Brackley Ltd's debenture describes a charge over its present and future book debts as a 'fixed charge'. However, Brackley Ltd is free to collect the debts, pay the proceeds into its ordinary bank account and use them in its business without the lender's consent. How will a court classify the charge?

Correct answer: B) As a floating charge, because the company's freedom to deal with the charged assets and their proceeds in the ordinary course of business is inconsistent with a fixed charge

Explanation

The label the parties use is not decisive; the court looks at the substance of the rights created. Re Yorkshire Woolcombers Association describes a floating charge as one over a changing class of present and future assets that the company may deal with in the ordinary course of business until the charge crystallises. In Re Spectrum Plus the House of Lords held that a charge over book debts was floating where the company could use the proceeds freely, because the lender lacked the control needed for a fixed charge. Charges over future assets are valid.