Woodroffes (Muslcal lnsLrumenLs) LLd 8e

Also known as

Chancery ulvlslon

22 lebruary 1983

Case Analysls

Where 8eporLed 1986 Ch 366 1983 3 WL8 343 1983 2 All L8
908 1983 CC 318 (1983) 82 LSC 3170 (1983) 129 S! 389

Case ulgesL

Sub[ecL
Company Law

keywords
lloaLlng charges CrysLalllsaLlon 8uslness cessaLlon

CaLchphrases
Charges floaLlng charge cessaLlon of buslness wheLher
auLomaLlc crysLalllsaLlon

AbsLracL
1he cessaLlon of a companys buslness causes an auLomaLlc
crysLalllsaLlon of any floaLlng charge creaLed by Lhe company W Co creaLed a
debenLure ln favour of P bank secured by a flxed and flrsL floaLlng charge
whereby no furLher charge was Lo be creaLed wlLhouL P banks consenL P bank
was empowered by noLlce Lo converL Lhe floaLlng charge lnLo a speclflc charge
ln relaLlon Lo speclfled asseLs and Lhe debenLure was reglsLered wlLhouL P
banks consenL W Co creaLed a second debenLure secured by a second floaLlng
charge ln favour of x Lo rank lmmedlaLely afLer Lhe flrsL charge x was
empowered Lo converL Lhe charge lnLo a speclflc charge ln relaLlon Lo all Lhe
companys underLaklngs and asseLs and Lhe debenLure was reglsLered Cn AugusL
27 x gave noLlce Lo converL Lhe charge on SepLember 1 P bank served a formal
demand for repaymenL and appolnLed recelvers 1here were lnsufflclenL asseLs Lo
repay all W Cos credlLors

Peld LhaL (1) Lhere was no ground for lmplylng LhaL Lhe banks charge
crysLalllsed auLomaLlcally when xs dld (2) Lhe cessaLlon of W Cos buslness
caused Lhe auLomaLlc crysLalllsaLlon of any floaLlng charge buL (3) Lhere was
no sufflclenL evldence LhaL W Co had ceased Lo carry on buslness prlor Lo
SepLember 1 P banks charge Lherefore crysLalllsed on SepLember 1 and Lhe
order of prlorlLy was (a) P bank Lo Lhe exLenL of xs charge (b)
preferenLlal credlLors (c) P bank Lo Lhe balance of lLs charge and (d) x
(dlcLum of !essel M8 ln llorence Land and ubllc Works Co Lx p Moor 8e
(187879) L8 10 Ch u 330 applled SLeln v Saywell (1969) 121 CL8 329
explalned)

1983 3 WL8 343

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


Chancery ulvlslon

! nourse

1983 leb 20 21 22


CompanyuebenLurelloaLlng charge on asseLsnoLlce Lo converL lnLo flxed
charge8anks prlor debenLure wlLh floaLlng chargeCompany noL ceaslng buslness
unLll appolnLmenL of recelverWheLher banks floaLlng charge auLomaLlcally
crysLalllsed on crysLalllsaLlon of oLher charge or upon company ceaslng
buslnessrlorlLy beLween bank and preferenLlal credlLors

Cn 19 uecember 1980 Lhe company creaLed an allmoneys debenLure ln favour of a
bank whlch lncluded lnLer alla a floaLlng charge over all lLs asseLs and
underLaklng 1he moneys Lhereby secured were lmmedlaLely repayable on demand
and Lhe bank had a rlghL Lo converL Lhe floaLlng charge lnLo a flxed charge on
any asseLs speclfled ln Lhe noLlce Cn 9 AugusL 1982 Lhe company creaLed a
second debenLure Lo secure L23000 advanced by W a dlrecLor of Lhe company
LogeLher wlLh lnLeresL Lhereon 1he second debenLure was expressly sub[ecL Lo
and ranked lmmedlaLely afLer Lhe banks charge Llke Lhe banks charge lL was
slmllarly converLlble lnLo a flxed charge on speclflc asseLs by glvlng noLlce
Cn 27 AugusL 1982 W gave such a noLlce converLlng lL lnLo a flxed charge on
Lhe whole of Lhe companys underLaklng and asseLs whaLsoever and wheresoever
1he bank dld noL glve a slmllar noLlce Cn 1 SepLember 1982 Lhe bank served a
formal demand for repaymenL of prlnclpal and lnLeresL LoLalllng L10829660
and appolnLed [olnL recelvers under lLs floaLlng charge Cn 28 november 1983 a
compulsory wlndlng up order was made 1he [olnL recelvers collecLed L126196
whlch was avallable for dlsLrlbuLlon and of LhaL sum Lhe flrsL L30330 was
payable Lo Lhe bank ln respecL of lLs flxed charges creaLed by Lhe 1980
debenLure 1he remalnlng L93846 was clearly lnsufflclenL Lo saLlsfy Lhe banks
remalnlng clalm Ws clalm and Lhe debLs owlng Lo preferenLlal credlLors

Cn Lhe [olnL recelvers appllcaLlon for dlrecLlons under secLlon 369(1) of
Lhe Companles AcL 1948 on Lhe quesLlon of prlorlLles

(1)LhaL ln Lhe absence of an express Lerm ln Lhe 1980 debenLure Lhe banks
floaLlng charge dld noL crysLalllse auLomaLlcally on 27 AugusL 1982 as Lhe
resulL of Lhe crysLalllsaLlon on LhaL daLe of Ws floaLlng charge (posL pp
373u 3768 Ll)Llverpool ClLy Councll v lrwln 1977 AC 239 PL(L) and
SLeln v Saywell (1969) 121 CL8 329 consldered(2)1haL a cessaLlon of
buslness whlch necessarlly puL an end Lo a companys capaclLy Lo deal wlLh lLs
asseLs auLomaLlcally caused a floaLlng charge Lo crysLalllse buL LhaL slnce
Lhe company had noL ceased buslness before Lhe appolnLmenL of Lhe recelver on 1
SepLember 1982 Lhe banks charge crysLalllsed on LhaL daLe and Lherefore lL
was only enLlLled Lo prlorlLy over Lhe preferenLlal credlLors Lo Lhe exLenL of
Ws clalm of L23000 wlLh lnLeresL (posL pp 378Au 379Cu)CovernmenLs
SLock and CLher SecurlLles lnvesLmenL Co LLd v Manlla 8allway Co LLd
1897 AC 81 PL(L) llllngworLh v PouldsworLh 1904 AC 333 PL(L)
and Lvans v 8lval CranlLe Cuarrles LLd 1910 2 k8 979 CA consldered
*367

