In the recent judgment of Gray and others v G-T-P Group Limited, the High Court considered whether a charge fell within the scope of the Financial Collateral (No.2) Regulations 2003 (“the Regulations”) and would not therefore be void against a liquidator, despite not being registered with the Registrar of Companies.
G-T-P provided store card services to customers of F2G, a flooring retailer, and F2G’s customers paid certain sums into a bank account. A declaration of trust between G-T-P as trustee and F2G as beneficiary set out the terms upon which the bank account would be operated. In particular, it provided that in certain specified circumstances, including the insolvency of F2G, G-T-P would have the right to set off any sums owing to it from the credit balance in the account.
F2G became insolvent and its liquidator sought confirmation from the court that the declaration of trust was void against the liquidator as it had not been registered. The court considered the nature of the charge that had been created in this case. It determined that F2G were free to access the account in the ordinary course of business without G-T-P’s consent and that G-T-P had no right to prevent F2G exhausting and emptying the account until there was an event of default (in this case F2G’s insolvency). This was therefore a floating charge.
The court went on to consider whether the floating charge came within the ambit of the Regulations. These will only apply to security where sufficient possession or control of the underlying collateral has been transferred to the collateral taker. In this case, the court held that G-T-P did not have possession, nor did it have enough control, as F2G was free to deal with the account as it saw fit prior to crystallisation.
Since, under English Law, a floating charge is characterised by the freedom of the collateral giver to deal with the charged property, this case appears to indicate that a floating charge will rarely, if ever, come within the scope of the Regulations.
On 13 August 2010 HM Treasury published a consultation on the implementation of directives relating to settlement finality and financial collateral arrangements. Amongst other matters, the consultation seeks views on whether changes are required to bring certain floating charges within the scope of the Regulations.
It is clear that, unless and until the necessary legislative changes are implemented, it remains essential for any collateral taker to register any charge that might be characterised as a floating charge.