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

The court declared that the Declaration of Trust dated 22 June 2006 created a floating charge over the monies held in the bank account and, because it was not registered under section 395 of the Companies Act 1985, it is void against the liquidators. The Declaration of Trust operated as a conduit for day-to-day receipts, with clause 2 establishing a trust in favour of F2G and clause 3 providing for a charge only upon the occurrence of specified events; under established authorities (in particular Agnew and Spectrum) those features mark the charge as floating rather than fixed. The Financial Collateral Arrangements Regulations 2003 did not apply because the arrangement did not involve the dispossession or the kind of legal control of the charged assets required by the Directive and Regulations. Finally, the court held that the administrators’ contemporaneous emails constituted a binding agreement to pay a termination fee to G-T-P which survived the application concerning the account balance.

Background and nature of the application:

• This was an application by the liquidators of F2G (formerly Floors-2-Go Plc) for a declaration that a Declaration of Trust dated 22 June 2006 between F2G and G-T-P was void against the liquidators as an unregistered floating charge and for an order that the balance then standing to the credit of a G-T-P bank account (net of sums already paid) be paid to the administrators/liquidators.

Facts: Monies paid by F2G’s customers under a trade-debit-card scheme were collected into an account in the name of G-T-P. Clause 2 of the Declaration of Trust recorded that G-T-P held balances on trust for F2G and would transfer them to F2G on request except in the circumstances set out in clause 3. Clause 3 gave G-T-P a right to withdraw sums properly due to it if specified events (including insolvency events) occurred. The Declaration of Trust was not registered under section 395 of the Companies Act 1985. F2G entered administration on 21 July 2008 and the company later went into liquidation.

Issues framed:

1. The proper characterisation of the parties’ rights and obligations in respect of the account (i.e. nature of the arrangement);
2. The legal categorisation as a matter of law — fixed charge or floating charge;
3. Whether the arrangement qualified as a security financial collateral arrangement under the Financial Collateral Arrangements (No 2) Regulations 2003 and so was exempt from registration under section 395;
4. Whether the administrators’ emails in September 2008 created a binding obligation to pay a termination fee to G-T-P.

Court’s reasoning:

• On the first issue the court concluded that clause 2 created a trust and the account functioned as a conduit for collections to be passed to F2G; clause 3 only gave G-T-P a charge when specified events occurred and otherwise G-T-P had no right to apply the funds for its own account.
• On the second issue, applying the two-stage approach from Agnew and the analysis in Spectrum and Cosslett, the court held that the arrangement was a floating charge because F2G retained the ordinary power to draw on the account until crystallisation under clause 3.
• On the third issue the court held that the Financial Collateral Regulations did not apply. The Directive and Regulations require some form of dispossession or legal control by the collateral taker (negative control preventing the collateral provider dealing with the asset). Here G-T-P had only administrative control and did not have the legal ability to prevent the company from dealing with the funds prior to clause 3 crystallising; accordingly the arrangement did not amount to a security financial collateral arrangement.
• On the fourth issue the court found that the administrators’ exchanges of emails amounted to an agreement to pay £15,000 plus VAT (and associated arrangements) and that there was no contractual basis for treating that obligation as discharged because the balance had not been paid immediately.

Conclusion and order: The court declared the Declaration of Trust void against the administrators as an unregistered floating charge and ordered G-T-P to pay the balance then standing to the credit of the account less the agreed termination fee, with interest accrued since the administration.

The court made a declaration that the Declaration of Trust was void against the liquidators as an unregistered floating charge under section 395 of the Companies Act 1985 and ordered G-T-P to pay the balance standing to the credit of the relevant bank account less the agreed termination fee. The court categorised the instrument as a floating charge (not a fixed charge), rejected the contention that the Financial Collateral Arrangements Regulations 2003 applied, and held that the administrators’ September 2008 emails created a binding obligation to pay the agreed fee.