŦ 1haL would mean LhaL Lhe bank oughL Lo be pald
ln fullŦ 1here*373 mlghL be a llLLle lefL for MrsŦ WoodroffeŦ 8uL Lhere would
be noLhlng for Lhe preferenLlal credlLorsŦ

lf Lhe bankƌs charge dld noL crysLalllse unLll 1 SepLemberţ Lhen Lhe resulLţ
alLhough raLher an odd oneţ ls noL ln dlspuLeŦ 1he order of prlorlLy ls (1) Lhe
bank Lo Lhe exLenL of MrsŦ Woodroffeƌs L23ţ000 plus lnLeresL Lo daLe (abouL
L9ţ300)Ť (2) Lhe preferenLlal credlLorsŤ (3) Lhe bank as Lo Lhe balance of lLs
clalmŤ and (4) MrsŦ WoodroffeŦ 1he reason for Lhls raLher odd resulL ls LhaL
Lhe bankţ alLhough a floaLlng chargeeţ ranks prlor Lo MrsŦ Woodroffe whoţ as a
flxed chargeeţ ranks prlor Lo Lhe preferenLlal credlLorsŦ lL would mean LhaL
Lhe bank would geL abouL L34ţ300ţ Lhe preferenLlal credlLors would geL abouL
L61ţ346 and MrsŦ Woodroffe would geL noLhlngŦ

Cn whaL daLe dld Lhe bankƌs floaLlng charge crysLalllse? MrŦ !arvlsţ for Lhe
bankţ supporLed by MrŦ Marksţ for MrsŦ Woodroffeţ argulng ln favour of 27
AugusLţ submlL ln Lhe flrsL lnsLance LhaL Lhe effecL of MrsŦ Woodroffeƌs noLlce
of converslon was Lo crysLalllse noL only her own chargeţ buL also Lhe bankƌsŦ
1hey say LhaL Lhe noLlceţ by deLermlnlng MrsŦ Woodroffeƌs llcence Lo Lhe
company Lo employ Lhe asseLs sub[ecL Lo Lhe charge ln Lhe ordlnary course of
lLs buslnessţ rendered any furLher use of Lhose asseLs unlawful and
lmpracLlcableţ wlLh Lhe resulL LhaL Lhe companyƌs buslness musL be Laken Lo
have ceased aL LhaL LlmeŦ ConsequenLlyţ Lhey submlL LhaL Lhere was a
crysLalllsaLlon of boLh chargesŦ

l flnd myself qulLe unable Lo accepL LhaL submlsslonţ whlch appears Lo me Lo
run conLrary Lo fundamenLal prlnclples of Lhe law of conLracLŦ l do noL see how
Lhe deLermlnaLlon of MrsŦ Woodroffeƌs llcence can ln some way work a
deLermlnaLlon of Lhe bankƌsţ or produce Lhe effecL LhaL Lhe bank has had lLs
charge crysLalllsed over lLs head and posslbly conLrary Lo lLs own wlshesŦ 1he
relaLlonshlp beLween Lhe company and Lhe bank was governed by Lhe 1980
debenLureţ whlchţ alLhough lL conLalned a prohlblLlon agalnsL creaLlng any
subsequenL charge wlLhouL consenL Ŵ see clause 3 Ŵ dld noL provlde for Lhe
bankƌs floaLlng charge Lo crysLalllse elLher on Lhe creaLlon or crysLalllsaLlon
of a subsequenL chargeŦ

Cn analysls lL appears Lo me LhaL Lhe argumenLs of MrŦ !arvls on Lhls polnL
are foundedţ and can only be foundedţ on an lmplled Lerm ln Lhe 1980 debenLureŦ
Pe relles ln parLlcular on Lhe fourLh varleLy of lmpllcaLlon ldenLlfled by Lord
Wllberforce ln Llverpool ClLy Councll vŦ lrwln ż1977Ž AŦCŦ 239ţ 234ţ where he
saldť


