Re Yorkshire Woolcombers Association Ltd

Re Yorkshire Woolcombers Association [1904] AC 355 is a UK insolvency law

UK insolvency law

United Kingdom insolvency law deals with the insolvency of firms and individuals in the United Kingdom. The important statutes are the Insolvency Act 1986, as amended by the Enterprise Act 2002, as well as the Company Director Disqualification Act 1986 and the Companies Act 2006.Insolvency is a...

case, concerning the taking of a security interest

Security interest

A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...

over a company's assets and priority of creditors in a company winding up.

Facts

Yorkshire Woolcombers Association Ltd had gotten loans from various guarantors, organised by a trustee called Mr Illingworth. Then it went and got an overdraft from a bank. The guarantors requested repayment, but the Association could not, so it gave security over its book debts to the guarantors “by way of floating security all its other property and assets both present and future, and its undertaking, but not including capital for the time being uncalled.” The Association, however, also had the power to deal with its assets in an unfettered manner until any crystallising event took place.

The receiver contended that the charge was void because it had not been registered under the Companies Act 1900 section 14(1) (now CA 2006 s 860).

Court of Appeal

Romer LJ held that the charge in question was floating and void for want of registration. He said a charge with the following characteristics is a floating charge…

it is a charge on a class of assets of a company present and future [class of assets present and future]
that class is changing from time to time in the ordinary course of business [class changes during business]
it is contemplated in the charge that until some future step is taken, the company can trade in the normal way [the charge says the company can still trade normally]

House of Lords

The House of Lords affirmed Romer LJ's decision. Earl of Halsbury LC held that an ‘element in the definition of a floating security, that it is something which is to float, not to be put into immediate operation, but such that the company is to be allowed to carry on its business. It contemplates not only that it should carry with it the book debts which were then existing but it contemplates also the possibility of those book debts being extinguished by a payment to the company, and that other book debts should come in and take the place of those that had disappeared.’

Lord MacNaghten, ‘there was not much difficulty in defining’ the two kinds of charge. A fixed charge is one which ‘fastens on ascertained and definite property’ or property ‘capable of being ascertained and defined’. A floating charge is ‘ambulatory and shifting in nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.’

Facts

Court of Appeal

House of Lords

See also