At the time of founding a company in UK, one must study the laws and verdicts passed in past cases of England companies. For it gives a wider vision about the problems that may be faced and the best possible solutions to them.
Book debts are often taken as the current assets of a company. One who has create a company in London must need financiers in the form of creditor. Those creditors may take hold of the book debts to secure themselves. The Book debts are the liabilities that are to be paid to the company. They may be because of any supply made by the company. However, it must be noted that as long as these liabilities are unpaid, they fall under the category of Book debts. As soon as they are paid they are rather termed as the earnings of those book debts or more commonly, “the proceeds”. It is an interesting fact that book debts, are those assets that have value in real time as they are unpaid. Yet they can be presented to the creditor as a guarantee of returning the debt.
Debate on Charged Book debts
For anyone who wants to create a company in London, it becomes necessary to study different cases of UK based companies. As going through the case studies help in grasping the concepts of better business management. Moreover, it is beneficial to learn from the past experiences of UK based companies.
In the New Bullas trading case, a company wanted to take a loan on a condition that a fixed charge would be covering the debts and floating charge would be covering the proceeds. Professor Goode figured some doctrinal and policy flaws in the judgement passed on the issue. This article discusses the criticism presented by Professor Goode on the case of New Bullas Trading. Hence the article provides a critical analysis of Professor Goode’s views so that one may understand how to analyse judgements before starting a company in England.
In the view of Professor Goode, the basic problem is that the debenture offers either of the two securities:
An important concept that is supportive to Goode’s critique is that when any belonging is charged justly, and the charge is to be collected by the charger later, it is more like a fair right of guarantee given to the charger. However, this right may become active at the time the debts are paid.
No matter how straightforward the concept may seem, it brings along certain flaws:
Fails to distinguish between book debt and its earnings
Book debt and proceeds are quite different in nature. The former is the asset that has to be collected and the latter is the collected asset. When the collected assets i.e. the proceeds are paid to the Bank, they are treated as separate assets. It may seem odd but logically, the different identity, regulations of any belonging may vary. And in such a situation charge subjected to them should also vary. Hence, it cannot act singular and continuous on the varying assets.
The ruling in Dearle case governs that a debt is subjected to a security interest that differs from the charge of its earnings.
Lack of cases favouring Goode’s theory
The Goode’s theory provides no case in its support. Hence there is no practical example elaborating the practicality of this theory.
Contradicting to Re Brightlife
The assets in bank account of the firm, which included proceeds were subjected to floating charge separately. So the rule that a fixed charge does not allow a company to manage the earnings of debts freely could not be implemented in this scenario. The verdict of Hoffman J. never at any point stated that the fixed charge could only relate to uncollected receivables and had not link with the proceeds. This is because a charge that could cover the uncollected loans and the earnings alone was the centre of Hoffman’s verdict.
Counter case: CCG International
The case of CCG International contradicts the theory of the constantly singular guarantee interest. However, Professor Goode paid no heed to it.
Although the concepts of Goode’s theory seem quite logical at first, but one who is starting a company in England, must understand that no judgement can be marked fair unless it is implemented and found practically fair.
Professor Goode believed that a Bank cannot possibly charge the balance of a firm which is on credit. And in case it is done, it is merely a right in the debenture used for setting forward the arrearage of company against the balance on credit. The Goode’s theory states that book debts when paid transform into proceeds. In both the forms, the subjected charge is single and remains constant. Both the views of Goode contradict each other.
Considering the case of New Bullas Trading in the light of above mentioned views, it can be observed that:
If the proceeds were obliged to be paid into the account owned by the creditor, there would have been a discontinuation in fixed charge from book debt to paid earnings in the account.
Hence, it is quite evident that there is no real time worth of Goode’s theory as it fails to prevent the implementation of two different charges at debts and proceeds. Thus, the two legitimate concepts are:
Professor Goode’s theory cannot prevent the realisation of these concepts. If pondered over, the concepts are utterly logical. A debt can be subjected to different interests before and after the payments. Provided that the first type of security interest is discharged upon the payment of debts and then a new charge is imposed on it. Thus, proving that the verdict by court on New Bullas case was fair.
Critique on policy of Re New Bullas
The analysis of policies proposed by New Bullas verdict reveals no such basis upon which the verdict can be prone to disagreement. A situation where the creditor, a bank usually, has no issues in taking over security interest on book debts in the form of fixed interest and the company is eagerly demanding to keep the cash flow, under its control a compromise has to be made. And that compromise may result in the form of a verdict similar to New Bullas. So that the Bank has the fixed charge over debts that are yet to be paid and the debenture changes the fixed charge into floating for the account which keeps the proceeds. Hence, taking care of the concerns of both the parties. Siebe Gorman provides some kind of security to the clearing Banks. The policy in it cannot be argued upon. Although the charge that was implemented on both, the debt and the account of proceeds, was fixed in Siebe Gorman, the fact that it cannot be objected proves that New Bullas cannot be objected either. The reason is that New Bullas was just an attempt to promise the Bank, which in this case was non-clearing, a security similar to that in Siebe Gorman.
Certainty about New Bullas
Nourse L.J’s view on New Bullas is stated as follows:
Whereas Goode’s theory only allows the following:
Validity of Siebe Gorman
A fixed charge becomes lawful in either of the two scenarios provided that the Siebe Gorman verdict is unfair:
However, the there are cases such as Brightlife that implement strict rules of fixed charges and cases like CCG International that provide verdicts presenting a freedom of contract. By observing the nature of both the types of cases, it can be deduced that apparently Siebe Gorman may seem a case belonging to the strict test group, but it is rather verdict of freedom of contract. As stated by Cork Committee. Hopefully, founding a company in UK and making it grow prosperously has been made easier by the analysis presented in this article. For it gives an insight about the extent of freedom that one can enjoy legally while placing its debts as the security for creditor.