1he followlng cases are referred Lo ln Lhe [udgmenL

* CrompLon Co LLd ln re 1914 1 Ch 934

* uavey Co v Wllllamson Sons LLd 1898 2 C8 194 uC

* Lvans v 8lval CranlLe Cuarrles LLd 1910 2 k8 979 CA

* llorence Land and ubllc Works Co ln re Lx parLe Moor (1878) 10 Chu
330 CA

* CovernmenLs SLock and CLher SecurlLles lnvesLmenL Co LLd v Manlla
8allway Co LLd 1897 AC 81 PL(L)

* Pubbuck v Pelms (1887) 36 L! Ch 336

* Llverpool ClLy Councll v lrwln 1977 AC 239 1976 2 WL8 362
1976 2 All L8 39 PL(L)

* nelson (Ldward) Co LLd v laber Co 1903 2 k8 367

* 8obson v SmlLh 1893 2 Ch 118

* SLeln v Saywell (1969) 121 CL8 329

* vlcLorla SLeamboaLs LLd ln re 1897 1 Ch 138

* ?orkshlre Woolcombers AssoclaLlon LLd ln re 1903 2 Ch 284 CA
sub nom llllngworLh v PouldsworLh 1904 AC 333 PL(L)


1he followlng addlLlonal cases were clLed ln argumenL

* ChrlsLoneLLe lnLernaLlonal LLd ln re 1982 1 WL8 1243 1982 3
All L8 223

* Cope (8en[amln) Sons LLd ln re 1914 1 Ch 800

* Lngllsh and ScoLLlsh MercanLlle lnvesLmenL Co LLd v 8runLon 1892 2
C8 700 CA

* Crlffln PoLel Co LLd ln re 1941 Ch 129 1940 4 All L8 324

* Porne and Pellard ln re (1883) 29 Chu 736

* lnland 8evenue Commlssloners v ColdblaLL 1972 Ch 498 1972 2
WL8 933 1972 2 All L8 202

* Lewls MerLhyr ConsolldaLed Colllerles LLd ln re 1929 1 Ch 498 CA


* Manurewa 1ransporL LLd ln re 1971 nZL8 909

* 8eg ln 8lghL of 8rlLlsh Columbla v ConsolldaLed Churchlll Copper
CorporaLlon LLd 1978 3 WW8 632 90 uL8 (3d) 337

* SLephenson (8oberL) Co LLd ln re 1913 2 Ch 201 CA

* WlllmoLL v London Cellulold Co (1886) 34 Chu 147 CA


C8lClnA1lnC SuMMCnS

8y an orlglnaLlng summons daLed 30 Aprll 1984 AllsLalr lrancls !ones and
1lmoLhy AllsLalr Ldward 8rookes as [olnL recelvers appolnLed under a debenLure
daLed 19 uecember 1980 granLed by Woodroffes (Muslcal lnsLrumenLs) LLd Lo Lhe
Pong kong and Shanghal 8anklng CorporaLlon applled Lo Lhe courL for dlrecLlons
as Lo whaL prlorlLy lf any should be glven by Lhe recelvers ln maklng paymenL
from Lhe companys asseLs ln Lhelr hands Lo (a) Lhe flrsL respondenL Pong kong
and Shanghal 8anklng CorporaLlon whlch clalmed prlorlLy over all oLher
credlLors by reason of Lhe charges conLalned ln Lhe debenLure of 19 uecember
1980 (b) Lo Lhe second respondenL Mrs Pelena !une Woodroffe 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
respondenL and (c) Lo Lhe Lhlrd and fourLh respondenLs Lhe CusLoms and Lxclse
Commlssloners and Lhe lnland 8evenue Commlssloners and Lhe flfLh and slxLh
respondenLs Lhe ClLy of 8lrmlngham ulsLrlcL Councll and Lhe MeLropollLan
8orough of*368 WolverhampLon who clalmed prlorlLy by reason of Lhe facL LhaL
Lhey were or clalmed Lo be preferenLlal credlLors by vlrLue of secLlons 94
and 319 of Lhe Companles AcL 1948 An order was also soughL LhaL Lhe cosLs of
Lhe appllcaLlon be provlded for 1he appllcaLlon was made under secLlon 369(1)
of Lhe Companles AcL 1948 and 8SC Crd 102 r1

1he facLs are sLaLed ln Lhe [udgmenL

!ohn C 1aylor for Lhe [olnL recelvers

!ohn M !arvls for Lhe flrsL respondenL (1) 1he bank has a flxed charge
amounLlng Lo L30330 ln respecL of whlch Lhere can be no dlspuLe 1he banks
LoLal clalm ls for L83813 and Lhe quesLlon when Lhe banks floaLlng charge
crysLalllsed becomes relevanL 1he bank conLends LhaL Lhe relevanL daLe of
crysLalllsaLlon of Lhe banks charge ls 27 AugusL 1982 belng Lhe daLe when
Mrs Woodroffe converLed her floaLlng charge Lo a flxed charge pursuanL Lo
clause 6(b) of her debenLure lrom LhaL daLe Lhe companys acLual auLhorlLy Lo
deal wlLh lLs charged asseLs ceased and Lhe buslness came Lo an end
Accordlngly when Lhe banks recelver was appolnLed on 1 SepLember 1982 Lhe
banks charge was already flxed

(2)1he prlorlLy beLween Lhe bank and Mrs Woodroffe does noL depend upon Lhe
prohlblLlon on Lhe creaLlon of morLgages charges or llens conLalned ln Lhe
banks debenLure buL on Lhe facL LhaL Lhe 1982 debenLure was expressed Lo be a
second floaLlng charge sub[ecL Lo and ranklng afLer Lhe banks debenLure
CrysLalllsaLlon whlch ls slmply Lhe converslon of a floaLlng charge lnLo a
flxed charge does noL lLself affecL prlorlLy 1here can be no doubL LhaL Lhe
noLlce glven by Mrs 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 banks debenLure Powever Lhe effecL of
Mrs Woodroffes crysLalllslng her own charge alLers Lhe prlorlLles as beLween
Lhe bank and Lhe preferenLlal credlLors ln re 8oberL SLephenson Co LLd
1913 2 Ch 201 1he order of prlorlLles ls as follows (l) Lhe bank by
vlrLue of lLs flxed charges (ll) Mrs Woodroffe by reason of her second flxed
charge and (lll) Lhe preferenLlal credlLors

