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Legal mechanisms which facilitate the debt financing of small corporations
Fixed or Floating? The Future for Small Companies
The tendency in modern scholarly material is to focus on the responsibility of corporations in modern society. There are great rafts of legislation that affect the duties of directors of corporations in areas such as employment, environment, health & safety and tax. The classic paradigm of a corporation was always understood as 'an association of stockholders framed for their private gain and to be managed by its board of directors solely with that end in view' . However, ever since the writings of Adolf Berle in the 1930's there has been increasing recognition that legislative and judicial intervention is required to alter the way corporations interact with other constituents, of particular interest for this work is the focus on the way that smaller corporations interact with their creditors.
This work is largely concerned with the operation of fixed and floating charges which are the typical manner of security that creditors will obtain from corporations to secure repayment of their loan. The aim of the work is to look at the various legal mechanisms which facilitate the debt financing of small corporations and what the future may hold for them. In particular we look at three potential areas law reforms: The necessity of having the statutory and judicial framework which attaches consequences to title as opposed to allowing freedom of contract, between the parties, the increase in credit risk to unsecured creditors and its relationship to secured lending and finally the operation and remit of the Small Firms Loan Guarantee Scheme. These three aspects are all of importance to both the U.K. economy and productivity because if the balance is correctly managed it will encourage entrepreneurialism and enterprise.
The social importance of analyzing these issues has become apparent with rising business failure rates in the U.K. Overall there were 18,122 corporate failures last year, an 11% rise from the previous year , which is part of rising interest rates and high energy prices. In an economy, such as currently exists, where there are a large number of corporate failures every year the debt securing and collecting measures become of the utmost importance to the risk attitude of creditors and their willingness to lend. These have counter-productive economic results and this work intends to analyse some of the familiar flaws of the law on security of debt.
.As I have mentioned this work will primarily concentrate on the development, and necessity for, the distinction between fixed and floating charges. The purpose of doing this is to analyse whether such a distinction is necessary and whether or not we could supplant this with the natural antithesis to the current system: freedom of contract. We will then consider some ancillary issues; firstly, the current statistics on returns for unsecured creditors and the implications for a freedom of contract model. Secondly, the impact and relevance of the Small Firms Loan Guarantee Scheme as a way of improving financing opportunities as an alternative to secured lending. We will conclude by analysing the issues and attempting to provide advice for the future reforms of the law in the area. As we mentioned the agenda of this work is not only to analyse but make prospective suggestions about possible ways forward for law reform.
Fixed or Floating
The way that the common law has developed fixed and floating securities with the former being undoubtedly superior for numerous reasons, as we shall see, has lead to an antagonism between large creditors, such as banks, who seek to get their securities classified as fixed and the judiciary attempting to maintain some kind of logical separation between the two types . The outcome of this can be very important to small companies because of their general position on the penumbra of access to such finance. If large creditors are unable to adequately secure their debt then they may tend not to take any risks on Small Companies or on the flip side unsecured creditors may try and avoid small companies because of their increased risk.
However, first we will look at the genesis of these two-concepts which find no great support in ancient English- Common Law but had to be judicially created. This work is concerned at looking at the future of small companies and the reason for doing the following review is to extract an answer to whether companies are better off whether there are automatic consequences flowing from the type of security or whether intention of the parties ought to be binding.
The Creation and Mutation of the Floating Charge
It is wholly unsurprising to learn the judicial chicanery that pulled the floating charge out of thin-air was borne of commercial necessity in the industrial revolution and is widely traced to the nineteenth-century case of Holroyd v. Marshall . However, the story starts somewhat earlier than this with the Roman law concept of 'Hypotheca' . The Roman's, similar to nineteenth-century England, had struggled with the constraints of the legal concepts of pledge and mortgage as the typical forms of security. However they developed their concept of 'pignus', or pledge, so that the borrower could remain in possession of the pledged item and give the creditor a contractual right to take possession in the event that the borrower defaulted .
The hypothec was rejected by the English judiciary in the eighteenth century case of Ryalle v. Rolle . In that case the court had held that 'If a man gives an hypotheca or pignus with a condition that, if the money is not paid at a day, the pawnee shall enjoy the goods at such a price, that is not in the nature of a pawn, but a sale' . It was felt that delivery of the item was essential to the idea of a pledge. The other type of security available was a mortgage but this required the particular assets to be identifiable and for the person to have an interest in that property. In a large corporation where assets were continually changing this was a near impossibility to achieve . Thus delivery is essential to pledge and actual and continuing ownership being essential to mortgage then preceding Holroyd there was no practically effective way of securing debt for corporations that were driving the industrial revolution.
