Lloyd's Maritime and Commercial Law Quarterly
Fixed and floating charges—a revelation
Roger Gregory * and Peter Walton †
The accepted theory of the creation of the floating charge has no basis in law or fact. The sole reason for adopting the statutory “undertaking” mortgage (later the floating charge) was to evade an 1852 common law bankruptcy ruling that mortgages over changing assets paralysed business. This doctrine was expunged in 1883 as heresy, thereby destroying the basis of the “paralysis”
dicta in early floating charge cases. Paradoxically, modern company lawyers are re-engaging in the defunct 19th century “paralysis” battle, whereas in truth the modern law is that mortgages with implied dealing power are in full force and effect today.
In Siebe Gorman & Co. Ltd
v. Barclays Bank Ltd,
1
in 1979, Slade, J., said:
In my judgment, however, 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 and consequently prevents the mortgagor from disposing of an unencumbered title to the subject matter of such charge without the mortgagee’s consent, even before the mortgagee has taken steps to enforce its security.
In Slade, J.’s dicta
on the book debt fixed charge, many banking lawyers saw the prospect of new and exciting forms of specific security cover for bank lending. Oddly, for those who had obtained not dissimilar results over the profits of Eastern Haddon Church in the reign of Henry VI2
there was only that dull satisfaction which stems from following established practice.3
In this way the confident expectations of the sophisticated modern practitioner and the settled routine of the simpler ancients ran in harmony. The reason for excitement in 1979 was that Slade, J., tendered book debts as suitable material for specific
* Visiting Professor, University of Wolverhampton.
† Senior Lecturer, University of Wolverhampton.
The authors are most grateful for the very considerable assistance furnished by David Graham, Q.C., who before his retirement was the doyen
of the bankruptcy Bar and whose knowledge of the history of his subject is vast. A debt of similar magnitude is owed to Dr Pamela Nightingale, whose work on medieval economics shows that there is surprisingly little that is new under the sun.
1. [1979] 2 Lloyd’s Rep. 142, 159.
2. Early Chancery Proceedings Cl 7/154 in the Public Record Office system 8 Henry VI.
3. Memorandum of assignment of the revenues of the See of Winchester to the King’s Sureties for payment of money advanced by certain London merchants for payment of debts due to Peter of Savoy (C47 13/11 in the Public Record Office system 43 Henry III).
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