Sharp v Thomson

For the purposes of a Scottish floating charge, a company's “property and undertaking” comprises property in which the company has a beneficial interest and which it may lawfully dispose of or subject to security. The expression is not synonymous with formal or feudal title.

Once a seller has received the price and delivered a disposition of heritable property, its retained bare title is insufficient to attract the floating charge. The seller's ability to make a fraudulent competing conveyance is not a beneficial property right. This construction preserves the distinction between personal and real rights and does not alter the requirement of registration to obtain a real right effective against third parties.

Albyn Construction Ltd granted a floating charge over its property and undertaking. It later sold a flat to the Thomsons, received the price and delivered an executed disposition. The following day, receivers were appointed and the floating charge crystallised. The disposition and the Thomsons' standard security in favour of the appellants were recorded eleven days later.

The receivers sought declarations that the charge had attached to the flat, had priority over the standard security and entitled them to sell. The Lord Ordinary granted the declarations and the First Division adhered. The appellants appealed to the House of Lords.

The central issue was whether a flat whose recorded title remained with the company, but in which it retained no beneficial interest after delivering the disposition, was part of its “property and undertaking” when the charge crystallised.

1. The appeal was allowed unanimously and the action dismissed. Lord Jauncey of Tullichettle and Lord Clyde delivered the substantive speeches. Lord Browne-Wilkinson, Lord Keith of Kinkel and Lord Steyn agreed with their reasons.

2. Per Lord Jauncey, “property” in section 53(7) of the Insolvency Act 1986 and the statutory provisions governing floating charges is not a technical expression confined to recorded feudal title. It should receive a practical meaning appropriate to the statutory context. It denotes property available for the company's use, in which the company has a beneficial interest and which it may lawfully dispose of or subject to heritable security.

3. Per Lord Jauncey, the delivery of a disposition marks a material change from the mere conclusion of missives. After receiving the price and delivering the disposition, the seller has performed its contractual obligations and retains only a bare title. Its capacity to defeat the disponee by a fraudulent conveyance is not a beneficial property right. Albyn therefore had no beneficial interest in the flat when the charge crystallised, and the charge did not attach to it.

4. Per Lord Clyde, the critical question concerned the property to which the charge attached, not the effect of attachment or a race to the register. “Property and undertaking” should be construed by ordinary language and by reference to substantial beneficial interests. A company which has sold land and delivered the disposition, and can no longer lawfully dispose of the land, does not retain it as part of its property and undertaking merely because it retains the recorded real right.

5. Lord Jauncey and Lord Clyde treated Heritable Reversionary Co Ltd v Millar as establishing that formal title without beneficial interest need not constitute the debtor's property for insolvency purposes. That decision illustrated a general approach to statutory language and was not confined to trusts.

6. Per Lord Clyde, this construction does not create an intermediate proprietary right, disturb the unitary theory of ownership or erode the registration rules governing real rights. An unrecorded disposition remains a personal right and may be defeated by a competing title duly completed according to law. The construction instead determines the anterior question whether the subjects fall within the charge at all.

7. The receivers were not entitled to the declarations sought. The appellants' first plea-in-law was sustained and the action dismissed.

1. House of Lords: The appeal was allowed unanimously. The appellants' first plea-in-law was sustained and the action was dismissed.
2. First Division of the Court of Session: The court adhered to the Lord Ordinary's decision, holding that the flat remained the company's property because the disposition had not been recorded when the floating charge crystallised.
3. Lord Ordinary: The receivers were granted decrees declaring that the floating charge attached to the flat, had priority over the appellants' standard security and entitled the receivers to take possession and sell.