England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		7 May 2010

MR JUSTICE VOS:

Introduction

1. This is an application dated 22 April 2009 for (1) a declaration that a Declaration of Trust dated 22 June 2006 between Floors-2-Go Plc (now F2G Realisations Limited and hereinafter "F2G" or the "company") and G-T-P Group Limited ("G-T-P") is void against the liquidators as a unregistered floating charge on F2G's property; and (2) an order for payment of the monies in the bank account in the name of G-T-P which amounted to £113,397 on 8 August 2008 to the administrators (now the liquidators) of F2G. The sum of £12,839.23 was paid over by G-T-P to the administrators on 5 September 2008. The sum of £11,340 has also now been paid over to the administrators. This application, therefore, concerns only the sum of £89,218 plus accrued interest.

Background

2. F2G was a retailer of laminated floors. G-T-P supplies store debit card services. Sums paid by F2G's customers using these debit cards would be paid into an account originally at HSBC and later at RBS (the "account"). By a Declaration of Trust dated 22 June 2006 and made between G-T-P as trustee and F2G as the beneficiary, the way in which the monies in the account were to be dealt with was provided for. Since the terms of the Declaration of Trust are of central importance to the issues that have arisen in this case, I shall set them out extensively.
3. The Declaration of Trust provided as follows:

"Whereas:

1. The Trustee [G-T-P] entered into certain agreements with the Beneficiary [F2G] for the supply of (inter alia) transaction processing services ("the Agreements");

2. Arising from the Agreements, certain monies will be deposited into the following bank account to be managed by the Trustee on behalf of the Beneficiary … ("the Bank Account").

Now This Deed Witnesses as follows:

"1. The Trustee declares that it holds the balances from time-to-time in the Bank Account on trust for the Beneficiary.

2. The Trustee declares and agrees that, except in the circumstances referred to in clause 3, it will at the request and cost of the Beneficiary transfer the said balances without any withholding, deduction or set-off to the Beneficiary or to such person or persons at such time or times and in such manner or otherwise deal with the same as the Beneficiary shall direct or appoint.

3. The Beneficiary agrees that the Trustee may withdraw from the bank account such sums as are then properly due to the Trustee from the Beneficiary, having deducted any sums properly due from the Trustee to the Beneficiary under the Agreements (provided that the Trustee must at the time of withdrawal provide a clear and detailed statement of the calculations of the amount withdrawn) if:

3.1 the Beneficiary commits any material breach of the terms of the Agreements;

3.2 any money payable by the Beneficiary to the Trustee under the Agreements is more than 14 days overdue in accordance with the terms of the Agreements;

3.3 the Beneficiary becomes insolvent or the Trustee reasonably apprehends that the Beneficiary may become insolvent;

3.4 an encumbrancer takes possession or a receiver is appointed over any of the property or assets of that the (sic) Beneficiary;

3.5 the Beneficiary makes a voluntary arrangement with its creditors or becomes subject to an administration order;

3.6 the Beneficiary goes into liquidation; or

3.7 the Beneficiary ceases, or threatens to cease, to carry on business".

The Declaration of Trust was not registered with the Registrar of Companies pursuant to section 395 of the Companies Act 1985.

4. On 29 September 2006, F2G and G-T-P entered into what is entitled "G-T-P Group Limited Service Agreement" (the "service agreement"). The terms of the service agreement are not material for the purposes of the dispute that has come before me today, but it provided in detail for the fees and charges that G-T-P would charge for its trade card provision to F2G's customers, and in schedule 1 it provided a list of the services that it would be rendering including account administration services which were to include:

"Payment processing and settlement

Collection of debts by direct debit

Crediting accounts with collected payment

Forwarding money to client".

5. On 21 July 2008, F2G went into administration. On 24 July 2008, the administrators told G-T-P that they had decided not to continue the services agreement and sought repayment of the balance due to F2G. On 4 August 2008, the administrators cancelled the trade card scheme and said they would not retain G-T-P as debt collectors. On 8 August 2008, the amount standing to the credit of the account in the name of G-T-P amounted to £113,397. On 15 August 2008, the administrators sold the business and assets of F2G to Floor My Home Limited.
6. By emails passing between the administrators and G-T-P between 1 and 3 September 2008 it appears (although I shall deal with these emails in more detail in due course) that it was agreed that a sum of £15,000 plus VAT should be paid by the administrators to G-T-P in respect of a termination fee relating to the services agreement on the basis that the balance of the account was to be paid over to the administrators.
7. G-T-P now seeks to set off against the sums in the account the following. First, the sum of £29,904 including VAT for operating fees for the three weeks up to the administration. This is reflected in an invoice of 5 August 2008 numbered 31086. Secondly, the sum of £42,300 including VAT in respect of the three months net loss of revenue arising from cancellation of the trade card scheme without notice at the rate of £12,000 per month. This is reflected in another invoice of 5 August 2008 numbered 31112. Thirdly, the sum of £17,625 reflecting the supposed termination fee plus VAT relating to work done after the administration commenced. This is reflected in an invoice dated 31 August 2008 numbered 31131.
8. On 21 July 2009, the administration became a liquidation under paragraph 81 of Schedule B1 of the Insolvency Act 1986. I shall, therefore, refer to the applicants as the liquidators. The evidence before me is not particularly detailed since the points that have arisen are primarily points of law. I should perhaps, however, refer briefly to the first statement of Mr John Rothwell Verrill of the applicant's solicitors, Dundas & Wilson LLP, where he says the following:

"13. In summary, the Service Agreement provided a mechanism for the provision of store cards to customers of the Company to facilitate the purchase of goods at the Company's outlets.