The type of transformation that Roman Law had undergone, i.e. a modification of the concepts of pledge and mortgage, seemed unlikely because the judiciary was going through an era of extreme legal formalism , the authorities were extremely clear; both institutional writers such as Bacon and precedent in the courts made it clear that 'title of future property would not pass at law without a new act of transfer by the grantor when it came into his possession' .
In Holroyd the facts were such that a debtor had assigned pieces of property from their mill into a trust in favour of the creditor. The purported remit of the trust was to have prospective force in that it attempted to cover any materials that might be brought onto mill which could then be used as security in addition to or substitution for the original items transferred. To modern writers this set-up will look strikingly similar to the arrangement under a floating charge. As we saw, strict law wouldn't allow this and at first instance and the first appeal the formalism of the common law was adhered to by then Lord Chancellor Lord Campbell. However, the second hearing of the appeal was after the death of Lord Campbell who was replaced as Lord Chancellor by Lord Westbury .
In the second hearing of the case the court's drew on principles from the equity court's to justify what was in effect a rather large departure from previous law. Lord Westbury, giving the lead judgement, stated in the most crucial passage:
'If a vendor or mortgagor agree to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives the consideration for the contract, and afterwards become possessed of property answering the description in the contract, there is no doubt that a court of equity would compel him to perform the contract, and that the contract would in equity transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired'
Pennington makes the point here that whilst Lord Westbury gave the lead judgement there was a slightly different attitude portrayed by the judgement of Lord Chelmsford, which achieved the same result but by a different manner . Lord Westbury's dicta, above, implies that a beneficial interest would be transferred in the event of specific implement in a court of equity. However, Lord Chelmsford's views were that 'the moment the property comes into existence the agreement operates upon it' or in other words the act of acquiring subsequent property automatically creates a beneficial interest, the contract self-executes . The striking thing about the judgement is the surprising lack of rationale for why equity would allow this result , this clearly exemplifies that the courts were in effect creating new law to suit commercial interests which required the law to keep-up with the relatively newly created statutory creature; the corporation.
The effect of this decision is argued to have become a commercial reality almost immediately and earlier versions of what we would consider to be floating charges started to appear however it was not for a further 17 years and the decision of In re Colonial Trusts Corporation that the term 'floating security' would come to be used by the courts and in the interim period the courts were not quick to entrench Holroyd. In King v. Marshall and Re British Provident Life and Fire Assurance Society, Stanley's Case the courts rejected the attempted securitisation of future property being respectively; calls to shareholder / trade debts and uncalled capital. This was not an isolated trend and there were a number of other such cases which seriously called into question the substantive effect of Holroyd .
However, the decision was followed in Re Panama, New Zealand and Australian Royal Mail Co. which built upon Holroyd but by way of distinguishing previous decisions the court concentrated on an interpretation of the wording of the debenture document. It found that a debenture which created a security over its 'undertakings' was argued by Sir G.M. Giffard, L.J. to operate in the following manner:
'I take the object and meaning of the debenture to be this, that the word 'undertaking' necessarily infers that the company will go on, and that the debenture holder could not interfere until either the interest which was due was unpaid, or until the period had arrived for the payment of his principal, and that principal was unpaid'
This case was followed a number of times so that these securities sui generis, at that time, became to be regularly recognised by the courts so that debentures creating charges over equivalently wide and prospective property were given force by the courts . In both Re Florence Land and Public Works Co. ex parte Moor and In re Colonial Trusts Corporation, above, the lead judgement was given by Jessell, M.R. who made the first reported use of the term 'floating security' which he defined as ' "a charge upon assets for the time being", leaving the company to deal with them as they think fit till they are stopped either by a receiver or a winding-up' . These decisions established floating charges as a feature of the commercial and legal landscape.
