Gray & Ors v GTP Group Ltd, Re F2g Realisations Ltd

A contractual right allowing a creditor to appropriate money only upon specified default events may constitute a charge, even where the surrounding arrangement is expressed as a trust. The court must first identify the parties’ intended rights and obligations, then categorise them as a matter of law. A charge is floating where, before crystallisation, the chargor can use or withdraw the assets in the ordinary course of business without the chargee’s consent. The financial collateral exemption requires more than administrative control: the collateral taker must have legal, or negative, control sufficient to prevent the collateral provider dealing with the assets. An unregistered floating charge is therefore void against the liquidator under Companies Act 1985, section 395.

F2G operated a retail flooring business and used G-T-P’s store-card services. Customer payments were paid into a bank account held in G-T-P’s name, subject to a declaration of trust in favour of F2G. Clause 3 permitted G-T-P, upon specified default events including insolvency, to withdraw sums due under the services agreement.

The declaration was not registered under section 395 of the Companies Act 1985. After F2G entered administration and later liquidation, the liquidators sought a declaration that clause 3 created an unregistered floating charge and recovery of the account balance. G-T-P relied on the financial collateral exemption and claimed a contractual termination fee.

1. Nature of the arrangement. Clause 2 created a trust and required G-T-P to transfer the account balance to F2G without set-off or deduction. Clause 3 created security for sums which might become due under the services agreement. The arrangement was therefore a charge over F2G’s property, notwithstanding its form as a declaration of trust.
2. Floating charge. Applying the two-stage approach in Agnew v Commissioner of Inland Revenue [2001] 2 AC 710, the court first identified the parties’ rights and obligations and then categorised them. Before a clause 3 event occurred, F2G could require the whole account balance to be transferred to it. G-T-P had only an administrative role and no legal right to prevent that use. The charge was therefore floating, applying the principles stated in Smith v Cosslett (Contractors) Ltd and In re Spectrum Plus Ltd.
3. The account was not a blocked account. The fact that G-T-P had to make the transfer did not give it the relevant control. The alternative argument that the charge was a charge on book debts failed because the money was no longer book debt when the charge was granted.
4. Financial collateral exemption. The account was not in G-T-P’s possession or control for the purposes of the Directive and the Financial Collateral Arrangements (No 2) Regulations 2003. The relevant control was legal or negative control: the collateral taker had to be able to prevent F2G from dealing with the money. G-T-P could not use or prevent F2G’s use of the account before crystallisation. Regulation 4(4) therefore did not exempt the charge from registration.
5. Termination fee. The September 2008 emails formed a binding agreement under which the administrators were to pay £15,000 plus VAT for post-appointment work, while G-T-P was to remit the balance. The administrators’ failure to remit immediately did not terminate the agreement or extinguish the payment obligation.
6. The declaration of trust was declared void against the liquidators as an unregistered floating charge. G-T-P was ordered to pay the account balance of £89,218, less £17,625, together with accrued interest.