14. Pursuant to the Service Agreement, the Respondent agreed to administer the transaction processing scheme for the store cards including the collection of debts owed to the company by its customers in return for certain fees and charges set out in Clause 5 of the Service Agreement. …

20. In short, Clause 3 [of the Declaration of Trust] provides that on the occurrence of one of the events of default provided for, the Respondent is entitled to payment of any sums owing to it out of the Bank Account. First, when there is non-payment by the Company or the Company's circumstances threaten lack of payment, Clause 3 purports to allow the Respondent to have recourse to the Company's property.

21. The Administrators will contend that properly characterised the right reportedly granted to the Respondent over the Bank Account by Clause 3 is a security right amounting to a floating charge over the Bank Account.

22. In brief:

a. pursuant to Clause 1 any credit balance in the Bank Account was the property of the Company;

b. the right granted by Clause 3 is a charge over that property and that the effect of Clause 3 is that the balance standing to the credit of the account as appropriated to the satisfaction of the Company's obligation to make ends to the Respondent;

c. that charge is floating because until Clause 3 is triggered the Company is free to use the credit balance in the account as it sees fit, and so withdraw it from the scope of the security".

9. Mr David Lawrence Gillibrand, a partner in Oglethorpe Sturton & Gillibrand, G-T-P's solicitors, made a statement in answer on 24 July 2009. He said the following:

"5.1 The Respondent has, since it was incorporated in 2003, provided services for the management of sales ledgers on behalf of about twenty trading distribution companies (including, for example, the DSGi group, the Pilkington Group, part of the Wolseley Group). The model it operates is the same for all those companies; it has been thoroughly vetted by a number of solicitors on their behalf and has never previously been queried. In particular, it has never been suggested that the arrangements (described below) create a registerable security.

5.2 The Respondent's services include the provision and operation of a trade debit card to the customers of a client such as F2G. The Respondent collects the payments from the client's customer and such payments are remitted to a bank account (in the case of F2G initially HSBC Plc, subsequently Royal Bank of Scotland Plc) dedicated to that client. I shall refer to such account as "the escrow account". The escrow account is mandated to the Respondent so that it is able to administer it (including, for instance, refunds) on behalf of the client. The account is treated as a "client account" and as such the Declaration of Trust (referred to by Mr Verrill) ensures that the client is beneficially entitled to monies held in the account except in the circumstances set out in the Service Agreement and the Declaration of Trust. The legal ownership and control of the escrow account remains with the Respondent. This arrangement is, as I am told, entirely for the benefit of the client in each case, so that the burden of administering their sales ledger is borne by the Respondent rather than the client. The purpose of the escrow account is not to create security (as suggested by Mr Verrill). …

5.5 Following Mr Fieldhouse's email, it will be seen from DLG1 that there were negotiations about a fee for the Respondent's ongoing works for the Claimant. The terms were finally agreed in the exchange of emails on 2 and 3 September 2008 … and provided for the Respondent to render and be paid £15,000 plus VAT for their activities on behalf of the Administrators …".

The Companies Act 1985

10. Section 395 of the Companies Act 1985 which remains applicable to this case (but has now been replaced by section 860 and following of the Companies Act 2006) provides as follows:

"(1) Subject to the provisions of this Chapter, a charge created by a company registered in England and Wales and being a charge to which this section applies is, so far as any security on the Company's property or undertaking is conferred by the charge, void against the liquidator and any creditor of the company unless the prescribed particulars of the charge together with the instrument (if any) by which the charge is created or evidenced, are delivered to or received by the registrar of companies for registration in the manner required by this Chapter within 21 days after the date of the charge's creation.

(2) Subsection (1) is without prejudice to any contract or obligation for repayment of the money secured by the charge; and when a charge becomes void under this section, the money secured by it immediately becomes payable"

11. Section 396 of the Companies Act 1985 (now section 874 of the Companies Act 2006) provides in part as follows:

"(1) Section 395 applies to the following charges …

(e) a charge on book debts of the company;

(f) a floating charge on the company's undertaking or property …"

The Issues

12. There are the following issues that have arisen in the course of argument between the parties. First, what is the nature of the rights and obligations that the parties intended to grant each other in respect of the account? This first issue appears from the speech of Lord Millett in the well known Privy Council decision of Agnew & Ors v Commissioner of Inland Revenue [2001] 2 AC 710 at paragraph 32 where he said the following:

"Their Lordships consider this approach to be fundamentally mistaken. The question is not merely one of construction. In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two stage process. At the first stage, it must construe the instrument of the charge and seek to gather the intentions of the parties from the language they have used. The object at this stage of the process is not to discover whether the parties intended to create a fixed or floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets.

Once these have been ascertained, the court can then embark on the second stage of the process which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention properly gathered from the language of the instrument is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however the may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or a tendency. The court must construe the ground to ascertain the intention of the parties but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford [1985] AC 809, 826 per Lord Templeman.

So here in construing a debenture to see whether it creates a fixed or floating charge the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge, or to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder".

I shall return to the matters explained by Lord Millett in due course.

13. The second issue is: what is the correct legal categorisation as a matter of law to describe the rights and obligations identified under issue 1? In this case, the choice is between a fixed charge and a floating charge. The suggestion made by G-T-P that it was a lien with a right of set-off has now been dropped.
14. The third issue between the parties is whether the arrangement in the Declaration of Trust constituted a security financial collateral arrangement under the Financial Collateral Arrangements (No 2) Regulations 2003 so as to be exempt from the registration requirements under section 395.
15. The fourth issue is whether there was an agreement binding on the liquidators in September 2008 whereby the administrators agreed to pay £17,525 in respect of a termination fee.