However, as with any judicially created concept which becomes an established part of our common law, the exact dimensions and nature of a floating charge have never been made explicit from this date onwards there has been hesitancy to provide an authoritative definition and whilst undoubtedly the commercial pressure that lead to creation of the 'floating security' by the judiciary did have it's drawbacks for example Lord Macnaghten stated as early as 1896 that 'Everybody knows that when there is a winding-up, debenture holders generally step in and sweep off everything. And a great scandal it is.' . Lord Macnaghten was referring to the defeating of unsecured trade creditors by debenture holders but there were other flaws such as the distinction between fixed and floating securities which were unclear. These problems have lead to a steady stream of cases challenging the concept and its full dimensions from the late nineteenth century to modern day. We shall pick out the highlights of this development, which inevitably involved a degree of mutation from the key aspects identified in the preceding cases.
The dominance of debenture holders was growing and it is clear that parliament felt that some amelioration of the power of security-holders was required and they passed the Preferential Payments in Bankruptcy Amendment Act 1897 which created a class of 'preferential creditors' such as employees and crown creditors priority in distribution of the assets over security holders. Further statutory interventions in the Companies Act 1900 also required registration of a 'floating charge' and for the invalidation of them if granted shortly before insolvency proceedings. There was a general reservation over the operation of the floating charge after Florence and Colonial Trusts and Lord Macnaghten among many had expressed his feeling that the law ought to be changed. The fact that parliament refused to give an authoritative definition of a floating charge, however, begged the court's to determine what is a floating charge?
However, this question is deceptively similar because there is a loose distinction to be made between what is widely understood as being a floating charge and what the jurisprudential concept of a floating charge ought to be? We will attempt to analyse both aspects. Shortly after the 1897 act the seminal defini tion of a floating charge was given in the ubiquitously quoted judgement of Romer LJ In re Yorkshire Woolcombers Association Limited. Houldsworth v. Yorkshire Woolcombers Association Limited :
'If a charge has the three characteristics that I am about to mention it is a floating charge. (1.) If it is a charge on a class of assets of a company present and future; (2.) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3.) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with'
Whilst these subjective easily ascertainable aspects became the hallmarks of a floating charge in the early twentieth century the theory and complication of other aspects created its own uncertainties. In particular Pennington draws attention to the difficulties in the license jurisprudence . Stemming from a passage of Jessel M.R. in Re Florence that implied that a floating charge holder gave an implied license to the corporation to use and dispose of it's assets as it saw fit certain courts took this as the position of a floating charge . Whereas others subscribed to a crystallisation-event thesis which meant the charge didn't attach until that event had occurred . The problem was with the latter the floating charge-holder is not protected from ultra vires acts or attempts to destroy the investment of the security-holder.. There are drawbacks to both positions however because with a licence there would be problems were a company is wound-up for purposes of merging because in effect that would be revocation of the licence.
However, interestingly by the early-twentieth century what had in effect occurred was the judicial creation of what was in effect a Roman hypotheca, except rather than a contractual right that the hypotheca conferred it was a real right for the security holder . However, again commercial pressures began to exert their effect on the law as they had done in the nineteenth century. Statutory Intervention had altered the playing field so that preferential creditors could defeat the holders of floating charges and commercial pressures were thus looking to thread the needle and return to the debenture-holder's hegemony. An obvious way of doing this was to draw securities that were specific charges but that still allowed flexibility for the borrower to carry on without much encumbrance, as a specific charge would have priority to preferential creditors . Thus throughout the twentieth-century and the early twenty-first century there has been a focus on the distinction between fixed and floating charges.
We have briefly mentioned above the early cases that contrasted fixed and floating securities. The House of Lords Appeal of the Woolcombers Association case was Illingworth v Houldsworth where the court discussed the distinction between fixed or floating charges:
'A specific charge... is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature'
This overall approach hasn't really changed and we find similar language in modern courts over 90 years later, for example Millett LJ in Re Cosslett (Contractors) Limited :
'The essence of a floating charge is that it is a charge, not on 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. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee. The question is not whether the chargor has complete freedom to carry on his business as he chooses, but whether the chargee is in control of the charged assets.'
Thus by and large the central concept of a floating charge was forged in the early-twentieth century and from the start its raison d'etre was to be more flexible and distinct from a mortgage, or fixed charge in the corporate world. In it's essentials it remains unchanged, with the central tenet being that 'where under the terms of the relevant security the chargor has the freedom...to deal and dispose of the assets in the ordinary course of business, the charge will be construed as a floating charge as opposed to a fixed charge' .
