Floating Charges after the Case of Re Spectrum Plus : Legal Certainty or Greater Uncertainty?

The recent global financial crisis made the need for companies to have an easy access to credit greater than ever before. Consequently, the importance of the laws surrounding secured transactions has been considerably increased since many companies seek financial assistance from financial institutions in an effort to retain their financial stability and to ensure long-term viability.Generally speaking, the availability of securities serves a twofold purpose. On the one hand, they allow debtors, such as companies, to obtain financial assistance easier and thus be able to continue their business ventures. On the other hand, they serve to a certain extent to assure creditors, such as banks, that the money granted to the debtors will be recovered even in the debtor's eventual insolvency. This twofold function of securities and the interplay between banks and companies is arguably an important component for retaining a viable economy. This is particularly true for countries such as the United Kingdom where the Gross Domestic Product is based, to a large extend, on the financial services sector and on the operation of several large corporations within their territories.In the UK there are four broad categories of security available, namely pledges; liens; mortgages and charges. Arguably, the most prominent type of security available to debtors such as companies in the UK today is that of a charge. This is not only because of the ease by which a charge can be created, namely by the construction of a single document referred to as “debenture”, but also because the company can create either a fixed or a floating charge over all of its assets – both present and future.This paper critically examines the rules underpinning floating charges and their distinction with fixed charges. In doing so it argues that certain legislative interventions introduced an unjustified and unreasonable necessity to distinguish between the two in the event of a company's insolvency. Finally, it concludes by elaborating that, despite the House of Lords judgment of National Westminster Bank v Spectrum Plus12 in 2005, legal certainty in this important area of law has not as yet been achieved neither will ever be possible to have a clear cut distinction between fixed and floating charges. As a result, reforms in the Insolvency legislation to remove the requirement to distinguish between the two are urgently needed