Issue 1: what is the nature of the rights and obligations that the parties intended to grant each other in respect of the account?

16. The account is simply a trust account held for F2G in the name of G-T-P at the Royal Bank of Scotland. It was agreed expressly in clause 2 of the Declaration of Trust that F2G should be entitled to call for the monies in the account and that G-T-P should have no right to set-off or withhold the monies in any circumstances save those described in clause 3.
17. In effect, the account was a conduit through which the monies recovered from sales of flooring, through the cards provided by G-T-P, passed on a day-to-day basis to F2G. Ms Linden Ife, counsel for G-T-P, has suggested that the whole essence of the account was that G-T-P was to have control of it to secure the sums due to them. I do not think, however, that that was the substance of the normal day-to-day commercial relationship intended between the parties. In reality, as I have said, the account was simply a way in which G-T-P could, in accordance with its obligations under the services agreement, collect the monies that came from F2G's customers through the usage of trade cards and then pass the monies to the retail supplier.
18. The charge that is now admitted was only contained in clause 3 of the Declaration of Trust. Clause 2 simply created the trust and made clear in reality how little control G-T-P was to have over those monies. Moreover, it is not right for Ms Ife to submit, as she did in this context and in another, that the potential for crystallisation begs the question of the nature of the relationship. The fact that clause 3 only bites when there is one of the listed events of default defined in that clause, defines the relationship the parties were creating. When clause 3 is triggered, G-T-P becomes a creditor for sums due under the services agreement but not under the Declaration of Trust itself. In essence, clause 3 secures the sums that may in the future become due to G-T-P from F2G. As such, it is of course a charge on the assets of F2G, which is now accepted between the parties.
19. The answer then to the first question that Lord Millett suggests must be asked, namely the nature of the rights and obligations that the parties intended to grant to each other in respect of the account, is as I have indicated, namely that the account shall be used as the conduit through which monies recovered from the sale of flooring will pass from the customers to G-T-P and on to F2G together with a charge over those monies in the event that the events in clause 3 come to pass.

Issue 2: what is the correct legal characterisation as a matter of law to describe the rights and obligations identified under issue 1?

20. To answer this question, it is necessary to have regard to the extensive authority on this point which culminated in the seven judge House of Lords's decision in the case of In Re Spectrum Plus Limited (in liquidation) [2005] 2 AC 680 ('Spectrum'). First, however, I shall deal with the much earlier case of In Re Cosslett (Contractors) Limited in the Court of Appeal. In that case, there was an issue as to whether a particular clause in a contract between a contractor and its client constituted a fixed or floating charge. The clauses in question were put briefly as follows:

"Conditions:

"53(6) No plant (except hired plant) goods or materials or any part thereof shall be removed from the site without the written consent of the engineer which consent shall not be unreasonably withheld where the same and no longer immediately required for the purposes of the completion of the works. …

63(1) If the contractor shall become bankrupt … or (being a corporation) shall go into liquidation … or if the engineer shall certify in writing to the employer that in his opinion the contractor … has abandoned the contract … then the employer may after giving seven days' notice in writing to the contractor enter upon the site and the works and expel the contractor therefrom … and may himself complete the works or may employ any other contractor to complete the works and the employer or such other contractor may use for such completion so much of the constructional plant temporary works goods and materials which have been deemed to become the property of the employer under the contract".

21. In the Court of Appeal, Millett LJ (as he then was), with whom Evans LJ and Sir Ralph Gibson agreed, said this at page 509:

"The administrator submits that, until the council takes steps under clause 63(1) to enter upon the site and expel the company therefrom, the company is free to carry on its business in the ordinary way with the plant and materials on the site. The judge accepted the council's submission that this was not so because of the council's absolute right under clause 63(6) to refuse to permit the company to remove from the site plant and materials immediately required to complete the works, and its qualified right to refuse permission for the removal of plant and materials not immediately required for this purpose provided only that it acts reasonably. I am unable to agree with him".

22. Then at paragraph 510, Millett LJ said this:

"The essence of a floating charge is that it is a charge, not only any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge …

Where I part company from [the judge] is that I do not regard this restriction as having any relation to the council's security. The council's purpose in imposing the restriction was not to protect its security but to ensure that the company would give proper priority to the completion of the works. A similar restriction would have been appropriate even if the council had not taken any security interest. In this case, where the plant or materials are not immediately required, the engineer's consent is not to be unreasonably withheld. As Evans LJ pointed out in argument, the fact that the decision is left to the engineer shows that it is to be made on operational grounds …"

23. When the case came to the House of Lords on appeal from a different Court of Appeal in relation to a different point in Smith (Administrator of Cosslett (Contractors) Ltd v. Bridgend County Borough Council, Lord Hoffmann said the following at paragraph 16:

"The Court of Appeal (Evans, Millett LJJ and Sir Ralph Gibson) [1998 Ch 495] said that one had to distinguish between the two rights which condition 63 conferred upon the employer. The right to use the plant to finish the works could not be a charge. It was simply a contractual right which continued to be exercisable whether the company was in administration or not. On that ground, the Court dismissed the appeal. On the other hand, they agreed with the judge that the right to sell the plant and apply the proceeds to discharge any debt from the company to the council was a charge. But they did not agree that it was a fixed charge. Millett LJ, with whom the other two judges agreed, pointed out that power to refuse consent to the removal of the plant, which the judge had treated as vested in the employer, was actually conferred upon the engineer. This suggested that the discretion was to be exercised independently on operational grounds and not as a method of enforcing the employer's security for the payment of money. It therefore did not give the employer such control over the plant as to create a fixed charge in advance of crystallisation".

