Crumpler & Anor v Candey Ltd

Money paid into court is subject to the purpose for which it was paid and to the court’s control. The payer retains an interest in its proper administration and, subject to any competing security interest, may obtain payment out. That interest may be charged, even though the payer has no full proprietary interest in the fund while it remains in court.

A charge is fixed only where the chargor cannot freely deal with the charged asset and withdraw it from the security. The court examines the rights created by the charging document, not the label used. A floating charge created while a company is insolvent may be restricted by Insolvency Act 1986, section 245, to the value of services supplied at or after its creation.

The joint liquidators of Peak Hotels and Resorts Limited, a BVI company recognised in England as being subject to foreign main insolvency proceedings, applied to determine the efficacy of a charge granted by Peak to its former solicitors, Candey Ltd.

Candey claimed security for a fixed fee over two categories of assets: funds formerly held on trust for Peak and funds paid into court in English proceedings and later released to the liquidators. The liquidators accepted that the first category was charged, but disputed whether either charge was fixed and argued that section 245 of the Insolvency Act 1986 limited the security.

The central issues were whether the court funds fell within the charging deed, whether the charges were fixed or floating, and whether the statutory restrictions applied.

1. Court funds. The Court Monies fell within the Charging Deed. Peak had an interest in the proper administration of the funds from the time of payment in. Its entitlement was not created by the liquidators’ work. The liquidators’ compromise of the London Litigation therefore realised an existing company interest rather than creating a new liquidation asset outside the charge.
2. The court distinguished between the parties’ rights to seek payment out and the technical proprietary status of money held by the court. The court or its agent is not a trustee in the full sense. The relevant parties may insist that the fund is administered for the purpose for which it was paid in and in accordance with the court’s orders. A charge over the payer’s recognised interest can be taken into account when payment out is considered.
3. Fixed or floating charges. The court must construe the charging document and identify the rights and obligations created. A fixed charge requires control sufficient to prevent the chargor freely dealing with the asset and withdrawing it from the security. The labels used by the parties are not decisive.
4. The charge over the SCB Monies was floating because the Charging Deed did not restrict Peak’s dealings with those monies. The charge over the Court Monies was also floating. Peak could agree how the fund was to be distributed, including by settlement, and could remove any balance from the scope of the charge. Any restriction on the use of proceeds after payment out did not provide sufficient control over the collection and distribution process.
5. Section 245. By Article 23 of Schedule 1 to the Cross-Border Insolvency Regulations 2006, section 245 potentially applied. The charge was floating, it was created within 12 months of the onset of insolvency, and Peak was insolvent when the charge was created. The insolvency test was objective and included both cash-flow and net-asset insolvency. The remaining issue was the value of services supplied by Candey at or after creation of the charge. That issue required further evidence and argument.
6. The court declined to determine the position of other putative assets because their factual and legal character was insufficiently clear.