(3)1he leadlng case seLLlng ouL Lhe naLure of a floaLlng charge ls CovernmenLs
SLock and CLher SecurlLles lnvesLmenL Co LLd v Manlla 8allway Co LLd
1897 AC 81 per Lord MacnaghLen aL p 86 And see also Cough Company
Charges (1978) p 84 1he Manlla case was followed by llllngworLh v
PouldsworLh 1904 AC 333 per Lord MacnaghLen aL p 338

(4)1he vlLal quesLlon ls when does a floaLlng charge crysLalllse? 1he Lrue
poslLlon was sLaLed by Lord MacnaghLen ln Lhe Manlla case 1897 AC 81 86 a
floaLlng charge wlll crysLalllse auLomaLlcally on Lhe company ceaslng Lo be a
golng concern 1hls should noL be LranslaLed lnLo Lhe cessaLlon of Lhe carrylng
on of Lhe buslness of Lhe company whlch ls Lhe oblLer dlcLum of lleLcher
MoulLon L! ln Lvans v 8lval CranlLe Cuarrles LLd 1910 2 k8 979 993

(3)1he proper approach ls Lo see wheLher on Lhe appolnLmenL of a recelver Lhe
company ceases Lo operaLe as a golng concern 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 buslness
Lo have Lhe power Lo sell lLs goods power Lo use varlous asseLs from day Lo
day and Lhe power and rlghL Lo manage lLs buslness wlLhouL any lnLerference
from Lhe debenLure holder 1hls presupposes Lhe conLlnuance of Lhe company as a
golng concern under Lhe managemenL of lLs dlrecLors 1he appolnLmenL of a
recelver has a qulLe dlfferenL effecL and Lhe company ceases Lo be a golng
concern ln Lhls sense 1he recelver musL deal wlLh Lhe companys 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 holder 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 crysLalllses even lf Lhe company ls sLlll Lradlng
Lhen wheLher Lhe effecL on Lhe buslness ls caused by Lhe appolnLmenL of a
recelver or by Lhe chargee hlmself or by anoLher secured credlLor Lhe
underlylng prlnclple ls Lhe same and resulLs ln a cessaLlon of Lhe companys
powers of managemenL so LhaL lL ceases Lo operaLe as a golng concern
Accordlngly Lhe flxlng of Lhe floaLlng charge by Mrs 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 concern 1he
followlng cases are clLed ln supporL of Lhese proposlLlons ln re vlcLorla
SLeamboaLs LLd 1897 1 Ch 138 Ldward nelson Co LLd v laber Co
1903 2 k8 367 and SLeln v Saywell (1969) 121 CL8 329 See also Lhe new
Zealand case of ln re Manurewa 1ransporL LLd 1971 nZL8 909 whlch shows
LhaL Lhe prlnclples apply Lo auLomaLlc crysLalllsaLlon and whlch ls a case
lnvolvlng successlve floaLlng charges over Lhe same asseLs

(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 crysLalllse Such a Lerm ls necessary Lo glve
buslness efflcacy Lo Lhe debenLure slnce oLherwlse Lhe debenLure would cease
Lo be a Lrue floaLlng charge 1hls ls conslsLenL wlLh Lhe fourLh varleLy of
lmpllcaLlon ldenLlfled by Lord Wllberforce ln Llverpool ClLy Councll v lrwln
1977 AC 239 234 As Lo Lhe quesLlon of wheLher ln facL Lhere was a
cessaLlon of Lhe companys buslness Lhe bank relles on paragraph 3 of Mr
ColdsmlLhs affldavlL normal buslness cannoL have been carrled on afLer 27
AugusL 1982

(7)A secondary quesLlon ls Lhe effecL of secLlon 94(1) of Lhe Companles AcL
1948 1here are Lwo vlews (l) SecLlon 94 should be read wldely Lo lnclude
anyone whose rlghLs derlve from a floaLlng charge even Lhough lL had become
flxed 1hls vlew ls supporLed by lnland 8evenue Commlssloners v ColdblaLL
1972 Ch 498 309 and 8arwlck C! ln SLeln v Saywell 121 CL8 329 344
(ll) a conLrary vlew ls LhaL Lhe leglslaLlon has drawn a llne and LhaL lL
would need clear words Lo supporL Lhe flrsL vlew see Mc1lernan and Menzles !!
aL p 332 klLLo ! aL p 336 and Cwen ! aL pp 360361 See also ln re
ChrlsLoneLLe lnLernaLlonal LLd 1982 1 WL8 1243 1he second vlew musL be
rlghL on Lhe clear wordlng of Lhe secLlon 1he flrsL vlew would provlde an
absurdlLy slnce a charge could have sLarLed as a floaLlng charge say 20*370
years ago and could have become flxed Lwo years laLer lL would be wrong Lo
look aL Lhe orlglnal form of Lhe charge Lo declde wheLher lL fell wlLhln Lhe
secLlon because a chargee mlghL have allowed a flxed charge on say book
debLs Lo floaL and lf Lhe flrsL vlew prevalled lL would be descrlbed as a flxed
charge SecLlon 94 ls a pragmaLlc vlew whereby Lhe leglslaLure has drawn a
llne

uavld C M Marks for Lhe second respondenL 1he argumenL advanced for Lhe
bank ls adopLed AlLhough Lhe courLs lean agalnsL Lhe concepL of auLomaLlc
crysLalllsaLlon Lhere ls no Lngllsh auLhorlLy whlch ls squarely on Lhe polnL
cf ln re Porne and Pellard (1883) 29 Chu 736 a case crlLlclsed ln Lngllsh
and ScoLLlsh MercanLlle lnvesLmenL Co LLd v 8runLon 1892 2 C8 700 lL
has been sLaLed [udlclally LhaL Lhe Lngllsh cases do noL embrace Lhe concepL of
auLomaLlc crysLalllsaLlon buL Lhe case ln whlch Lhls was sLaLed ls
dlsLlngulshable as on Lhe facLs Lhe clause dld noL provlde for auLomaLlc
aLLachmenL 8eg ln 8lghL of 8rlLlsh Columbla v ConsolldaLed Churchlll Copper
CorporaLlon LLd 1978 3 WW8 632 90 uL8 (3d) 337 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 charge Lhen Lhe flrsL floaLlng charge would
also crysLalllse see ln re 8en[amln Cope Sons LLd 1914 1 Ch 800 1here
should be no dlfference beLween Lhe appolnLmenL of a recelver under a
subsequenL debenLure and Lhe cessaLlon of Lhe companys buslness as
crysLalllslng evenLs under a prlor floaLlng charge 1he effecL ln boLh cases ls
Lo paralyse Lhe companys ordlnary Lradlng rlghLs and ablllLy Lo Lrade
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
noLlce As Lo whaL acLs or paymenLs consLlLuLe Lradlng ln Lhe ordlnary course
of buslness see WlllmoLL v London Cellulold Co (1886) 34 Chu 147 As Lo
Lhe effecL of secLlon 94(1) of Lhe Companles AcL 1948 see ln re Lewls MerLhyr
ConsolldaLed Colllerles LLd 1929 1 Ch 498