24. At paragraph 40 and 41 Lord Hoffmann said:

"40. … Mr Moss also challenged the original decision that condition 63 created a floating charge. He said that it was not a charge and that if it was, it was fixed and not floating.

41. On these points I can be brief because I agree with Millett LJ for the reasons which he gave. I do not see how a right to sell an asset belonging to a debtor and appropriate the proceeds to payment of the debt can be anything other than a charge. And because the property is subject to condition 63 … was a fluctuating body of assets which could be consumed or (subject to the approval of the engineer) removed from the site in the ordinary course of the contractor's business, it was a floating charge: see Agnew v Commissioners of Inland Revenue [2001] 3 WLR 454, 464".

25. In Spectrum itself, their Lordships considered again the nature of the floating charge and the difference between a floating charge and the fixed charge. I can confine my citation from this case to a very few paragraphs. Lord Scott said the following, with whom the remainder of their Lordships agreed, at paragraph 111:

"In my opinion the essential characteristic of a floating charge, the characteristic that distinguishes it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime the chargor is left free to use the charged asset and to remove it from the security".

26. At paragraph 117, Lord Scott said:

"The bank's debenture placed no restrictions on the use that Spectrum could make of the balance on the account available to be drawn by Spectrum. Slade J in the Siebe Gorman case … thought it might make a difference whether the accounts were in credit or in debit. I must respectfully disagree. The critical question in my opinion is whether the chargor can draw on the account. If the chargor's bank account were in debit and the chargor had no right to draw on it, the account would have become, and would remain until the drawing rights were restored, a blocked account. The situation would be as it was In re Keenan Bros Ltd [1986] BCL C242. But so long as the chargor can draw on the account, and whether the account is in credit or debit, the money paid in is not being appropriated to the repayment of the debt owing to the debenture holder but is being made available for drawings on the account by the chargor".

27. At paragraph 139 Lord Walker of Gestingthorpe said as follows:

"139. Under a floating charge, by contrast, the chargee does not have the same power to control the security for its own benefit. The chargee has a proprietary interest, but its interest is in a fund of circulating capital, and unless and until the chargee intervenes (on crystallisation of the charge) it is for the trader, and not the bank, to decide how to run its business. There is a detailed and helpful analysis of the matter, with full citation of authority, in Sarah Worthington's Proprietary Interests in Commercial Transactions (1996) at pages 74 to 77; see also her incisive comment on this case ('An Unsatisfactory Area of the Law - Fixed and Floating Charges Yet Again') in (2004) 1 International Corporate Rescue 175 …

140. … But if the terms of the debenture were such as to require the trader to pay all its collected debts into the bank and to prohibit the trader from drawing on the account (so that the account is blocked), a charge on debts, described as a fixed or specific charge, would indeed take effect as such …"

28. I should refer also, but without citing the passages at length, to Lord Hope's concurring judgment at paragraphs 55 to 56.
29. Finally, by way of authority, in Queen's Moat Houses Plc v. Capita IRG Trustees Limited, a case upon which Ms Ife placed particular reliance, Lightman J said after the Agnew decision but before the Spectrum decision, the following at page 207:

"There is a critical difference between the right of a corporate chargor to deal with and dispose of the property free from charge without reference to the chargee and the right of a corporate chargor to require the chargee to release the charged property from the charge. The right of a corporate chargor in the course of its business to deal with or dispose of charged property without reference to the chargee (save in exceptional circumstances) is inconsistent with the existence of a fixed charge: it is consistent only with the existence of a floating charge. But there is no inconsistency between the existence of a fixed charge and a contractual right on the part of the chargor to require the chargee to release property from the charge. This must a fortiori be the case where the right to require the release (as in the present case) ceases on the security becoming enforceable and the chargee determining or becoming bound to enforce it".

30. It should be noted, however, that the Queen's Moat Houses decision concerned the construction of a charge over a portfolio of properties, and the question was whether, as a matter of construction of the Deed of Charge, one of the properties to which no value was attached in the charge could be removed from the security without the value being paid to the chargee.
31. As Ms Ife said herself in her Skeleton Argument at paragraph 13, the essential element in determining the difference between a fixed and floating charge is the chargor's ability without the chargee's consent to control and manage the charged assets. That ability is present in this case. Ms Ife is wrong to say that G-T-P kept control of the account in the necessary sense.
32. It is true, of course, that no money could be moved out of the account without G-T-P taking an administrative step to transfer the money to F2G but until crystallisation had occurred under clause 3 of the Declaration of Trust, G-T-P had no right whatever to use the money for any purpose other than in accordance with clause 2 of the Declaration of Trust. Of course, there were provisions for it to, in certain circumstances, take money from the account as an administrative act when that money was due from F2G. That does not mean that F2G did not have the ability without the chargee's consent to control and manage the assets. G-T-P held the money on trust for F2G. G-T-P was obliged without set-off or deduction or withholding to transfer the money to F2G at any time it was asked to do so. In making such transfers G-T-P was acting purely in an administrative capacity.
33. In reality, the position as between G-T-P and F2G was indistinguishable from the position as between a chargor and a bank, where the bank has a floating charge over the bank account. In that case too, the money in the account is, in formal legal terms, a debt owed by the bank to the customer, namely the chargor. When the chargor presents a cheque for payment out of that account to a third party, the bank has, in theory, a decision to take as to whether to pay the cheque or not to pay the cheque. That is precisely the same as the position in which G-T-P found itself when F2G presented a request for payments to be made pursuant to clause 2 of the Declaration of Trust. Neither the bank in the example that I have given, nor G-T-P under the Declaration of Trust, had any legal right whatsoever to prevent the payment being made.
34. In these circumstances it would be a corruption of the words to suggest that the chargor did not have the ability without the chargee's consent to control and manage the charged assets. Also, the contractual relationship that I have described under issue 1 above is precisely the kind of relationship that their Lordships in Agnew, in Cosslett, and in Spectrum have described as constituting as a matter of law a floating charge. The key question, as Lord Scott put it in the passage that I have cited above, was that the asset, subject to the charge, is not finally appropriated as a security for the payment of the debt until the occurrence of some future event.
35. That is precisely the position under the Declaration of Trust. Until one of the events under clause 3 occurs then the monies in the bank account can be used freely by F2G. That is precisely how Lord Scott put it in paragraph 117 of the citation that I made earlier namely:

