Buchler & Anor v. Talbot & Anor

In England and Wales floating charges are a judge-made, or judge-approved, type of security. They originated in the early days of the development of company law in the 1870s. They are a means whereby a financier, typically a bank, provides a company with money on the security of the company's assets which continue to be used and turned over in the ordinary course of business until, when certain events happen, the charge 'crystallises' into a fixed charge on the assets then within its scope. Notable among crystallising events are the appointment of a receiver by the charge holder or the company being wound up.

Over the years floating charges have played an invaluable role in the development of business. They bridge a gap between businessmen and financiers. Businessmen need money but may have insufficient fixed assets to offer as security. Financiers have money but want security for any loans they make. They wish to rank ahead of the company's unsecured creditors if the business does not prosper. They wish to minimise their risks by having a charge over whatever assets a company may acquire in the course of carrying on its trade. Floating charges have provided a legal mechanism by which in these circumstances capital and business enterprise can be harnessed.

Typically a floating charge extends to substantially all the assets of a company. On its face this gives a charge holder a high degree of control over the assets and fortunes of a company. At times this has been seen to work unsatisfactorily. The security afforded by a floating charge on the assets of a business, and the charge holder's ability to enforce his security, should not always be allowed to prevail. More than once Parliament has intervened to correct perceived imbalance between the rights and interests of charge holders and the rights and interests of other persons. The most recent intervention was in the Enterprise Act 2002.

This appeal concerns the proper interpretation of a legislative intervention made in the early days of the history of floating charges. The issue is whether, when a company is being wound up, the costs and expenses incurred by the liquidator rank ahead of the claims of the holder of a charge which at its inception was a floating charge. The answer turns on the proper interpretation of what is now section 175(2)(b) of the Insolvency Act 1986.

The failure of the Leyland DAF group

The issue arises in the winding up of Leyland Daf Ltd, one of the companies in a group headed by DAF NV. The facts are set out lucidly in the opinion of my noble and learned friend Lord Millett. I need do no more than mention the salient features in the broadest terms. In March 1992 Leyland Daf Ltd granted a mortgage debenture to Stichting Ofasec, a Dutch foundation, to secure money loaned to the group. The debenture created fixed and floating charges over the assets of Leyland Daf Ltd in the accustomed fashion. Early in 1993…

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