!ohn l Mummery for Lhe Lhlrd and fourLh respondenLs 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 Mrs
Woodroffe Lhe commlssloners make Lwo alLernaLlve submlsslons (1) 1he prlmary
submlsslon ls LhaL Lhe floaLlng charge ln Lhe 1980 debenLure dld noL
crysLalllse unLll 1 SepLember 1982 when Lhe [olnL recelvers were appolnLed by
Lhe bank 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
1982 on Lhe servlce of Lhe noLlce by Mrs Woodroffe under clause 6(b) of LhaL
debenLure 1he resulL of Lhls submlsslon ls LhaL secLlon 94 of Lhe Companles
AcL 1948 applles 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
bank

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

SLeln v Saywell 121 CL8 329 does noL asslsL 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 charge

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

(2)lf conLrary Lo Lhe prlmary submlsslon ln (1) above Lhe floaLlng charge ln
Lhe 1980 debenLure and Lhe 1982 debenLure boLh crysLalllsed on 27 AugusL 1982
on Lhe Lrue consLrucLlon of secLlon 94 of Lhe Companles AcL 1948 Lhe
preferenLlal debLs owlng Lo Lhe commlssloners should be pald ln prlorlLy Lo Lhe
debLs owlng Lo Lhe bank and Mrs Woodroffe (l) 1he asseLs comlng Lo Lhe hands
of Lhe recelvers were lnlLlally sub[ecL Lo floaLlng charges conLalned ln Lhe
1980 and 1982 debenLures (ll) 1he recelvers were appolnLed on behalf of
holders of debenLures secured by a floaLlng charge aL Lhe daLe when Lhe
debenLures were granLed lL ls accepLed for Lhe purposes of Lhls argumenL
LhaL boLh floaLlng charges had subsequenLly crysLalllsed before Lhe daLe of Lhe
recelvers appolnLmenL (lll) 1he expresslon secured by a floaLlng charge ln
secLlon 94 ls noL lnLended Lo ldenLlfy Lhe properLy sub[ecL Lo Lhe charge lL
ls lnLended Lo ldenLlfy Lhe naLure of Lhe debenLure holders by whom Lhe
recelver ls appolnLed 1helr naLure ls deLermlned aL Lhe daLe of creaLlon of
Lhe debenLures and noL aL Lhe daLe of Lhe appolnLmenL of Lhe recelvers (lv)
1he declslons on secLlon 319(3) of Lhe Companles AcL 1948 are of llLLle
asslsLance SecLlon 319(3) applles Lo a wlndlng up 1he wordlng ls
slgnlflcanLly dlfferenL from secLlon 94 lL ls accepLed LhaL for Lhe purposes
of secLlon 319(3) properLy ls noL comprlsed ln or sub[ecL Lo 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 Co LLd
1941 Ch 129) or before Lhe maklng of Lhe wlndlng up order (ln re
ChrlsLoneLLe lnLernaLlonal LLd 1982 1 WL8 1243) (v) 1he submlsslon on
Lhe*372 consLrucLlon of secLlon 94 ls supporLed by lnland 8evenue Commlssloners
v ColdblaLL 1972 Ch 498 SLeln v Saywell 121 CL8 329 and Lhe reporL
of Lhe 8evlew CommlLLee on lnsolvency Law and racLlce (1982) (Cmnd 8338)

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

nCu8SL !

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) LLd 1he company ls also ln compulsory llquldaLlon

1he recelvershlp ls vlrLually aL an end Pavlng compleLed all reallsaLlons
Lhe recelvers have a balance ln hand buL do noL know Lo whom Lhey should pay
lL 1here ls a dlspuLe as Lo prlorlLles beLween Lwo debenLure holders and Lhe
companys preferenLlal credlLors 1here wlll noL on any fooLlng be anyLhlng
lefL for Lhe companys unsecured credlLors whose debLs are noL preferenLlal
1he maln quesLlon for declslon ls wheLher Lhe cessaLlon of Lhe companys
buslness causes an auLomaLlc crysLalllsaLlon of a floaLlng charge

1he company was lncorporaLed ln Aprll 1966 wlLh Lhe prlnclpal ob[ecL of
carrylng on Lhe Lrade of selllng muslcal lnsLrumenLs and elecLronlc ampllflers
Cn 19 uecember 1980 lL creaLed an allmoneys debenLure (Lhe 1980 debenLure)
ln favour of Lhe Pong kong and Shanghal 8anklng CorporaLlon (Lhe bank) 8y
clause 4(1) Lo (4) Lhe company creaLed flrsL flxed charges ln favour of Lhe
bank 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 Lhereunder Clause 3 was ln
Lhe followlng Lerms

1he company shall noL durlng Lhe conLlnuance of Lhe securlLy hereby
consLlLuLed wlLhouL Lhe prevlous consenL ln wrlLlng of Lhe bank creaLe or
permlL Lo subslsL any morLgage charge or llen on any of Lhe companys properLy
and asseLs nor sell Lransfer or oLherwlse dlspose of lLs underLaklng or any
porLlon Lhereof nor deal wlLh Lhe companys book or oLher debLs or securlLles
for money oLherwlse Lhan by geLLlng ln and reallzlng Lhe same ln Lhe ordlnary
and proper course of Lhe companys buslness and so LhaL for Lhls purpose Lhe
reallzaLlon of debLs by means of block dlscounLlng facLorlng or Lhe llke shall
noL be regarded as deallng ln Lhe ordlnary course 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 repaymenL Clause 8(a)
provlded LhaL Lhe bank 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 noLlce Clause 11 provlded LhaL aL any Llme afLer Lhe bank
should have demanded paymenL of any moneys secured or lf requesLed by Lhe
company Lhe bank mlghL appolnL any person or persons Lo be a recelver or
recelvers of all or any parL of Lhe companys properLy and asseLs l*373 need
noL refer Lo any oLher provlslon of Lhe 1980 debenLure l should perhaps add
LhaL Lhe companys common seal was afflxed Lo lL ln Lhe presence of Mr ! A
Woodroffe and Mrs P ! Woodroffe boLh of whom were dlrecLors of Lhe company
Mrs Woodroffe also belng lLs secreLary 1he 1980 debenLure was duly reglsLered
under secLlon 93 of Lhe AcL of 1948