However, in recent years there have been more particularistic debates about whether charges over certain property can properly be called fixed or floating. It is to these debates that we now turn because they represent the modern mutation and controversy of the floating charge. In particular they have focused in upon receivables such as book debts. As Millet LJ pointed out in Cossett, above, what is essential to the designation as a fixed security is the degree of control that the chargee has over the property, in particular it is the purpose and quality of that control which is essential . Thus focus becomes on the nature of the item charged i.e. whether it can be usefully the subject of a fixed charge, that being more favourable to the encumbered floating charge.
In Tailby v The Official Receiver the court made it clear there could be a fixed charge over ascertained book debt. It was, however, inevitable that corporations would attempt to create charges over future book-debts but what was not inevitable was the classification as fixed or floating debt. The leading case for many years had been the Siebe-Gorman case . Slade J. giving the lead judgement referred specifically to the dicta of Lord Macnaghten in Illingsworth above and Romer LJ Yorkshire Woolcombers, and in particular the former. He felt that it allowed a debenture of future book-debts where it is 'in a form which creates in equity a specific charge on the proceeds of such debts as soon as they are received and consequently prevents the mortgagor from disposing of an unencumbered title to the subject matter of such charge without the mortgagee's consent' . However, he did qualify this by stating that the debenture document was different from the norm and 'the effect of a charge on future book debts in the form more usually employed' would be to create a floating charge. This was a decision that was immensely favourable to the banks because of the priority of a fixed charge. It was also the first case to recognise a right over future book-debts, however there was always a feeling that this decision was shaky so the banks and other large secured creditors had tried to avoid a case which might go to a higher court . As history would show these concerns were well founded.
The effect of Siebe-Gorman over the next 20 years was always doubtful but remained strong. It was sustained and applied in a number of cases such as Re a Company Ex Parte Copp , In Re Portbase Clothing Limited and Re New Bullas Trading Ltd . One case that seemed to lend significant support to the decision in Siebe-Gorman was the Irish Supreme Court decision in In re Keenan Brothers Limited . The Bullas case is worth mentioning briefly because of its later importance. In that case the debenture drafter had separated uncollected book debts and the proceeds of the book debts so that the latter was subject to a floating charge and the former to a fixed charge.
However, in an earlier case there had been a degree of doubt thrown over Siebe-Gorman by the dictum of Hoffman, J in Re Brightlife Ltd . This case was distinguished from Siebe-Gorman - the situation in Brightlife was that book-debts were being paid into an account not controlled by the chargee. Hoffman, J, similar to Slade, J, referred to the dicta of Romer J. however came to a separate conclusion that the debenture couldn't cover these book-debts. The rationale behind this decision was that, despite a clause in the debenture that Hoffman J self-admittedly described as 'highly restrictive of the company's power to deal with it's debts' , he believed that 'a floating charge is consistent with some restriction upon the company's freedom to deal with its assets' . He gave a comparative example of a prohibition on creating a further charge which ranks prior or pari-passu with the floating charge. It is hard to assess the impact of this decision. Brightlife is pointed to by a number of commentators as representing 'a movement away from favouring fixed charges over book debts as established in Siebe Gorman' but in reality it was distinguished from that and other cases solely on the premise that the company had more freedom in it's use of the proceeds of book debts. It may be somewhat unrealistic as it is an isolated incident in the period between Siebe-Gorman in 1979 and 2001 when the privy council decision of Agnew v. Commission of Inland Revenue cast serious doubt on the U.K.'s approach to this debate.
We will discuss Agnew below but it as well to be aware that despite the apparent stability of the rule after Brightlife there were rumblings from both academics and abroad that the Siebe Gorman rule was not all it seemed to be. One example is the New Zealand case of Supercool Refrigeration and Air Conditioning v Hoverd Industries Ltd in which Tompkins J. rejected designating a charge over future book-debts as a fixed charge because: '...a requirement to pay the proceeds of the book debts into the company's account without any restrictions on how the company may use the proceeds does not give effective possession of the proceeds to the Bank. It does not, without more, fasten the charge onto those proceeds.'
