Return to Old Law on Book Debts

On 26 May, the Court of Appeal in National Westminster Bank v Spectrum Plus Limited overturned a 2001 Privy Council ruling in the Brumark Investments case, thereby giving banks increased access to the book debts of insolvent companies. Book debts are the sums shown in the company's books as being due to the company, for example, from customers.

The case turned on the distinction between fixed and floating charges. Where a company grants a fixed charge over one of its assets - for example to a bank, as security for a loan - the charge prevents the company from dealing with the asset. By contrast, a floating charge "floats" above the assets of the company, leaving the company free to buy and sell those assets in the normal course of its business until it becomes insolvent or ceases to trade, at which point the floating charge crystallises and the assets become available as security to the holder of the charge, subject to certain creditors, such as the Inland Revenue.