Cn 9 AugusL 1982 Lhe company creaLed a second debenLure (Lhe 1982
debenLure) ln favour of Mrs Woodroffe Lo secure an advance of L23000 Lhen
made by her Lo Lhe company LogeLher wlLh lnLeresL Lhereon 8y clause 4 Lhe
company charged by way of second floaLlng charge 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 Mrs Woodroffe Lhereunder lL belng expressly provlded LhaL Lhe
charge should be sub[ecL Lo and rank lmmedlaLely afLer Lhe charge creaLed by
Lhe 1980 debenLure 8y clause 6(b) lL was provlded LhaL Mrs 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 noLlce l need noL refer
Lo any oLher provlslon of Lhe 1982 debenLure lL was duly reglsLered pursuanL
Lo secLlon 93 of Lhe AcL of 1948 Powever Lhe company dld noL obLaln Lhe
banks prevlous wrlLLen consenL Lo lLs creaLlon pursuanL Lo clause 3 of Lhe
1980 debenLure or oLherwlse lndeed Lhe bank knew noLhlng abouL Lhe 1982
debenLure unLll some Llme laLer

1here ls no evldence as Lo Lhe clrcumsLances ln whlch Lhe 1982 debenLure came
Lo be creaLed Powever on 27 AugusL 1982 less Lhan Lhree weeks laLer Mrs
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 companys underLaklng and properLy whaLsoever and wheresoever
1haL was on Lhe lrlday before Lhe AugusL 8ank Pollday ln 1982 no noLlce of
converslon was glven by Lhe bank pursuanL Lo clause 8(a) of Lhe 1980 debenLure
Powever flve days laLer on Wednesday 1 SepLember a number of furLher evenLs
occurred llrsL 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 L10829660 ln LoLal Secondly 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 debenLure 1hlrdly Lhe bank duly appolnLed Mr A l !ones and Mr 1 A
L 8rookes Lhe appllcanLs ln Lhese proceedlngs Lo be [olnL recelvers buL noL
managers of all Lhe premlses charged by or comprlsed ln or sub[ecL Lo Lhe 1980
debenLure 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 1983

1he presenL poslLlon ls LhaL when one small furLher paymenL has been recelved
Lhe recelvers wlll have L131196 ln hand from whlch musL be deducLed L3000 as
an esLlmaLed provlslon for furLher cosLs leavlng an esLlmaLed balance for
dlsLrlbuLlon of L126196 CuL of LhaL lL ls agreed on all sldes LhaL Lhe flrsL
L30330 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
debenLure 1haL wlll leave abouL L93846 Lo saLlsfy Lhe balance of Lhe banks
clalm for L83813 plus lnLeresL l Lhlnk from Aprll 1984 Mrs Woodroffes
clalm for L23000 plus lnLeresL from Lhe daLe of Lhe 1982 debenLure esLlmaLed
Lo amounL Lo L9300 and Lhe debLs of Lhe preferenLlal credlLors whlch amounL
Lo L69044 1here ls clearly noL enough Lo go round beLween all Lhree so Lhe
quesLlon of prlorlLles ls lmporLanL Lo all of Lhem 1he preferenLlal credlLors
conslsL of Lhe CusLoms and Lxclse Lhe lnland 8evenue and Lwo local
auLhorlLles all of whom are parLles Lo Lhe proceedlngs and also some former
employees of Lhe company whose clalms for wages are preferenLlal Lo Lhe exLenL
of L1701 1he former employees are noL parLles Lo Lhe proceedlngs

1he bank Mrs Woodroffe Lhe CusLoms and Lxclse and Lhe lnland 8evenue have
all been represenLed by counsel on Lhls appllcaLlon 1he Lwo local auLhorlLles
have noL been represenLed Powever Lhelr lnLeresLs and also Lhose of Lhe
former employees are ldenLlcal Lo Lhe lnLeresLs of Lhe CusLoms and Lxclse and
Lhe lnland 8evenue 1he argumenLs advanced by Mr Mummery on behalf of Lhe
laLLer Lwo parLles can sLand for all of Lhem

1he baslc quesLlon ln dlspuLe ls wheLher alLhough lL dld noL lLself glve
noLlce of converslon Lhe banks floaLlng charge crysLalllsed on 27 AugusL
1982 ln facL Lhe resulLs would be Lhe same lf lL crysLalllsed on any daLe
before 1 SepLember when Lhe recelvers were appolnLed AlLhough Mrs Woodroffe
and Lhe bank ln my vlew very properly have been separaLely represenLed Lhere
has noL ln Lhe end been any dlspuLe beLween Lhem as Lo Lhelr respecLlve
prlorlLles 1haL ls because Mrs Woodroffe accepLs wlLhouL doubL correcLly
LhaL even lf Lhe banks charge dld noL crysLalllse unLll Lhe appolnLmenL of Lhe
recelvers on 1 SepLember lLs charge musL rank ln prlorlLy Lo her own for all
purposes Accordlngly Lhe dlspuLe has been beLween Lhe bank and Mrs Woodroffe
on Lhe one hand and Lhe preferenLlal credlLors on Lhe oLher

