Sharp and Others v Woolwich Building Society

The House of Lords held that, for the purpose of a floating charge and section 53(7) of the Insolvency Act 1986, "property" should be given a practical meaning referring to the company's beneficial interest which it is lawfully entitled to dispose of. When a company had sold heritable property, accepted the price and delivered a disposition prior to registration, it retained only a bare feudal title and no beneficial interest; accordingly the floating charge did not attach on crystallisation to that heritable subject.

The decision turned on statutory construction of the Companies Act 1985 and the Insolvency Act 1986 (notably section 462(1) and section 53(7)), and on an analysis of Scots conveyancing authorities distinguishing beneficial interest from bare recorded title.

This case concerned competing rights over a flat sold by Albyn Construction Ltd. (the company) where the disposition in favour of the purchasers had been delivered but not recorded before receivers were appointed under a floating charge. The receivers sought declarators that the floating charge crystallised on their appointment and attached to the flat, giving them power to possess and sell the flat with priority over the purchasers' later-registered standard security.

Procedural history: The Lord Ordinary granted decree de plano in favour of the receivers; the First Division of the Court of Session upheld that decision. The case was then appealed to the House of Lords.

Nature of the claim / relief sought:

• The receivers sought declarations that on their appointment (crystallisation) the floating charge attached to the flat and operated as a fixed security with priority over the purchasers' recorded standard security, and that they were entitled to possession and sale.

Issues framed:

• What is meant by "property" in the expression "property and undertaking" in section 462(1) of the Companies Act 1985 and in section 53(7) of the Insolvency Act 1986?
• When a disposition of heritable property has been delivered but not recorded, does the company retain sufficient property or beneficial interest such that a crystallised floating charge attaches to the heritable subject?

Reasoning and conclusions: The House rejected an approach that equates "property" mechanically with the recorded feudal title. Relying on statutory construction and authorities that distinguish beneficial interest from a bare recorded title, the Law Lords concluded that "property" in the context of floating charges denotes the assets in which the company has a beneficial interest and lawful power of disposal. At crystallisation Albyn had no beneficial interest in the flat (having received the price and delivered the disposition), and the bare title that remained did not amount to property available to satisfy the floating charge. The receivers therefore had no right to treat the flat as subject to the crystallised floating charge. The appeal was allowed.

Appeal allowed. The House held that the word "property" in section 53(7) of the Insolvency Act 1986 and in the description of a floating charge should be construed to mean the company's beneficial interest in assets which it is lawfully entitled to dispose of. Because Albyn had delivered the disposition and accepted the purchase price before crystallisation, it retained only a bare recorded title and no beneficial interest in the flat; the floating charge therefore did not attach to the flat on crystallisation.

Action in the Court of Session: Lord Ordinary granted decree de plano; First Division upheld (reported as Sharp v Thomson 1995 S.L.T. 837). Appeal to the House of Lords resulting in judgment [1997] UKHL 8.