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Allen & Overy (A&O) has won a landmark Court of Appeal case for National Westminster Bank (NatWest), finally overturning a 2001 Privy Council ruling in the Brumark Investments case which restricted banks’ access to the book debts of insolvent companies.
On 26 May the court unanimously overturned a decision made by Vice-Chancellor Sir Andrew Morritt in the High Court which ruled in the Spectrum Plus case that the bank had to wait in line behind the Treasury, the Inland Revenue and Customs & Excise when it came to book debt.
NatWest had applied to the High Court last July for a declaration that Spectrum’s standard form debenture created a fixed charge over book debts, and that the company’s liquidators should account to the bank for them. Spectrum granted the charge to NatWest in 1997, but in 2001 the company went into liquidation, owing the bank £165,407, which it will now recover in full.
On 15 January this year, Morritt decided that NatWest’s charge was only effective as a floating charge, meaning that banks get paid after the Crown. A fixed charge ensures that book debts – the money owed to a company by its debtors – are paid first to the creditor bank.
The Vice-Chancellor used the 2001 Privy Council ruling on Brumark as a precedent. In that case, the council decided that the charge in question was a floating charge, but in Spectrum this interpretation meant that NatWest would not recover anything.
The Brumark ruling held up the distribution of large amounts of money, including Spectrum’s book debts, as it disapproved the 25-year-old decision of Mr Justice Slade in Siebe Gorman. The judge held that a debenture created an effective fixed charge over book debts. His decision has been used as the basis for constructing charges ever since.
The Court of Appeal decision reaffirmed Siebe Gorman, meaning liquidators can now put the Brumark confusion behind them.
Litigation partner John O’Conor led for A&O, instructing 3/4 South Square’s Gabriel Moss QC and Jeremy Goldring. The Treasury’s in-house solicitors instructed Philip Jones of Serle Court and Catherine Addy of Maitland Chambers.