Sharp v Thomson

The House of Lords considered the meaning of "property" in a floating charge and in section 53(7) of the Insolvency Act 1986. The court held that when a company had received the purchase price and delivered a disposition of heritable subjects, the company had lost the beneficial interest and the floating charge, on crystallisation by appointment of receivers, did not attach to those subjects. The decision emphasised a practical construction of "property and undertaking" as referring to property in which the company had a beneficial interest and the lawful power of disposal, rather than a narrow feudal or recorded title.

The claim concerned whether a floating charge granted by Albyn Construction Limited attached, on crystallisation by appointment of receivers, to a flat in respect of which Albyn had entered into missives, accepted the purchase price and delivered a disposition to the purchasers but in respect of which the disposition was not recorded until after the receivers' appointment.

Background and procedural history:

• Albyn granted a floating charge over its property in 1984. In 1989 Albyn sold a flat, accepted the purchase price and delivered the disposition to the purchasers (the Thomsons); the disposition was recorded on 21 August 1990.
• Receivers were appointed under the floating charge on 10 August 1990. The receivers sought declarators that the floating charge attached to the flat on crystallisation and that they could take possession and sell, with priority over the purchasers' security.
• The Lord Ordinary granted decree de plano in favour of the receivers; the First Division of the Court of Session adhered to that decision. The purchasers and their lender appealed to the House of Lords.

Nature of the application and issues:

• (i) The relief sought: declarators that the floating charge attached to the flat on appointment of the receivers and that the receivers could take possession and sell it.
• (ii) Issues framed: primarily the construction of "property" in the floating charge and s53(7) of the Insolvency Act 1986 — whether that expression refers to the company's beneficial interest (and thus excludes subjects in respect of which it had delivered disposition and received the price) or to the bare recorded title retained by the seller.
• (iii) The court's reasoning: the Law Lords examined Scots authorities on the effect of delivery of disposition, the distinction between real rights (feudal/recorded title) and personal rights (rights between the contracting parties), and treated the term "property" as non-technical to be construed in context. The decision in Heritable Reversionary Co Ltd v Millar and other authorities were considered. The House preferred a practical construction of "property and undertaking" as property available for lawful use and disposal by the company (i.e. beneficial interest), rejecting the submission that the bare feudal title left in the seller should be treated as "property" available to satisfy secured creditors on crystallisation. The court therefore concluded that the floating charge did not attach to the flat at the relevant time.

The House noted that the facts were somewhat unusual and that the result sought by the receivers would be particularly disadvantageous to purchasers who had paid the price and acquired the beneficial interest. The court confined its reasoning to statutory construction and the substantive reality of the company's interest rather than altering feudal conveyancing rules about when a real right is perfected against third parties.

Appeal allowed. The House held that on construction of the terms of the floating charge and section 53(7) Insolvency Act 1986, "property" in that context meant property in which the company had a beneficial interest and the lawful power to dispose; since Albyn had accepted the price and delivered the disposition before crystallisation and therefore had no beneficial interest in the flat, the floating charge did not attach to the flat on appointment of the receivers.

Lord Ordinary granted decree de plano in favour of the receivers; the First Division of the Court of Session adhered to that decision. The matter was appealed to the House of Lords, which allowed the appeal ([1997] UKHL 60; 1997 SC(HL) 66).