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LL202 Commercial Contracts. Chris von Csefalvay. Agenda for today . Session 10: Credit Recap Class questions. Q1: differentiation between fixed and floating charges. 10’ work in groups please. Q1: differentiation between fixed and floating charges.

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Ll202 commercial contracts

LL202 Commercial Contracts

Chris von Csefalvay


Agenda for today
Agenda for today

  • Session 10: Credit

    • Recap

    • Class questions



Q1 differentiation between fixed and floating charges1
Q1: differentiation between fixed and floating charges

  • Re Spectrum Plus ltd[2005] 2 AC 680 overruling Siebe Gorman v Barclays [2979] 2 Lloyd’s Rep 142: the charge created by the standard bank debenture over book debts is floating, not fixed


Q1 differentiation between fixed and floating charges2
Q1: differentiation between fixed and floating charges

  • Assets subject to fixed charges require the bank’s consent before they can be sold/dealt with (as assets are subject to the charge)

  • Enterprise Act 2002:

    • Holders of post-2003 floating charges cannot appoint receivers

    • A prescribed part of floating charge receipt goes to unsecured creditors


Q2 operation of crystallisation
Q2: operation of crystallisation

10’ work in groups please


Q2 operation of crystallisation1
Q2: operation of crystallisation

  • Crystallisation is pure magic.

  • At the event that triggers crystallisation (insolvency), the floating charge becomes a fixed charge and control over the goods is no longer the debtor’s.


Q2 operation of crystallisation2
Q2: operation of crystallisation

  • Crystallisation is effectively the mechanism that allows for floating charges: it permits a hybrid charge that is a proper security, but also able to apply to rotating goods.


Q3 rot as security
Q3: ROT as security

5’ work in groups please


Q3 rot as security1
Q3: ROT as security

  • If ROT were a proper security, it ought only bind third parties only if title were registered somewhere.

  • Charges (securities) are conceptually different – they are equitable interests in property (layer cake), ROT is absolute ownership (unity)


Q4 artificial transactions
Q4: Artificial transactions

5’ work in groups please


Q4 artificial transactions1
Q4: Artificial transactions

  • Example: HP – in function, it’s a sale on credit, but they are structured to retain title as security for the lender.

  • Does that matter?


Q5 is english law too favourable to secured creditors
Q5: Is English law too favourable to secured creditors?

5’ work in groups please


Q5 is english law too favourable to secured creditors1
Q5: Is English law too favourable to secured creditors?

  • Secured creditors with fixed charges have top priority. They are usually banks. Why protect their priority?

  • Because capitalism is contingent on credit, and capitalism absolutely rocks!


Q6 registration of company charges
Q6: registration of company charges

5’ work in groups please


Q5 is english law too favourable to secured creditors2
Q5: Is English law too favourable to secured creditors?

  • Probably. It permits creditors to make a more accurate assessment of the status/security of their debts.

  • The big problem, I think, is that it’s not comprehensive: ROTs, unsecured debts – “unknown unknowns”


End of session 10
End of session 10

See you on Tuesday morning in the same place.

Please do the recommended readings and think about the questions.


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