ƍ1he presenL caseţ ln my oplnlonţ represenLs a fourLh caLegoryţ or l would
raLher say a fourLh shade on a conLlnuous specLrumŦ 1he courL here ls slmply
concerned Lo esLabllsh whaL Lhe conLracL lsţ Lhe parLles noL havlng Lhemselves
fully sLaLed Lhe LermsŦ ln Lhls sense Lhe courL ls searchlng for whaL musL be
lmplledŦƍ lL does noL seem Lo me Lo be aL all clear LhaL a Lerm Lo Lhe effecL
conLended for by MrŦ !arvls musL be lmplledŦ Why should lL be assumed LhaL Lhe
bank and Lhe companyţ ln parLlcular Lhe bankţ lnLended LhaL Lhe crysLalllsaLlon
of a subsequenL charge should ln all clrcumsLances cause a crysLalllsaLlon of
Lhe bankƌs? no doubL lL mlghL sulL Lhe bankƌs lnLeresLs*376 ln Lhe greaL
ma[orlLy of clrcumsLancesţ buL LhaL does noL mean LhaL lL can be assumed ln
allŦ lor exampleţ Lhe bank mlghL have Laken Lhe vlew LhaL lL was ln lLs own
lnLeresLs LhaL Lhe buslness of Lhe company should conLlnueŦ unless MrsŦ
Woodroffe had elLher appolnLed her own recelverţ or had applled for an
ln[uncLlon resLralnlng lL from deallng wlLh lLs asseLs ln conLravenLlon of her
own flxed chargeţ l can see no reason why Lhe company could noL have conLlnued
Lo carry on lLs buslnessŦ 1rue lL could only have done so ln breach of lLs
conLracL wlLh MrsŦ Woodroffeţ buL Lhe bank mlghL have been prepared Lo
lndemnlfy lL agalnsL LhaL llablllLy or even Lo pay off MrsŦ woodroffeŦ l can
see no ground for any specles of lmpllcaLlon Lo Lhe effecL conLended forŦ

lL appears Lo have been LhoughL LhaL Lhere ls auLhorlLy ln Lhe Plgh CourL of
AusLralla for Lhe proposlLlon LhaL a subsequenL floaLlng charge crysLalllses
auLomaLlcally upon Lhe appolnLmenL of a recelver under an earller floaLlng
chargeŤ see SLeln vŦ Saywell (1969) 121 CŦLŦ8Ŧ 329Ŧ lf LhaL proposlLlon could
be susLalnedţ lL would provlde sLrong supporL for Lhe converse proposlLlon LhaL
an earller floaLlng charge crysLalllses auLomaLlcally on Lhe crysLalllsaLlon of
a subsequenL floaLlng chargeţ aL all evenLs where LhaL Lakes place on Lhe
appolnLmenL of a recelverŦ Poweverţ l agree wlLh MrŦ Mummery LhaL on
examlnaLlon LhaL case ls seen Lo have been one where Lhe Lerms of Lhe second
floaLlng charge expressly provlded for lLs crysLalllsaLlon on Lhe appolnLmenL
of a recelver under Lhe earller floaLlng chargeŦ 1haL appears mosL clearly from
Lhe [udgmenL of Mc1lernan and Menzles !!Ŧţ 121 CŦLŦ8Ŧ 329ţ 348Ŧ 1he declslon ls
noL Lherefore of any asslsLance ln Lhe presenL caseŦ l emphaslse LhaL l am noL
ln Lhls case concerned wlLh whaL ls someLlmes referred Lo as express auLomaLlc
crysLalllsaLlonť see Þlcarda on 1he Law 8elaLlng Lo 8ecelvers and Managersţ 1sL
edŦ (1984)ţ ppŦ 18 eL seqŦ ln any evenLţ lL seems Lo me LhaL cases on
crysLalllsaLlon on Lhe appolnLmenL of a recelver would noL necessarlly be
concluslve ln regard Lo crysLalllsaLlon on Lhe happenlng of some oLher evenLŦ

l am ln no doubL LhaL Lhe prlmary submlsslon of MrŦ !arvls and MrŦ Marks on
Lhe baslc quesLlon ln dlspuLe musL be re[ecLedŦ 1helr alLernaLlve submlsslon
was Lo Lhe effecL LhaL Lhere was ln facL a cessaLlon of Lhe companyƌs buslness
on 27 AugusLţ or aL any raLe before 1 SepLemberţ and LhaL LhaL cessaLlon caused
an auLomaLlc crysLalllsaLlon of Lhe bankƌs floaLlng chargeŦ

