Re Brightlife Ltd [1987] 1 Ch 200
Citation:Re Brightlife Ltd [1987] 1 Ch 200
Rule of thumb:Do debenture holders have the right to get paid before other creditors? As a general rule, yes – they are preferred creditors who are able to get paid before other ordinary creditors.
Judgment:
The facts of this case were that a debenture was not paid. The debenture holder immediately sent a letter crystallising assets under a floating charge. The company went insolvent a week later. The liquidator tried to challenge that the floating charge had not crystallised as there was no notice provided of non-payment. Court held that the floating charge had crystallised & was valid, ‘significant feature is that Brightlife was free to collect its debts and pay the proceeds into its bank account. Once in the account, they would be outside the charge over debts and at the free disposal of the company. In my judgment a right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge... I do not think that it is open to the courts to restrict the contractual freedom of parties to a floating charge on such grounds. The floating charge was invented by Victorian lawyers to enable manufacturing and trading companies to raise loan capital on debentures… without inhibiting its ability to trade... The public interest requires a balancing of the advantages to the economy of facilitating the borrowing of money against the possibility of injustice to unsecured creditors… arguments for and against the floating charge are matters for Parliament rather than the courts’, Hoffman J
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