Book Debt Charges

Whether or not a charge over book debts is fixed or floating is an issue which has never been finalised under English law. For lenders with customers in difficulties the distinction is very important where the only real assets (if property is leased) are book debts and stock. As preferential creditors are paid in receivership out of the proceeds of assets charged by floating charge ahead of the floating charge holder the distinction can make the difference for a lender between recovering outstandings and having to make a large write off.

It has long been accepted by the courts that a clearing bank can have a fixed charge over the book debts of its customers (partly on the basis that a clearing bank controls the business accounts of its customers). Following the case of re New Bullas Trading (1994) the courts have held that, if the security document is correctly drafted, then even lenders which are not clearing banks can obtain a fixed charge over book debts although that case was