1he quesLlon wheLher Lhe cessaLlon of Lhe companyƌs buslness causes an
auLomaLlc crysLalllsaLlon of a floaLlng charge ls one of general lmporLance
upon whlch Lhere appears Lo be no declslon dlrecLly ln polnLŦ Such auLhorlLles
as Lhere are dlsclose a unlform assumpLlon ln favour of crysLalllsaLlonŦ 1here
ls a valuable dlscusslon of Lhem ln Þlcarda on 1he Law 8elaLlng Lo 8ecelvers
and Managersţ ppŦ 16Ŵ18Ŧ Cne of Lhe quesLlons Lhere ralsed ls wheLher Lhere ls
any dlsLlncLlon for Lhls purpose beLween a company ceaslng Lo carry on buslness
on Lhe one hand and ceaslng Lo be a golng concern on Lhe oLherŦ My own
lmpresslon ls LhaL Lhese phrases are used lnLerchangeably ln Lhe auLhorlLlesť
see eŦgŦ Lhe [udgmenL of lleLcher MoulLon LŦ!Ŧ hereafLer clLedţ buL wheLher
LhaL be rlghL or wrongţ l Lhlnk lL clear LhaL Lhe maLerlal evenL ls a cessaLlon
of*377 buslness and noLţ lf LhaL ls someLhlng dlfferenLţ ceaslng Lo be a golng
concernŦ

MrŦ !arvls sLarLed wlLh Lord MacnaghLenƌs descrlpLlon of a floaLlng charge ln
CovernmenLs SLock and CLher SecurlLles lnvesLmenL CoŦ LLdŦ vŦ Manlla 8allway
CoŦ LLdŦ ż1897Ž AŦCŦ 81ţ where he saldţ aL pŦ 86ť

ƍlL ls of Lhe essence of such a charge LhaL lL remalns dormanL unLll Lhe
underLaklng charged ceases Lo be a golng concernţ or unLll Lhe person ln whose
favour Lhe charge ls creaLed lnLervenesŦƍ ln llllngworLh vŦ PouldsworLh ż1904Ž
AŦCŦ 333ţ 338ţ Lord MacnaghLen reLurned Lo Lhe sub[ecL and spoke of a floaLlng
charge as belngť

ƍambulaLory and shlfLlng ln lLs naLureţ hoverlng over andţ so Lo speakţ
floaLlng wlLh Lhe properLy whlch lL ls lnLended Lo affecL unLll some evenL
occurs or some acL ls done whlch causes lL Lo seLLle and fasLen on Lhe sub[ecL
of Lhe charge wlLhln lLs reach and graspŦƍ MrŦ !arvls and MrŦ Marks submlL LhaL
lf Lhe company ceased buslness before 1 SepLember LhaL was an evenL whlch
caused Lhe bankƌs charge Lo seLLle and fasLen on all Lhe asseLs of Lhe companyŦ

l was referred Lo Lhe followlng furLher auLhorlLles on Lhls quesLlonť Pubbuck
vŦ Pelms (1887) 36 LŦ!Ŧ ChŦ 336Ť 8obson vŦ SmlLh ż1893Ž 2 ChŦ 118Ť ln re
vlcLorla SLeamboaLs LLdŦ ż1897Ž 1 ChŦ 138Ť uavey Ǝ CoŦ vŦ Wllllamson Ǝ Sons
LLdŦ ż1898Ž 2 CŦ8Ŧ 194Ť ln re ?orkshlre Woolcombersƌ AssoclaLlon LLdŦ ż1903Ž 2
ChŦ 284 ln Lhe CourL of Appeal (sub nomŦ llllngworLh vŦ PouldsworLh ln Lhe
Pouse of Lords ż1904Ž AŦCŦ 333) Ldward nelson Ǝ CoŦ LLdŦ vŦ laber Ǝ CoŦ ż1903Ž
2 kŦ8Ŧ 367Ť Lvans vŦ 8lval CranlLe Cuarrles LLdŦ ż1910Ž 2 kŦ8Ŧ 979 and ln re
CrompLon Ǝ CoŦ LLdŦ ż1914Ž 1 ChŦ 934Ŧ lL ls unnecessary for me Lo examlne any
of Lhose cases ln deLallţ or Lo quoLe exLracLs from Lhe [udgmenLs of Lhe many
[udges who declded LhemŦ 1hey allţ Lo a greaLer or lesser exLenLţ assume LhaL
crysLalllsaLlon Lakes place on a cessaLlon of buslnessŦ Þerhaps Lhe assumpLlon
appears mosL auLhorlLaLlvely ln Lhe [udgmenL of lleLcher MoulLon LŦ!Ŧ ln Lvans
vŦ 8lval CranlLe Cuarrles LLdŦ ż1910Ž 2 kŦ8Ŧ 979ţ 993Ŧ 1haL was one of Lhe
laLesL of Lhe cases Lo whlch l was referredŦ l would Lhlnk LhaL by LhaL Llme
Lhe assumpLlon had become well esLabllshedŦ