"The critical question in my opinion is whether the chargor can draw on the account."

36. In realistic terms in this case F2G could at any stage require G-T-P to transfer monies from the account; that is, drawing on the account within the terms that Lord Scott was speaking about in Spectrum.
37. Likewise, the argument that Ms Ife advanced based upon the case of Cosslett to which I have referred in some detail above does not change the position. There, as Lord Hoffmann made clear in the House of Lords, because the property, subject to the condition, was a fluctuating body of assets which could be consumed or removed from the site in the ordinary course of the contractor's business, it was a floating charge. Again, that is precisely the same in respect of the monies in the account in this case. Those monies could be removed and consumed by F2G in the ordinary course of its business and the fact that F2G had to ask G-T-P rather than having to ask a banker for those monies to be handed over does not affect the reality of the commercial position that I have described.
38. Likewise, Queen's Moat Houses does not assist Ms Ife's argument because in that case what was being considered was a proper fixed charge over particular properties and the question of whether, on a proper construction of the terms of the charge, it was possible for the chargor to replace one property with another, with or without paying its value to the chargee. What Lightman J was saying did not have a bearing on the situation in this case. Indeed, even if it did, the very clear dicta of their Lordships in Spectrum came after that case and must take precedence over it.
39. Finally, Ms Ife suggests that the account in this case is in the nature of a blocked account and therefore it is not right, she says, that F2G had free access to it in the ordinary course of business without G-T-P's consent. The concept of a blocked account as described in the passages that I have cited from Spectrum make it clear that this account was far from it. Until, as I have said, there was an event of default within clause 3 of the Declaration of Trust there was nothing blocked about this account at all; G-T-P had no right to prevent F2G exhausting and emptying the account by requiring payment to it of the entirety of it. In those circumstances and for the reasons that I have tried shortly to express, I have reached the clear view that clause 3 constituted a floating charge over the account within the terms of the authorities that I have mentioned.
40. Mr Goldring sought in his skeleton argument to argue that, if he was wrong about the charge being a floating charge, then it was a charge over book debts because the monies in the account were, he said, the proceeds of book debts. In argument he did not pursue this contention, at least not particularly vigorously, but had he done so I would have been against him. This is a charge over monies that may previously have been book debts but were not book debts when the charge was granted. In any event, the charge is, as I have said, a floating charge, so he did not need the second string to his bow.

Issue 3: Did the arrangements in the Declaration of Trust constitute a security financial collateral arrangement under the 2003 Regulations so as to be exempt from the registration requirements under section 395?

41. I turn now to the third, and possibly the most difficult, issue before the court.
42. Ms Ife contends that the charge is caught by the Directive on Financial Collateral Arrangements 2002/47/EC (the "Directive") which was given effect in the Financial Collateral Arrangements (No 2) Regulations 2003 (the "Regulations"). For that reason, Ms Ife says that the charge is exempt from the registration requirements under section 395, because of the provisions of Regulation 4(4) to that effect. Mr Goldring submits that this is not so because he says, in essence, the account is not, under the Declaration of Trust, "in possession or under the control" of G-T-P for the purposes of Article 2.2 of the Directive or paragraphs 3(c) and (d) of the Regulations.
43. I should start by setting out some of the more important parts of the Directive as follows:

(1) Recital 10 provided: "...This Directive must however provide a balance between market efficiency and the safety of the parties to the arrangement and third parties, thereby avoiding inter alia the risk of fraud. This balance should be achieved through the scope of this Directive covering only those financial collateral arrangements which provide for some form of dispossession, i.e. the provision of the financial collateral, and where the provision of the financial collateral can be evidenced in writing or in a durable medium, ensuring thereby the traceability of that collateral ..."

(2) Article 2 provided:

"1. For the purpose of this Directive:

(a) 'financial collateral arrangement' means a title transfer financial collateral arrangement or a security financial collateral arrangement whether or not these are covered by a master agreement or general terms and conditions ...

(c) 'security financial collateral arrangement' means an arrangement under which a collateral provider provides financial collateral by way of security in favour of, or to, a collateral taker, and where the full ownership of the financial collateral remains with the collateral provider when the security right is established".

