SAW (SW) 2010 Ltd v Wilson

The Court of Appeal considered whether a debenture granted by Property Edge Lettings Limited (PELL) to Derbyshire Building Society (later Nationwide) on 9 May 2008 created a qualifying floating charge within paragraph 14 of Schedule B1 to the Insolvency Act 1986 and, if so, whether that floating charge was enforceable at the date of the administrators' appointment on 27 January 2012. The court held that the Debenture was a qualifying floating charge and that it was enforceable for the purposes of paragraph 16. Key legal principles applied were the orthodox test for a floating charge (Re Yorkshire Woolcombers and Spectrum Plus) assessed at the time of creation (section 251), and the distinction between validity/qualification of a floating charge and questions of priority or practical enforceability arising from prior crystallisation of earlier security. The court also rejected an alternative plea of common mistake because the grantor had warranted title and power to grant the security.

This appeal arose from an order of HHJ Hodge QC striking out the appellants' claim that the appointment of joint administrators of PELL on 27 January 2012 was invalid. The appellants, two creditors and a shareholder of PELL, alleged that the Debenture of 9 May 2008 was not a qualifying floating charge because an earlier floating charge given to Capital Home Loans Limited (CHL) had crystallised (by operation of an automatic crystallisation clause) and so left no uncharged assets or power in the company to grant a floating charge; alternatively they argued the Debenture was not enforceable at the appointment date and was void for common mistake.

Background and procedural posture:

• PELL had earlier granted CHL floating security (18 December 2007) containing an automatic crystallisation clause (clause 9.11).
• DBS/Salt Commercial advanced a facility and took a fixed charge over development property and a debenture (purporting to create a floating charge) on 9 May 2008; Nationwide succeeded to DBS’s rights.
• Nationwide obtained CHL’s consent under paragraph 15 and appointed administrators on 27 January 2012. The appellants brought proceedings challenging the validity of that appointment; the judge struck out their claim and they appealed.

Issues framed:

1. Whether the Debenture created a qualifying floating charge under paragraph 14 of Schedule B1 to the Insolvency Act 1986 (assessed at the time of creation, per section 251).
2. Whether, for the purposes of paragraph 16, the floating charge relied upon to appoint administrators was enforceable at the date of appointment.

Court’s reasoning:

• The court applied the established authorities on floating charges (Re Yorkshire Woolcombers, Spectrum Plus): the characterisation of a charge is determined by the terms of the instrument as created. The absence at the time of creation of uncharged assets does not prevent an instrument from being a floating charge (Re Croftbell relied on as directly contrary to the appellants’ central submission).
• Any contemporaneous crystallisation of a prior floating charge affects priority and practical enforceability but does not, by itself, invalidate the later instrument as a floating charge for paragraph 14 purposes. Paragraph 15 contemplates appointments in the presence of prior floating charges (notice or consent), and paragraph 16’s requirement that the charge be "enforceable" is concerned with the chargee’s right to enforce (a present contractual right), not whether immediately available free assets exist for practical realisation.
• The plea of common mistake failed where the company had warranted its title and power to grant the security.
• Lady Justice Arden reached the same outcome but on a different analysis of the automatic crystallisation clause (interpreting clause 9.11 as applying to actual encumbrance and as causing crystallisation "forthwith" rather than simultaneously), and she also regarded the Debenture as a qualifying and enforceable floating charge.

Relief sought: A declaration that the appointment of the administrators was invalid; the Court of Appeal dismissed the appeal and upheld the strike-out.

Appeal dismissed. The Court of Appeal held that the Debenture was a qualifying floating charge under paragraph 14 of Schedule B1 when created (assessment is by reference to the instrument at creation under section 251) and that it was "enforceable" for the purposes of paragraph 16 because the chargee had a present right to enforce; contemporaneous or prior crystallisation of earlier security affects priority and practical realisation but does not invalidate the later floating charge. The alternative contention of common mistake failed because of PELL’s warranty of title and power.

Appeal from the Order of HHJ Hodge QC sitting as a judge of the High Court, Manchester District Registry (claims numbered 2129 of 2012 and 3180 of 2013). Judgment of the Court of Appeal at [2017] EWCA Civ 1001 dismissed the appeal.