AlLhough Lhe general body of lnformed oplnlon ls of Lhe vlew LhaL auLomaLlc
crysLalllsaLlon ls undeslrable (see ln parLlcular Lhe 8eporL of Lhe 8evlew
CommlLLee on lnsolvency Law and ÞracLlce (Cmnd 8338) 30 Aprll 1981ţ parasŦ
1370Ŵ1382) l have noL been referred Lo any case ln whlch Lhe assumpLlon ln
favour of auLomaLlc crysLalllsaLlon on cessaLlon of buslness has been
quesLlonedŦ Cn LhaL sLaLe of Lhe auLhorlLles lL would be very dlfflculL for me
Lo quesLlon lLţ even lf l could see a good ground for dolng soŦ Cn Lhe
conLraryţ lL seems Lo me LhaL lL ls ln accordance wlLh Lhe essenLlal naLure of
a floaLlng chargeŦ 1he Lhlnklng behlnd Lhe creaLlon of such charges has always
been a recognlLlon LhaL a flxed charge on Lhe whole underLaklng and asseLs of
Lhe company would paralyse lL and prevenL lL from carrylng on lLs buslnessť
seeţ eŦgŦ ln re llorence Land and Þubllc Works CoŦţ Lx parLe Moor (1878) 10
ChŦuŦ 330ţ 341ţ per Slr Ceorge !essel MŦ8Ŧ Cn Lhe oLher hand lL ls a mlsLake
*378 Lo Lhlnk LhaL Lhe chargee has no remedy whlle Lhe charge ls sLlll
floaLlngŦ Pe can always lnLervene and obLaln an ln[uncLlon Lo prevenL Lhe
company from deallng wlLh lLs asseLs oLherwlse Lhan ln Lhe ordlnary course of
lLs buslnessŦ 1haL no doubL ls one reason why lL ls preferable Lo descrlbe Lhe
charge as ƍhoverlngţƍ a word whlch can bear an underLone of menaceţ raLher Lhan
as ƍdormanLŦƍ A cessaLlon of buslness necessarlly puLs an end Lo Lhe companyƌs
deallngs wlLh lLs asseLsŦ 1haL whlch kepL Lhe charge hoverlng has now been
released and Lhe force of gravlLy causes lL Lo seLLle and fasLen on Lhe sub[ecL
of Lhe charge wlLhln lLs reach and graspŦ 1he paralyslsţ whlle lL may sLlll be
unwelcomeţ can no longer be reslsLedŦ lor a more conclse sLaLemenL of Lhls
analysls l am lndebLed Lo Þrofessor 8Ŧ MŦ Coode ln hls collecLed lecLuresţ
Legal Þroblems of CredlL and SecurlLyţ 1sL edŦ (1982)ţ pŦ 37Ŧ l hold LhaL Lhe
assumpLlon correcLly represenLs Lhe lawŦ Accordlnglyţ lf Lhe company ln facL
ceased buslness on 27 AugusLţ or some oLher daLe before 1 SepLemberţ Lhe bankƌs
charge crysLalllsed Lhen and noL on 1 SepLemberŦ

1haL means LhaL l musL now conslder wheLher Lhe company dld ln facL cease
buslness before 1 SepLemberŦ AlLhough lL lnvolves no crlLlclsm of Lhose
concernedţ l have Lo say LhaL Lhe sLaLe of Lhe evldence ls noLţ from Lhe
courLƌs polnL of vlewţ ldealŦ 1here ls only Lhe followlng passage ln paragraph
3(d) of Lhe affldavlL of Lhe bankƌs sollclLorţ MrŦ uŦ LŦ ColdsmlLhť