(3) Article 2.2 provided:

"2. References in this Directive to financial collateral being 'provided', or to the 'provision' of financial collateral, are to the financial collateral being delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral taker or of a person acting on the collateral taker's behalf. Any right of substitution or to withdraw excess financial collateral in favour of the collateral provider shall not prejudice the financial collateral having been provided to the collateral taker as mentioned in this Directive".

44. The 2003 Regulations reflected in terms of the Directive but it is accepted by both parties that in fact the Regulations went further than the Directive itself. For present purposes, however, that may not be of any particular significance. Paragraph 3 contained the definitions used in the Regulations. The important definitions are as follows:

"'security financial collateral arrangement' means an agreement or arrangement, evidenced in writing, where:

(a) the purpose of the agreement or arrangement is to secure the relevant financial obligations owed to the collateral-taker;

(b) the collateral-provider creates or there arises a security interest in financial collateral to secure those obligations;

(c) the financial collateral is delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral-taker or a person acting on its behalf; any right of the collateral-provider to substitute equivalent financial collateral or withdraw excess financial collateral shall not prevent the financial collateral being in the possession or under the control of the collateral-taker; and

(d) the collateral-provider and the collateral-taker are both non-natural persons;

'security interest' means any legal or equitable interest or any right in security, other than a title transfer financial collateral arrangement, created or otherwise arising by way of security including:

(a) a pledge;

(b) a mortgage;

(c) a fixed charge;

(d) a charge created as a floating charge where the financial collateral charged is delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral-taker or a person acting on its behalf; any right of the collateral provider to substitute equivalent financial collateral or withdraw excess financial collateral shall not prevent the financial collateral being in the possession or under the control of the collateral-taker; or

(e) a lien".

45. Paragraph 4 of the Regulations provided that certain legislation requiring formalities should not apply to financial collateral arrangements as defined by the Directive and the Regulations. For our purposes the important provision is in paragraph 4(4) which provides:

"Section 395 of the Companies Act 1985 (certain charges void if not registered) shall not apply (if it would otherwise do so) in relation to a security financial collateral arrangement or any charge created or otherwise arising under a security financial collateral arrangement".

46. Paragraph 10 of the Regulations provides that certain insolvency legislation on avoidance of contracts and floating charges also should not apply to financial collateral arrangements including section 127 of the Insolvency Act 1986, section 176A of the Insolvency Act 1986 and section 196 of the Companies Act 1985.
47. There has been a remarkable sparsity of authority on the meaning and effect of the Directive and the Regulations considering that they came into force now some seven years ago. It appears that this is the first case in which it has been argued that a floating charge is caught by the terms of the Regulations so as to avoid the need for it to have been registered under section 395 of the Companies Act 1985.
48. The Regulations have, however, been the subject of a lengthy chapter in an academic work by Professor Beale, Bridge, Gullifer and Lomnicka on the Law of Personal Property Security 2007: chapter 10. It is impossible for me to set out the entirety of that chapter in this judgment but there are certain passages in it which gave an insight into the intended meaning of both the Directive and the Regulations and it is therefore important that I cite briefly from it:

"10.02 Special treatment in insolvency. The FCD [the Directive] is just the latest in a series of legislative measures that gives special treatment to charges granted as part of operations in financial markets. These include the Companies Act 1989, Part VII, the Financial Markets and Insolvency Regulations 1996; and the Financial Markets and Insolvency (Settlement Finality) Regulations 1999. The earlier measures give charges that fall within their terms special treatment in the insolvency of the chargor. They are not relevant to perfection of the charge. The FCAR [the Regulations], equally, primarily affects the position of financial collateral arrangements in insolvency; they also ensure the validity of rights of use and appropriation agreed in the arrangement. However, they also exempt, or purport to exempt, certain types of charge (or 'security financial collateral arrangements') from registration under the Companies Act 1985. To qualify as a 'security financial collateral arrangement' the financial collateral must be 'in the possession or under the control of the collateral taker'. Thus, it may appear that possession or control is an alternative to registration as a method of perfecting the security over financial collateral.

10.24 Possession or control. 'Possession or control' is not defined in the FCD or the FCAR. In the case of indirectly held investments (book entry securities collateral) the 'requirements for perfecting a financial collateral arrangement' are to be governed by 'the law of the country in which the relevant account is maintained' - in other words by national law and there is no provision for the case of directly held investment property, presumably because it was assumed that the traditional lex situs rule was adequate.

10.25 Autonomous meaning of 'control'. The provision that the requirements are to be governed by national law does not mean that it is simply up to national law or the lex situs to define 'possession or control' - though since in English law possession has no meaning in relation to intangible property, it may be the meaning of control that is critical, it would be wise to bear in mind the full phrase 'possession or control' and we have to assume that the phrase has an autonomous meaning in European law - in other words must depend on the interpretation of the Directive and the general principles accepted in Community law; and that national law must comply with that meaning. We believe that the terms of the Directive itself show what is meant.

First Recital 10 states ... 'Dispossession' seems to suggest that, for the collateral to be in the possession or control of the 'collateral provider', at least the latter must be prevented (whether legally or practically) from dealing with the collateral. This is what is sometimes called 'negative' control".

49. Professor Beale goes on to explain negative control in somewhat mercurial terms. It seems clear, however, that what he describes as negative control means that the collateral taker can prevent the collateral provider from dealing with the charged assets. He continues at paragraph 10.29 as follows:

"Positive and negative control. There are a number of situations in which negative and positive control simply cannot be separated. One is with the bearer of security and no one but the bearer can dispose of it. More important cases are: (1) when the securities are simply transferred into the name of the collateral taker. This case is at the heart of the definition of 'provided' in Article 2(2) 'being delivered, transferred, registered or otherwise designated so as to be in the possession or under the control of the collateral taker'. This necessarily gives the collateral taker positive control over the investments securities and at the same time prevents the collateral giver dealing with the securities".