1he nexL polnL l should make ls ln regard Lo Lhe crysLalllsaLlon of Mrs
Woodroffes floaLlng charge Mr Mummery accepLs for Lhe purposes of Lhe
hearlng before me LhaL Lhls Look place on Lhe glvlng of her noLlce of
converslon on 27 AugusL buL he reserves Lhe rlghL Lo argue Lhe conLrary ln
Lhls case aL some hlgher level or ln any oLher case aL any level So far as l
am concerned Mrs Woodroffes floaLlng charge crysLalllsed on 27 AugusL


lf Lhe banks charge also crysLalllsed on 27 AugusL 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 Mrs
Woodroffe lf lL does Lhen Lhe order of prlorlLy ls (1) Lhe preferenLlal
credlLors (2) Lhe bank and (3) Mrs Woodroffe Cn Lhe basls of Lhe flgures
already glven LhaL would mean LhaL Lhe preferenLlal credlLors were pald ln
full 1here would be abouL L26802 for Lhe bank and noLhlng for Mrs Woodroffe
lf on Lhe oLher hand secLlon 94(1) does noL glve Lhe preferenLlal credlLors
prlorlLy Lhen Lhe order of prlorlLy ls (1) Lhe bank (2) Mrs Woodroffe and
(3) Lhe preferenLlal credlLors 1haL would mean LhaL Lhe bank oughL Lo be pald
ln full 1here*373 mlghL be a llLLle lefL for Mrs Woodroffe 8uL Lhere would
be noLhlng for Lhe preferenLlal credlLors

lf Lhe banks charge dld noL crysLalllse unLll 1 SepLember Lhen Lhe resulL
alLhough raLher an odd one ls noL ln dlspuLe 1he order of prlorlLy ls (1) Lhe
bank Lo Lhe exLenL of Mrs Woodroffes L23000 plus lnLeresL Lo daLe (abouL
L9300) (2) Lhe preferenLlal credlLors (3) Lhe bank as Lo Lhe balance of lLs
clalm and (4) Mrs Woodroffe 1he reason for Lhls raLher odd resulL ls LhaL
Lhe bank alLhough a floaLlng chargee ranks prlor Lo Mrs Woodroffe who as a
flxed chargee ranks prlor Lo Lhe preferenLlal credlLors lL would mean LhaL
Lhe bank would geL abouL L34300 Lhe preferenLlal credlLors would geL abouL
L61346 and Mrs Woodroffe would geL noLhlng

Cn whaL daLe dld Lhe banks floaLlng charge crysLalllse? Mr !arvls for Lhe
bank supporLed by Mr Marks for Mrs Woodroffe argulng ln favour of 27
AugusL submlL ln Lhe flrsL lnsLance LhaL Lhe effecL of Mrs Woodroffes noLlce
of converslon was Lo crysLalllse noL only her own charge buL also Lhe banks
1hey say LhaL Lhe noLlce by deLermlnlng Mrs Woodroffes llcence Lo Lhe
company Lo employ Lhe asseLs sub[ecL Lo Lhe charge ln Lhe ordlnary course of
lLs buslness rendered any furLher use of Lhose asseLs unlawful and
lmpracLlcable wlLh Lhe resulL LhaL Lhe companys buslness musL be Laken Lo
have ceased aL LhaL Llme ConsequenLly Lhey submlL LhaL Lhere was a
crysLalllsaLlon of boLh charges

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

Cn analysls lL appears Lo me LhaL Lhe argumenLs of Mr !arvls on Lhls polnL
are founded and can only be founded on an lmplled Lerm ln Lhe 1980 debenLure
Pe relles ln parLlcular on Lhe fourLh varleLy of lmpllcaLlon ldenLlfled by Lord
Wllberforce ln Llverpool ClLy Councll v lrwln 1977 AC 239 234 where he
sald


1he presenL case ln my oplnlon represenLs a fourLh caLegory or l would
raLher say a fourLh shade on a conLlnuous specLrum 1he courL here ls slmply
concerned Lo esLabllsh whaL Lhe conLracL ls Lhe parLles noL havlng Lhemselves
fully sLaLed Lhe Lerms ln Lhls sense Lhe courL ls searchlng for whaL musL be
lmplled lL does noL seem Lo me Lo be aL all clear LhaL a Lerm Lo Lhe effecL
conLended for by Mr !arvls musL be lmplled Why should lL be assumed LhaL Lhe
bank and Lhe company ln parLlcular Lhe bank lnLended LhaL Lhe crysLalllsaLlon
of a subsequenL charge should ln all clrcumsLances cause a crysLalllsaLlon of
Lhe banks? no doubL lL mlghL sulL Lhe banks lnLeresLs*376 ln Lhe greaL
ma[orlLy of clrcumsLances buL LhaL does noL mean LhaL lL can be assumed ln
all lor example Lhe bank mlghL have Laken Lhe vlew LhaL lL was ln lLs own
lnLeresLs LhaL Lhe buslness of Lhe company should conLlnue unless Mrs
Woodroffe had elLher appolnLed her own recelver or had applled for an
ln[uncLlon resLralnlng lL from deallng wlLh lLs asseLs ln conLravenLlon of her
own flxed charge l can see no reason why Lhe company could noL have conLlnued
Lo carry on lLs buslness 1rue lL could only have done so ln breach of lLs
conLracL wlLh Mrs Woodroffe buL Lhe bank mlghL have been prepared Lo
lndemnlfy lL agalnsL LhaL llablllLy or even Lo pay off Mrs woodroffe l can
see no ground for any specles of lmpllcaLlon Lo Lhe effecL conLended for

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
charge see SLeln v Saywell (1969) 121 CL8 329 lf LhaL proposlLlon could
be susLalned lL would provlde sLrong supporL for Lhe converse proposlLlon LhaL
an earller floaLlng charge crysLalllses auLomaLlcally on Lhe crysLalllsaLlon of
a subsequenL floaLlng charge aL all evenLs where LhaL Lakes place on Lhe
appolnLmenL of a recelver Powever l agree wlLh Mr 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 charge 1haL appears mosL clearly from
Lhe [udgmenL of Mc1lernan and Menzles !! 121 CL8 329 348 1he declslon ls
noL Lherefore of any asslsLance ln Lhe presenL case l emphaslse LhaL l am noL
ln Lhls case concerned wlLh whaL ls someLlmes referred Lo as express auLomaLlc
crysLalllsaLlon see lcarda on 1he Law 8elaLlng Lo 8ecelvers and Managers 1sL
ed (1984) pp 18 eL seq ln any evenL 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 evenL

l am ln no doubL LhaL Lhe prlmary submlsslon of Mr !arvls and Mr Marks on
Lhe baslc quesLlon ln dlspuLe musL be re[ecLed 1helr alLernaLlve submlsslon
was Lo Lhe effecL LhaL Lhere was ln facL a cessaLlon of Lhe companys buslness
on 27 AugusL or aL any raLe before 1 SepLember and LhaL LhaL cessaLlon caused
an auLomaLlc crysLalllsaLlon of Lhe banks floaLlng charge

