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GAZETTE
JULY-AUGUST
1979
Fixed charge on Future Book Debts
of a Company
The Judgment in
Siebe Gorman A Co. Limited v. Barclays Bank Limited{
1978) reviewed
by
E. Rory O'Connor
The Judgment delivered by Mr. Justice Slade of the
English High Court in the above Action on 26th May,
1978, generated more than average interest in legal,
banking and accountancy circles. In the first place it high-
lighted a difference between the practice of the principal
English Commercial Banks and the Irish Commercial
Banks in taking security over book debts of a company.
The English Banks have for some time used a provision in
their debentures which purports to create a fixed charge
on all book debts both present and future; whereas Irish
Banks have traditionally regarded security over book
debts as more appropriate for inclusion under a floating
charge. In the second place it proved that in the English
Courts at any rate a fixed charge on future book debts
will be recognised and enforced as such where the circum-
stances warrant such a conclusion.
The case was concerned with a question of priorities
between an assignment of a bill of exchange made by a
company in favour of Siebe Gorman & Co. Limited and a
fixed charge over present and future book debts and other
debts of the company created by a debenture issued by
the company to Barclays Bank Limited. The debenture
contained an express prohibition against the company
charging or assigning any book debts or other debts
without the prior consent of the Bank.
In its Judgment the Court considered the provisions of
Barclays Bank's debenture which,
inter alia,
purported to
create a
fixed,
as distinct from a
floating,
charge on exist-
ing and future book debts of the company. The relevant
clause read as follows:-
"3(d) by way of fixed charge all book debts and
other debts now and from time to time due or owing to
the Company."
The Court, having reviewed a number of earlier
authorities on the subject, concluded that the debenture
did create a first fixed charge on the Company's book
debts and other debts including future debts. The position
was expressed thus by Slade J.:
" . . . it is perfectly possible in law for a mortgagor,
by way of continuing security for future advances,
to grant to a mortgagee a charge on future book
debts in a form which creates in equity a specific
charge on the proceeds of such debts as soon as
they are received . . . "
However, the Court went on to hold that the assignment
°f the bill of exchange in favour of Siebe Gorman & Co.
Limited took effect free from the fixed charge over the
future book debts of the Company granted to Barclays
Bank Limited by the debenture. This was, the Court
explained, by reason only of the fact that in the form 47
(particulars of charges) delivered by Barclays Bank
Limited to the Registrar of Companies under Section 95
°f the Companies Act, 1948, no mention was made of the
Provision in the debenture which prohibited the Company
from charging or assigning its debts in favour of any third
Party.
It is correct to say that the Siebe Gorman case is
authority for the proposition that it is competent for a
company to create a fixed or specific charge on existing
and future book debts. It is authority for little else. Indeed
the decision on the priorities issue cannot be regarded as
satisfactory considering that the Court had held that
Barclays Bank had a valid
fixed
charge in respect of
which particulars had been duly registered in the
Companies Office which should have put any person
dealing with the company's book debts on notice of the
existence of the charge and of its particular nature.
The reaction among Irish Banks and other lending
agencies to the Siebe Gorman decision has been quite
dramatic and already many institutions have amended
their forms of debenture with a view to providing for a
fixed charge on book debts. Other Banks have such
amendment under active consideration. In these circum-
stances it is thought well to caution against the con-
clusion that the mere describing of a charge as a
fixed
charge will have the desired effect on all occasions. In the
writer's view it will still be open to a Court in any case
where the nature, quality or priority of a charge is in
dispute to examine the provisions of the instrument of
charge and to look at the intentions and attitudes of the
parties as regards the company's freedom to deal with
any particular class of asset embraced by such charge.
This is clearly illustrated by a Judgment of the Irish High
Court delivered by Mr. Justice Costello on 20th
December, 1978, in an application brought under the
Companies Act, 1963, by the Official Liquidator in the
matter of Lakeglen Construction Limited, the winding up
of which had commenced in March, 1978.
In this case the Company had issued a debenture on
24th November, 1977, in favour of a group of major
creditors to secure existing indebtedness. The debenture
purported to create a number of charges over various
properties and assets of the Company including
a charge
on all the company's book debts
and all rights and powers
of recovery in respect of them. The debenture also con-
tained a "sweeper-up" provision which created a first
floating charge on "all other" assets of the Company
present and future. The issues to be determined were
whether the undefined charge over book debts would
include future book debts and whether it constituted a
fixed
charge or a
floating
charge over such debts. Ifjt was
a
fixed
charge then the debenture holder's security would
not be invalidated by Section 288 of the Companies Act,
1963 and the proceeds of such book debts, when
collected, would not be subject to the claims of the
preferential creditors. If on the other hand it was a
floating
charge it would be invalidated by Section 288
since it was acknowledged that the Company was
insolvent when the debenture was created and that no
fresh moneys were advanced at the time and in con-
sideration of the granting of the debenture.
On the preliminary point the Court (Costello J.) con-
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