50. In paragraph 10.33 there is the passage that Mr Goldring places the greatest reliance upon. Professor Beale said this:

"... We think the words 'possession or control' have to be interpreted in the light of Recital 10, which says that the Directive should apply only to arrangements that 'provide for some form of dispossession'. We consider that if the debtor retains the right to deal it is not 'dispossessed'. Therefore, a chargee who does not have negative control will not obtain the advantages of the FCAR. This, as we shall see, has implications for floating charges over the financial collateral".

51. Finally, in paragraphs 10.48 and 10.49 the learned authors say as follows:

"10.48 Thus, it seems that the FCAR will apply if a third party chargee under a floating charge has taken steps to crystallise the charge and has then notified the bank or other debtor of its assignment by way of (now) fixed charge; or has made some previous arrangement with the bank that on receipt of notification the bank will only pay money from the account on the directions of the chargee. When the chargee is the bank itself, it seems to suffice that the bank has blocked the account before the onset of insolvency.

10.49 Position before the charge is crystallised. As we saw when we considered floating charges over investment securities, it is possible that the chargor will benefit from the advantages of the FCAR and that it will be valid against the company's administrator or liquidator, if the chargee has obtained possession or control by the onset of insolvency even if the charge was not registered within 21 days of its creation as a floating charge; but this may not protect it against other secured creditors".

52. It has not been suggested in this case that the charge crystallised before the onset of insolvency. Thus, the question is whether the account here was in the possession or control of G-T-P within the meaning of the Directive. Ms Ife has argued that floating charges are expressly mentioned in the Regulations themselves so that it may be assumed from that that the Regulations are to have some application to them. Perhaps more importantly, she submits, it stands to reason that the account is in G-T-P's possession and control because nothing can happen to the money without its say so. She says that the possessor of the account is obviously the account holder G-T-P, and therefore the Regulations apply. She says that the issue that the court should look at in deciding whether G-T-P has possession or control of the account is simply in whose name the monies are held.
53. Conversely, Mr Goldring has argued, as Professor Beale says in the passages that I have cited, that what matters is dispossession of the collateral. He places substantial reliance on the second sentence of Article 2.2 of the Directive and says that from that second sentence it is possible to see what is meant by the term 'possession or control'. The second sentence, of course, makes it clear that any right of substitution of collateral or any right to withdraw excess financial collateral should not prejudice the fact that the financial collateral is covered by the Directive. He said it is to be implied from that that there needs to be something over which there can be a right of substitution and there must be something over which the charge can bite for the Regulations to apply. The second paragraph of Article 2.2 would be meaningless, he argues, if the collateral provider could simply remove the collateral from the collateral taker without his consent. Therefore, one can infer from that that possession or control must mean something more and must be directed at the legal rights under which that collateral is held.
54. In effect, as I put to Mr Goldring in the course of argument, he suggests that the Regulations are addressing what I termed 'real legal control' as opposed to simply administrative control. 'Real legal control' means that the collateral taker must be able to prevent the collateral provider from using or dissipating the assets in the ordinary course of business. Moreover, as Professor Beale says, since possession has no meaning in English law as regards intangible property, the real question here is whether the collateral taker, namely G-T-P, has control over the collateral, that is the monies over which the Declaration of Trust bites, to use the money itself.
55. Moreover, Mr Goldring argues that if Ms Ife's construction of 'possession or control' in the Directive in the Regulations was correct it would drive a coach and horses through section 395 of the Companies Act 1985 and its legislative successors which nobody has yet noticed. It would mean that floating charges would not need to be registered any longer and creditors of companies would not get notice from the Register that significant assets of trading companies which were subject to floating charges were so subject.
56. Conversely, of course, one might think that the mischief of the registration requirements is that the unsecured creditor can get to know that assets within the apparent control of the company are subject to a floating charge. It could be argued, and indeed it was argued by Ms Ife, that here where the assets are held in the name of another party there is no need for registration because a third party is unlikely to be misled into thinking that such assets are the property of the company, when they are in fact the subject of a Declaration of Trust.
57. As I say, I have not been assisted here by a plethora of authority on this point. It is a point which is obviously of some complexity and difficulty. It requires also an understanding of the legislative intent behind the Directive and the Regulations. First of all, in reaching my conclusion, I have had regard to the fact that the Directive is the dominant piece of legislation and the Directive is intended to take effect throughout the EU. It would therefore not be right to construe it according to English law principles or to understand it as being specifically and only applicable to any one national law.
58. It is for that reason that I am not persuaded simply because there is a reference to floating charges in the definitions to which I have referred in paragraph 3(d) of the Regulations that it was intended that the Directive should automatically apply to any floating charge as that term is understood in English law. It was, however, notable that Mr Goldring was unable to give me any example of a floating charge which would be covered by the Regulations if his submission was right. I do not discount the possibility that in the course of the brief argument in this case he was not able to think of any such example but such an example may exist of a floating charge as that term is understood in English law.
59. There is much to be said for the argument advanced by Professor Beale that really three factors point towards the requirement for control being a requirement that the collateral taker has the legal right to deal with the collateral.
60. The first is the provision of the second paragraph of Article 2.2 of the Directive which is reflected in the definition in the Regulations. It would be at least surprising if the commission had thought it necessary to include that paragraph if control simply meant administrative control over the collateral rather than the legal right to control the collateral. One might ask rhetorically why one would want to state specifically that a right to withdraw excess financial collateral would not prevent the Regulations applying if the Regulations applied anyway when one could withdraw the entirety of the collateral as a matter of legal right.
61. The second point that I find compelling is the tenth Recital in the Directive which makes clear that the Directive is only intended to cover those financial collateral arrangements which provide for some form of dispossession. Whilst one might have some difficulty with the term "dispossession" as a matter of English law, it is relatively clear from the usage in the Directive that it is talking about a situation in which the legal right to the charged asset is removed from the collateral provider. That is not the case here since, as I have already pointed out in my treatment of the question of whether there is a floating charge at all, G-T-P has no legal right to use the money in the account at all until one of the events in clause 3 takes place.
62. Thirdly, I accept Professor Beale's contention that "control" in the Directive is referring to negative control in the sense that the collateral taker can prevent the collateral provider from dealing with the charged assets. If the collateral taker cannot prevent the collateral provider from dealing with the charged assets, then he does not in any legal sense have control. He only has control in an administrative or practical sense which is insufficient for the application of the Regulations.
63. For the reasons then that I have sought shortly to express, this is a classic case in which the floating charge created by clause 3 of the Declaration of Trust cannot be regarded as falling within the definition of either a "security interest" or a "security financial collateral arrangement" as defined in the Regulations.