1he quesLlon wheLher Lhe cessaLlon of Lhe companys buslness causes an
auLomaLlc crysLalllsaLlon of a floaLlng charge ls one of general lmporLance
upon whlch Lhere appears Lo be no declslon dlrecLly ln polnL Such auLhorlLles
as Lhere are dlsclose a unlform assumpLlon ln favour of crysLalllsaLlon 1here
ls a valuable dlscusslon of Lhem ln lcarda on 1he Law 8elaLlng Lo 8ecelvers
and Managers pp 1618 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 oLher My own
lmpresslon ls LhaL Lhese phrases are used lnLerchangeably ln Lhe auLhorlLles
see eg Lhe [udgmenL of lleLcher MoulLon L! hereafLer clLed buL wheLher
LhaL be rlghL or wrong l Lhlnk lL clear LhaL Lhe maLerlal evenL ls a cessaLlon
of*377 buslness and noL lf LhaL ls someLhlng dlfferenL ceaslng Lo be a golng
concern

Mr !arvls sLarLed wlLh Lord MacnaghLens descrlpLlon of a floaLlng charge ln
CovernmenLs SLock and CLher SecurlLles lnvesLmenL Co LLd v Manlla 8allway
Co LLd 1897 AC 81 where he sald aL p 86

lL ls of Lhe essence of such a charge LhaL lL remalns dormanL unLll Lhe
underLaklng charged ceases Lo be a golng concern or unLll Lhe person ln whose
favour Lhe charge ls creaLed lnLervenes ln llllngworLh v PouldsworLh 1904
AC 333 338 Lord MacnaghLen reLurned Lo Lhe sub[ecL and spoke of a floaLlng
charge as belng

ambulaLory and shlfLlng ln lLs naLure hoverlng over and so Lo speak
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 grasp Mr !arvls and Mr Marks submlL LhaL
lf Lhe company ceased buslness before 1 SepLember LhaL was an evenL whlch
caused Lhe banks charge Lo seLLle and fasLen on all Lhe asseLs of Lhe company

l was referred Lo Lhe followlng furLher auLhorlLles on Lhls quesLlon Pubbuck
v Pelms (1887) 36 L! Ch 336 8obson v SmlLh 1893 2 Ch 118 ln re
vlcLorla SLeamboaLs LLd 1897 1 Ch 138 uavey Co v Wllllamson Sons
LLd 1898 2 C8 194 ln re ?orkshlre Woolcombers AssoclaLlon LLd 1903 2
Ch 284 ln Lhe CourL of Appeal (sub nom llllngworLh v PouldsworLh ln Lhe
Pouse of Lords 1904 AC 333) Ldward nelson Co LLd v laber Co 1903
2 k8 367 Lvans v 8lval CranlLe Cuarrles LLd 1910 2 k8 979 and ln re
CrompLon Co LLd 1914 1 Ch 934 lL ls unnecessary for me Lo examlne any
of Lhose cases ln deLall or Lo quoLe exLracLs from Lhe [udgmenLs of Lhe many
[udges who declded Lhem 1hey all Lo a greaLer or lesser exLenL assume LhaL
crysLalllsaLlon Lakes place on a cessaLlon of buslness erhaps Lhe assumpLlon
appears mosL auLhorlLaLlvely ln Lhe [udgmenL of lleLcher MoulLon L! ln Lvans
v 8lval CranlLe Cuarrles LLd 1910 2 k8 979 993 1haL was one of Lhe
laLesL of Lhe cases Lo whlch l was referred l would Lhlnk LhaL by LhaL Llme
Lhe assumpLlon had become well esLabllshed

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 racLlce (Cmnd 8338) 30 Aprll 1981 paras
13701382) l have noL been referred Lo any case ln whlch Lhe assumpLlon ln
favour of auLomaLlc crysLalllsaLlon on cessaLlon of buslness has been
quesLloned Cn LhaL sLaLe of Lhe auLhorlLles lL would be very dlfflculL for me
Lo quesLlon lL even lf l could see a good ground for dolng so Cn Lhe
conLrary lL seems Lo me LhaL lL ls ln accordance wlLh Lhe essenLlal naLure of
a floaLlng charge 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 buslness
see eg ln re llorence Land and ubllc Works Co Lx parLe Moor (1878) 10
Chu 330 341 per Slr Ceorge !essel M8 Cn Lhe oLher hand lL ls a mlsLake
*378 Lo Lhlnk LhaL Lhe chargee has no remedy whlle Lhe charge ls sLlll
floaLlng 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 buslness 1haL no doubL ls one reason why lL ls preferable Lo descrlbe Lhe
charge as hoverlng a word whlch can bear an underLone of menace raLher Lhan
as dormanL A cessaLlon of buslness necessarlly puLs an end Lo Lhe companys
deallngs wlLh lLs asseLs 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 grasp 1he paralysls whlle lL may sLlll be
unwelcome can no longer be reslsLed lor a more conclse sLaLemenL of Lhls
analysls l am lndebLed Lo rofessor 8 M Coode ln hls collecLed lecLures
Legal roblems of CredlL and SecurlLy 1sL ed (1982) p 37 l hold LhaL Lhe
assumpLlon correcLly represenLs Lhe law Accordlngly lf Lhe company ln facL
ceased buslness on 27 AugusL or some oLher daLe before 1 SepLember Lhe banks
charge crysLalllsed Lhen and noL on 1 SepLember

1haL means LhaL l musL now conslder wheLher Lhe company dld ln facL cease
buslness before 1 SepLember AlLhough lL lnvolves no crlLlclsm of Lhose
concerned l have Lo say LhaL Lhe sLaLe of Lhe evldence ls noL from Lhe
courLs polnL of vlew ldeal 1here ls only Lhe followlng passage ln paragraph
3(d) of Lhe affldavlL of Lhe banks sollclLor Mr u L ColdsmlLh

WhllsL 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 auLomaLlcally Mrs Woodroffes noLlce had Lhe effecL of
prevenLlng Lhe company from conLlnulng ln buslness 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 buslness Lhere ls no reason why Lhe banks
charge should noL have ceased Lo floaL Lhe momenL LhaL Lhe company ceased Lo
funcLlon Mr !arvls submlLLed alLhough Lhe polnL was noL pressed LhaL LhaL
was evldence of an acLual cessaLlon l am unable Lo accepL LhaL submlsslon
When read ln conLexL lL seems Lo me Lo be clear LhaL Lhe sLaLemenL LhaL Mrs
Woodroffes noLlce had Lhe effecL of prevenLlng Lhe company from conLlnulng ln
buslness ls no more Lhan an asserLlon of lLs legal effecL