ƍWhllsL lL ls acknowledged LhaL Lhe bank dld noL lLself glve noLlce (as
provlded for under clause 8 of Lhe 1980 debenLure) of lLs lnLenLlon Lo
crysLalllse lLs floaLlng charge on 27 AugusL 1982 Lhe bank malnLalns LhaL lLs
charge crysLalllsed auLomaLlcallyŦ MrsŦ Woodroffeƌs noLlce had Lhe effecL of
prevenLlng Lhe company from conLlnulng ln buslnessŦ Slnce Lhe purpose of a
floaLlng charge ls Lo glve Lhe debenLure holder an lmmedlaLe equlLy or charge
on Lhe properLy wlLhouL prevenLlng Lhe company from deallng wlLh LhaL charged
properLy ln Lhe course of lLs buslnessţ Lhere ls no reason why Lhe bankƌs
charge should noL have ceased Lo floaL Lhe momenL LhaL Lhe company ceased Lo
funcLlonŦƍ MrŦ !arvls submlLLedţ alLhough Lhe polnL was noL pressedţ LhaL LhaL
was evldence of an acLual cessaLlonŦ l am unable Lo accepL LhaL submlsslonŦ
When read ln conLexLţ lL seems Lo me Lo be clear LhaL Lhe sLaLemenL LhaL MrsŦ
Woodroffeƌs noLlce had Lhe effecL of prevenLlng Lhe company from conLlnulng ln
buslness ls no more Lhan an asserLlon of lLs legal effecLŦ

Poweverţ MrŦ Marks has lnformed Lhe courLţ on lnsLrucLlonsţ of cerLaln furLher
facLs whlch MrŦ Mummery has agreed can be accepLed as Lhough Lhey were ln
evldenceŦ 1hose facLsţ whlch are noL sLaLed ln any loglcal orderţ are Lhe
followlngť (1) lL ls noL clear wheLher Lhe company dld acLually cease buslness
on 27 AugusLŦ MrsŦ Woodroffe cannoL rememberŦ Per sonţ MrŦ Mlchael Woodroffeţ
who was also a dlrecLor of Lhe companyţ deparLed on hollday on SaLurday or
Sundayţ 28 or 29 AugusLţ buL hls bellef ls LhaL Lhe companyƌs shop may have
been open on Lhe SaLurdayŦ Pe ls noL sure abouL Lhe 1uesdayţ buL lL ls usually
closed for an exLra day afLer Lhe 8ank PolldayŦ (2) MrsŦ Woodroffe and MrŦ
Mlchael Woodroffe vlslLed Lhe bankƌs branch ln 8lrmlngham on Lhe*379 afLernoon
of 27 AugusL Lo ask abouL Lhe appolnLmenL of a recelverŦ 1he bank sald LhaL
noLhlng could be done unLll Wednesdayţ 1 SepLemberţ because Lhelr professlonal
advlsers were on hollday unLll LhenŦ lL ls noL clear wheLher Lhe bank was Lhen
Lold abouL MrsŦ Woodroffeƌs noLlce of converslonŦ AL some Llme before Lhe
recelver was appolnLed on 1 SepLember MrsŦ Woodroffeƌs sollclLors Lelephoned
Lhe bank and advlsed lL Lo glve a slmllar noLlce Lo Lhe companyŦ 1hls ls
recorded ln an exhlblLed leLLer of 28 SepLember 1982Ŧ (3) MrsŦ Woodroffeƌs
sollclLors drafLed Lhe converslon noLlce of 27 AugusL on her behalfŦ (4) 1he
asseLs of Lhe company were prlnclpally sLockŦ (3) 1he recelvers dld Lrade ln a
small way afLer Lhelr appolnLmenL for Lhe purpose of selllng off Lhe asseLsŦ

l should add LhaLţ afLer MrŦ Mummery had sLarLed hls address yesLerdayţ MrŦ
Marks soughL Lo geL ln furLher facLs on lnsLrucLlons as Lo whaL had happened on
1 SepLemberŦ Poweverţ l Look Lhe vlew LhaL lL was by Lhen Loo laLe for LhaL Lo
be doneŦ l gave boLh MrŦ Marks and MrŦ !arvls Lhe opporLunlLy Lo apply for an
ad[ournmenL Lo puL ln furLher evldence buL no appllcaLlon was madeŦ

Cn Lhe above facLs MrŦ Mummery submlLs LhaL Lhere was no evldenceţ or no
sufflclenL evldenceţ Lo saLlsfy me on Lhe balance of probablllLles LhaL Lhe
company dld cease buslness before 1 SepLemberŦ Pavlng glven anxlous
conslderaLlon Lo Lhls quesLlonţ l flnd LhaL l musL accede Lo LhaL submlsslonŦ l
wlll brlefly sLaLe my prlnclpal reasonsŦ

llrsLţ l Lhlnk LhaL l musL lnfer from MrŦ Mlchael Woodroffeƌs bellef LhaL Lhe
shop may have been open on Lhe SaLurdayţ LhaL Lhere was no recognlLlon ln Lhe
mlnds of Lhe dlrecLors LhaL Lhe servlce of MrsŦ Woodroffeƌs noLlce necessarlly
requlred Lhe company Lo cease buslnessŦ lf LhaL had been Lhelr undersLandlngţ l
do noL Lhlnk LhaL lL ls someLhlng whlch would have now been forgoLLenŦ

