Fixed or floating?

The article focuses on international banking and a British court case. Normally, an insolvent, little-known British paint company would interest few bankers besides those who had lent it money. However, any international bank that has made a secured loan under English law--which is used in many jurisdictions around the globe--might well keep an eye on the case of Spectrum Plus. Earlier this month the Court of Appeal in London said, in effect, that the House of Lords, Britain's highest court, should have the final say in a test case brought by National Westminster Bank about Spectrum Plus, to which it had given a secured loan. At issue is whether NatWest enjoys a fixed or a floating charge over Spectrum Plus's book debts and their proceeds. The difference is important, because fixed charges give banks the legal right to payment from a bust borrower ahead of all other creditors. With a floating charge, they must join the queue and face more risk of losing their money. NatWest asked the High Court last year whether security (identical to that in the Siebe Gorman ruling) that it had taken for a loan to Spectrum Plus gave it a fixed charge. Recent doubts over the correctness of Siebe Gorman date from 2001.In a New Zealand case known as Brumark, senior English judges hearing the final appeal in London ruled that whether a charge was fixed or floating depended on substance, not form: what mattered was not what the parties had agreed on paper, but how easily the lender could gain control of the assets on which the loan was secured. The appeal to the Lords will surely cause a re-examination of this ruling too. It will interest the British government as well as bankers. Until the law changed last September, some government departments were first in line after fixed-charge holders when firms went under. Now they must wait their turn, at an estimated cost to the state so far of £70m ($128m).