Powever Mr Marks has lnformed Lhe courL on lnsLrucLlons of cerLaln furLher
facLs whlch Mr Mummery has agreed can be accepLed as Lhough Lhey were ln
evldence 1hose facLs whlch are noL sLaLed ln any loglcal order are Lhe
followlng (1) lL ls noL clear wheLher Lhe company dld acLually cease buslness
on 27 AugusL Mrs Woodroffe cannoL remember Per son Mr Mlchael Woodroffe
who was also a dlrecLor of Lhe company deparLed on hollday on SaLurday or
Sunday 28 or 29 AugusL buL hls bellef ls LhaL Lhe companys shop may have
been open on Lhe SaLurday Pe ls noL sure abouL Lhe 1uesday buL lL ls usually
closed for an exLra day afLer Lhe 8ank Pollday (2) Mrs Woodroffe and Mr
Mlchael Woodroffe vlslLed Lhe banks branch ln 8lrmlngham on Lhe*379 afLernoon
of 27 AugusL Lo ask abouL Lhe appolnLmenL of a recelver 1he bank sald LhaL
noLhlng could be done unLll Wednesday 1 SepLember because Lhelr professlonal
advlsers were on hollday unLll Lhen lL ls noL clear wheLher Lhe bank was Lhen
Lold abouL Mrs Woodroffes noLlce of converslon AL some Llme before Lhe
recelver was appolnLed on 1 SepLember Mrs Woodroffes sollclLors Lelephoned
Lhe bank and advlsed lL Lo glve a slmllar noLlce Lo Lhe company 1hls ls
recorded ln an exhlblLed leLLer of 28 SepLember 1982 (3) Mrs Woodroffes
sollclLors drafLed Lhe converslon noLlce of 27 AugusL on her behalf (4) 1he
asseLs of Lhe company were prlnclpally sLock (3) 1he recelvers dld Lrade ln a
small way afLer Lhelr appolnLmenL for Lhe purpose of selllng off Lhe asseLs

l should add LhaL afLer Mr Mummery had sLarLed hls address yesLerday Mr
Marks soughL Lo geL ln furLher facLs on lnsLrucLlons as Lo whaL had happened on
1 SepLember Powever l Look Lhe vlew LhaL lL was by Lhen Loo laLe for LhaL Lo
be done l gave boLh Mr Marks and Mr !arvls Lhe opporLunlLy Lo apply for an
ad[ournmenL Lo puL ln furLher evldence buL no appllcaLlon was made

Cn Lhe above facLs Mr Mummery submlLs LhaL Lhere was no evldence or no
sufflclenL evldence Lo saLlsfy me on Lhe balance of probablllLles LhaL Lhe
company dld cease buslness before 1 SepLember Pavlng glven anxlous
conslderaLlon Lo Lhls quesLlon l flnd LhaL l musL accede Lo LhaL submlsslon l
wlll brlefly sLaLe my prlnclpal reasons

llrsL l Lhlnk LhaL l musL lnfer from Mr Mlchael Woodroffes bellef LhaL Lhe
shop may have been open on Lhe SaLurday LhaL Lhere was no recognlLlon ln Lhe
mlnds of Lhe dlrecLors LhaL Lhe servlce of Mrs Woodroffes noLlce necessarlly
requlred Lhe company Lo cease buslness lf LhaL had been Lhelr undersLandlng l
do noL Lhlnk LhaL lL ls someLhlng whlch would have now been forgoLLen

Secondly and on LhaL fooLlng lL ls naLural Lo lnfer LhaL Lhe company would
have seen no reason for noL conLlnulng Lo sell off lLs sLock even Lhough lL
reallsed LhaL lLs flnanclal poslLlon was very serlous lndeed Lhe naLural
lnference ls LhaL lL would be LhoughL LhaL noLhlng could be losL and perhaps
someLhlng galned by geLLlng as much money as posslble ln hand provlded of
course LhaL sales were made aL proper prlces

1hlrdly l agree wlLh Mr Mummery LhaL even lf Lhe shop never dld open afLer
27 AugusL LhaL ln Lhe absence of furLher evldence does noL necessarlly mean
LhaL Lhe company had ceased lLs buslness lor example sales mlghL sLlll have
been made ln some oLher manner perhaps ln answer Lo a requesL senL Lhrough Lhe
posL or Lhe llke Moreover even lf no furLher sales were made lL cannoL be
assumed LhaL Lhe company had acLually ceased buslness

Mr !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 sLock
Pe submlLLed LhaL on LhaL fooLlng Lhe company had ceased Lo be a golng concern
even Lhough lL may sLlll have been carrylng on lLs buslness 1he suggesLlon
was l Lhlnk LhaL lL was dolng LhaL solely for Lhe purposes of an ulLlmaLe
wlndlng up l have already expressed Lhe vlew LhaL Lhe maLerlal evenL ls a
cessaLlon of buslness and noL ceaslng Lo be a golng concern Powever even lf
LhaL vlew ls wrong*380 l am noL saLlsfled on Lhe balance of probablllLles LhaL
Lhe company ceased Lo be a golng concern before 1 SepLember

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 happened 1haL no doubL ls why evldence was noL puL ln on Lhls
vlLal quesLlon lL ls noL Mrs Woodroffes faulL LhaL she and her famlly cannoL
make brlcks wlLhouL sLraw and lL ls Lo Lhelr credlL LhaL Lhey have noL soughL
Lo do so

l hold LhaL Lhe alLernaLlve submlsslons of Mr !arvls and Mr Marks on Lhe
baslc quesLlon ln dlspuLe alLhough Lhey would have succeeded ln law fall on
Lhe facLs 1haL means LhaL Lhe banks charge crysLalllsed on 1 SepLember wlLh
Lhe raLher odd resulL already lndlcaLed 1haL makes lL unnecessary for me Lo
conslder Lhe second quesLlon as Lo Lhe effecL of secLlon 94(1) of Lhe AcL of
1948 1haL ls an lnLeresLlng lmporLanL and dlfflculL quesLlon whlch was well
argued on boLh sldes l prefer Lo express no oplnlon on lLCrder accordlngly
(1 C C 8 )

Lnu Cl uCCuMLn1

WesLlaw uellvery Summary 8eporL for 2l uSL8
uaLe/1lme of 8equesL 1hursday november 17 2011 0924 CenLral

CllenL ldenLlfler WLlLAWSCPCCL

uaLabase LAW81S

ClLaLlon 1exL 1986 Ch 366

Llnes 787

uocumenLs 1

lmages 0