Secondlyţ and on LhaL fooLlngţ lL ls naLural Lo lnfer LhaL Lhe company would
have seen no reason for noL conLlnulng Lo sell off lLs sLockţ even Lhough lL
reallsed LhaL lLs flnanclal poslLlon was very serlousŦ lndeedţ Lhe naLural
lnference ls LhaL lL would be LhoughL LhaL noLhlng could be losL Ŵ and perhaps
someLhlng galned Ŵ by geLLlng as much money as posslble ln handţ provlded of
course LhaL sales were made aL proper prlcesŦ

1hlrdlyţ l agree wlLh MrŦ Mummery LhaL even lf Lhe shop never dld open afLer
27 AugusL LhaLţ ln Lhe absence of furLher evldenceţ does noL necessarlly mean
LhaL Lhe company had ceased lLs buslnessŦ lor exampleţ sales mlghL sLlll have
been made ln some oLher mannerţ perhaps ln answer Lo a requesL senL Lhrough Lhe
posL or Lhe llkeŦ Moreoverţ even lf no furLher sales were madeţ lL cannoL be
assumed LhaL Lhe company had acLually ceased buslnessŦ

MrŦ !arvls submlLLed LhaL on Lhe balance of probablllLles l oughL Lo flnd LhaL
Lhe only Lhlng whlch Lhe company dld afLer 27 AugusL was Lo sell off lLs sLockŦ
Pe submlLLed LhaL on LhaL fooLlng Lhe company had ceased Lo be a golng concernţ
even Lhough lL may sLlll have been carrylng on lLs buslnessŦ 1he suggesLlon
wasţ l Lhlnkţ LhaL lL was dolng LhaL solely for Lhe purposes of an ulLlmaLe
wlndlng upŦ l have already expressed Lhe vlew LhaL Lhe maLerlal evenL ls a
cessaLlon of buslness and noL ceaslng Lo be a golng concernŦ Poweverţ even lf
LhaL vlew ls wrongţ*380 l am noL saLlsfled on Lhe balance of probablllLles LhaL
Lhe company ceased Lo be a golng concern before 1 SepLemberŦ

l Lhlnk LhaL Lhe Lrue explanaLlon probably ls LhaL Lhls quesLlon has only come
Lo be consldered aL a Llme when Lhose concerned can no longer remember
preclsely whaL happenedŦ 1haL no doubL ls why evldence was noL puL ln on Lhls
vlLal quesLlonŦ lL ls noL MrsŦ Woodroffeƌs faulL LhaL she and her famlly cannoL
make brlcks wlLhouL sLraw and lL ls Lo Lhelr credlL LhaL Lhey have noL soughL
Lo do soŦ

l hold LhaL Lhe alLernaLlve submlsslons of MrŦ !arvls and MrŦ Marks on Lhe
baslc quesLlon ln dlspuLeţ alLhough Lhey would have succeeded ln lawţ fall on
Lhe facLsŦ 1haL means LhaL Lhe bankƌs charge crysLalllsed on 1 SepLemberţ wlLh
Lhe raLher odd resulL already lndlcaLedŦ 1haL makes lL unnecessary for me Lo
conslder Lhe second quesLlon as Lo Lhe effecL of secLlon 94(1) of Lhe AcL of
1948Ŧ 1haL ls an lnLeresLlngţ lmporLanL and dlfflculL quesLlon whlch was well
argued on boLh sldesŦ l prefer Lo express no oplnlon on lLŦCrder accordlnglyŦ
(1Ŧ CŦ CŦ 8Ŧ )

Lnu Cl uCCuMLn1

WesLlaw uellvery Summary 8eporL for 2ţlÞ uSL8
uaLe/1lme of 8equesLť 1hursdayţ november 17ţ 2011 09ť24 CenLral

CllenL ldenLlflerť WLlLAWSCPCCL

uaLabaseť LAWŴ8Þ1S

ClLaLlon 1exLť ż1986Ž ChŦ 366

Llnesť 787

uocumenLsť 1

lmagesť 0

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