Issue 4: Whether there was an agreement binding on the liquidators in September 2008 whereby the administrators agreed to pay £17,525 in respect of the termination fee

64. This issue turns on a series of four emails exchanged between the administrators and G-T-P between 1 and 3 September 2008. In the very briefest of outline the emails were as follows.
65. On 1 September 2008 Daniel Timms of the administrators emailed Roger Fieldhouse of G-T-P referring to a telephone conversation and saying:

"As discussed, I confirm that a payment of £15,000 plus VAT will be made to you in respect of all post-appointment operational and closure tasks ... Please remit £102,060 (representing 90 per cent of funds currently held) to the following bank account by return ..."

66. An hour or so later Mr Timms emailed Mr Fieldhouse again referring to a further conversation and saying:

"I confirm that you may take your fees of £15,000 plus VAT prior to remitting the funds to the company on condition that you provide me with an invoice for VAT purposes".

67. On 2 September 2008 Mr Fieldhouse of G-T-P emailed the administrators saying:

"In general terms we confirm that we will arrange for you to receive the following on Thursday, 4 September the following (sic) ...

6. VAT invoice for £15,000 plus VAT in respect of total fees for all activity on behalf of the administrators. This invoice will be dated 31 August 2008 and apart from the ongoing actions referred to below relating to direct debit indemnity refunds and forwarding any further amounts received plus answering queries relating to the information now provided, we will not expect to carry out further work or reporting other than as specifically requested by and agreed with the administrators for a pre-agreed additional charge ...

8. Payment of balance owing on funds held per (5) above after deducting the above fee invoice in the amount of £11,340 refunds held against potential direct debit reimbursements. This payment will be made by same-day payment to your bank account as notified per your email 1 September 2008 below ...".

68. Finally, on 3 September 2008 Mr Timms of the administrators emailed Mr Fieldhouse of G-T-P saying:

"I confirm our acceptance to the proposals set out below".

(Quote unchecked)

which was the email proposal to which I have just referred.

69. Against this background, Mr Goldring argues that the agreement to pay the termination fee of £17,525 including VAT was conditional upon the immediate payment of the balance of the account.
70. However, the contract between the parties was fairly clear and included several terms which I have not mentioned in my brief resumé of the emails, but it was agreed at first that the administrators would pay a sum of £15,000 plus VAT in respect of fees for the activities that G-T-P had undertaken on behalf of the administrators (presumably after the administration had taken place) and that the balance of the funds would be remitted by same-day payment to their bank account as notified in the email of 1 September 2008.
71. It has not been argued by Mr Goldring (probably because it could not be said on the face of the emails) that the timing of the payment of the balance was of the essence of the contract. Nor has it been argued that at any stage the administrators sought to accept the breach by G-T-P of that contract in failing to make the payment in accordance with paragraph 8 of the 2 September 2008 email as a repudiation, bringing the contract to an end.
72. Therefore, it does not seem to me that there is a real argument for the proposition that the contract has come to an end. It is true, however, that the administrators have not yet performed the contract but I have just decided the only legal issue that remained between the parties so that, no doubt, they will now perform the contract by making the payment envisaged by paragraph 8 of 2 September 2008 email.
73. It does not seem to me that one can infer or imply in this agreement what is unstated, namely that if the money was not paid immediately the obligation to make the payment of the £15,000 plus VAT by way of termination fee would cease absolutely. That seems to me to have been an obligation that was agreed between the parties and could only have been brought to an end in one of the recognised ways in which contracts can be terminated, none of which Mr Goldring has been able to rely on. In those circumstances, I will resolve this fourth issue in favour of the respondent G-T-P.

Conclusion

74. For the reasons that I have given, therefore, the answer to the questions in the original application are that I will make a declaration that the Declaration of Trust entered into between the company and G-T-P concerning the account is void against the administrators as an unregistered floating charge on the company's undertaking of property.
75. I will order that G-T-P, the respondent, pay the sum standing to the credit of the bank account in the amount of £89,218 less £17,625. No doubt, counsel will be able to undertake the mathematical calculation necessary to determine the precise sum that needs to be paid. The sum will also be paid together with interest accrued thereon since the administration.