Facts
The company, Peachdart Ltd, carried on the business of manufacturing leather handbags. The company had granted a debenture to Barclays Bank which contained a floating charge over all of the company's assets. That floating charge was duly registered under the Companies Act 1948.
Freudenberg Leather Co Ltd supplied substantially all of the leather used by the company. The leather was sold under contracts of sale which included a retention of title clause. That clause provided not only did title to the leather remain vested in Freudenberg after delivery up until they time that they were paid, but that Freudenberg could trace their title into any goods into which the leather was worked.
The company began to experience financial difficulties, and on 10 August 1981 Barclays Bank appointed receivers. A dispute then arose as to which creditor had better title to the leather - Barclays Bank under the floating charge, or Freudenberg under the retention of title clause. The receivers challenged the clause on the basis that the power to trace title into subsequent products meant that the arrangement was effectively an equitable charge, which was void for non-registration.
Liquidation is the process in accounting by which a company is brought to an end in the United Kingdom, Australia, New Zealand, Republic of Ireland, Cyprus, United States, Canada, Italy and many others. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulatory and shifting nature. Examples of such property are receivables and stocks. The floating charge The floating charge 'floats' or 'hovers' until the point at which it is converted into a fixed charge. Once it becomes a "fixed charge" the charge attaches to the specific assets of the business. This conversion of the floating charge into a fixed charge can trigger common law jurisdictions]] it is an implied term in security documents creating floating charges that a cessation of the company's right to deal with the assets in the ordinary course of business leads to automatic crystallisation. Additionally, security documents will usually include express terms that a default by the person granting the security will trigger crystallisation.
A security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.
In law, perfection relates to the additional steps required to be taken in relation to a security interest in order to make it effective against third parties or to retain its effectiveness in the event of default by the grantor of the security interest. Generally speaking, once a security interest is effectively created, it gives certain rights to the holder of the security and imposes duties on the party who grants that security. However, in many legal systems, additional steps --- perfection of the security interest --- are required to enforce the security against third parties such as a liquidator.
A retention of title clause is a provision in a contract for the sale of goods that the title to the goods remains vested in the seller until the buyer fulfils certain obligations.
Recharacterisation in law means the treatment of a certain course of conduct in a different manner to which the participants describe it.
Re Spectrum Plus Ltd[2005] UKHL 41 was a UK company law decision of House of Lords that settled a number of outstanding legal issues relating to floating charges and recharacterisation risk under the English common law. However, the House of Lords also discussed the power of the court to make rulings as to the law that were "prospective only" to mitigate potential harshness when issuing a ruling that was different from what the law had previously been understood to be.
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986 ), the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
Unregistered land in English law is land that has not been registered with HM Land Registry. Under the residual principles of English land law, for unregistered land proof of title is based upon historical title deeds and a registry for certain charges under the Land Charges Act 1972.
A Quistclose trust is a trust created where a creditor has lent money to a debtor for a particular purpose. In the event that the debtor uses the money for any other purpose, it is held on trust for the creditor. Any inappropriately spent money can then be traced, and returned to the creditors. The name and trust comes from the House of Lords decision in Barclays Bank Ltd v Quistclose Investments Ltd (1970), although the underlying principles can be traced back further. There has been much academic debate over the classification of Quistclose trusts in existing trusts law: whether they are resulting trusts, express trusts, constructive trusts or, as Lord Millett said in Twinsectra Ltd v Yardley, illusory trusts.
Agnew v Commissioners of Inland Revenue, more commonly referred to as Re Brumark Investments Ltd[2001] UKPC 28 is a decision of the Privy Council relating to New Zealand and UK insolvency law, concerning the taking of a security interest over a company's assets, the proper characterisation of a floating charge, and the priority of creditors in a company winding-up.
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 is a UK insolvency law case, concerning a quasi-security interest in a company's assets and priority of creditors in a company winding up.
Re Bank of Credit and Commerce International SA [1998] AC 214 is a UK insolvency law case, concerning the taking of a security interest over a company's assets and priority of creditors in a company winding up.
Westdeutsche Landesbank Girozentrale v Islington LBC[1996] UKHL 12 is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.
Bishopsgate Investment Management Ltd v Homan [1994] EWCA Civ 33 is an English trusts law case about whether a beneficiary whose fiduciary breaches trust, may trace assets through an overdrawn account to its destination.
Re Bond Worth Ltd [1980] Ch 228 is a UK insolvency law case, concerning retention of title clauses.
Hong Kong insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is now primarily governed by the Companies Ordinance and the Companies Rules. Prior to 2012 Cap 32 was called the Companies Ordinance, but when the Companies Ordinance came into force in 2014, most of the provisions of Cap 32 were repealed except for the provisions relating to insolvency, which were retained and the statute was renamed to reflect its new principal focus.
Barclays Bank Ltd v W J Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677, [1979] 3 All ER 522 was a decision of the High Court of Justice relating to the recovery of a payment mistakenly made by a bank after the customer had countermanded the cheque.
Re Curtain Dream plc [1990] BCLC 925 is a judicial decision of the English courts in relation to recharacterisation. It held that where a transaction was documented in a certain way to mask the true nature of the transaction, the court could disregard the mask and construe the transaction as it was intended to be in truth. The court held that properly construed the transaction in question was a mortgage which was void against a liquidator for non-registration.
Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 is a judicial decision of the Court of Appeal of England and Wales relating to retention of title clauses, and the extent to which the vendor of raw material can seek to assert title to good into which those raw materials are subsequently worked. The court held that when the relevant raw material was worked into another product it ceased to exist as a separate type of property, and accordingly it was no longer possible for a seller to retain title to it.