Furthermore, the UK jurisprudence was criticised because the developments in Siebe Gorman was influenced by the position internationally. In particular Canada had allowed specific charges over book debts for some time and that concept had 'wormed' itself into the UK Jurisprudence. However, it was criticised by Canadian scholars for failing to recognise that it didn't fit with the U.K. wider jurisprudence. Canada had embraced the fixed charge and licence model however, as we know from above, this didn't fit with U.K. Jurisprudence. The difference in jurisprudence was clear from the Canadian dicta of Nitikman J. in Robin Hood Flour Mills Limited v. Fuller Bakeries Ltd where the court made it clear '...even if the debtor used the accounts receivable collected...without these monies going into it's bank account, whether with or without the acquiescence of the Bank, it did not change the character of the security from a specific floating charge' . The decision was also criticised by academics such as Berg who criticised the decision in Siebe Gorman as having no real rationale for the conclusion that the debenture had been intended to deprive the company of free use of the book-debt proceeds and concluded that it was 'unsound in deciding that such a general charge is a fixed charge'
However, the anomalous position came under serious question in the Agnew case which was appealed to the Privy Council from New Zealand. The court in effect made the decision that a document drafted in an extremely similar manner to the Bullas case above was not a fixed charge but a floating charge as it didn't exemplify the requisite control. It also felt that the artificial distinction between uncollected book debts and the proceeds of book debts could not be logically upheld. This effectively closed this avenue. The final nail in the coffin came in the most recent decision on the issue: National Westminster Bank Plc v Spectrum Plus Limited (in creditors' voluntary liquidation) & others (Re Spectrum Plus Limited) . In this case Morritt VC, at first instance, made it explicitly clear that Siebe Gorman is not good law:
'...Siebe Gorman has stood for 25 years with little criticism. It is suggested that most bank's standard forms are drafted on the assumption that Siebe Gorman was correctly decided and that thousands of liquidations have been conducted on the same assumption... It is with the greatest hesitation and reluctance that I differ from the conclusion of Slade J in Siebe Gorman. Nevertheless I am convinced that it is wrong'
The House of Lords, despite an overturning in the Court of Appeal, upheld the initial decision. Lord Hope rejected the rationale of Slade J. in that he felt that a deposit of funds in the bank of the creditor didn't provide sufficient control particularly because it didn't square with general banking principles. He relied on the banking case of Lipkin Gorman v Karpnale Ltd that established clearly that whilst money deposited with a bank is their money, they are under an obligation to repay it on demand. Lord Hope made it explicit, as did Morritt VC that 'the proper course is for the Siebe Gorman decision to be overruled' .
The importance of these decisions is of more general effect than the specific focus of book debts. The case of In Re Cosslett (Contractors) Ltd. showed that the fixed / floating jurisprudence, above, could be applied to analogous situations. in that case it was a charge over plant and machinery on a building site which the chargor had a fairly wide discretion to remove from the site. This decision followed Brightlife and is in line with Agnew and Spectrum. The case-law has greatly fleshed out the exact dimensions of a floating charge.
The foregoing only briefly mentioned the Preferential Payments in Bankruptcy (Amendment) Act 1897 however the importance of legislative intervention over the twentieth and twenty-first centuries has largely driven much of the litigation that the foregoing has reviewed. It is therefore apt to briefly analyse the progress of the legislation and its interpretation in the courts because of the large impact. However, in order to get a full picture we have to go back a few years to 1883.
The Companies Act 1883 at section 4 was the first statute to create a group of corporate constituents who were to be preferred, i.e. rank ahead of other creditors. The Act provided that the expenses of administration were to be reserved but after that it was the duty of the liquidator to disburse all 'unpaid wages and salaries of clerks, servants, labourers and workmen' before all other debts. Those preferential creditors were to rank equally and the assets were to be apportioned rateably between them. The Preferential Payments in Bankruptcy Act 1888 widened that preferential group to include the Crown in the form of due rates and taxes .
It had been established by In re David Lloyd & Co that '...the company ought not, because it has become insolvent or has been minded to wind up its affairs, to be placed in a better position than any other lessee with regard to his lessor' . In other words a chargee's rights were of a proprietary nature and were outwith the winding-up process. This had the practical effect of rendering the preferential status virtually impotent a situation which, as we will recall, Lord Macnaghten called 'a great scandal' . The law was thus modified by the Preferential Payments in Bankruptcy (Amendment) Act 1897 which provided that these preferential creditors would 'have priority over the claims of holders of debentures or debenture stock under any floating charge created by such company' . The overall effect of this change to the law was that 'thenceforth preferential debts... were to be paid out of the property comprised in a floating charge so far as the non-charged assets were insufficient to discharge those debts. The proprietary rights of a debenture holder were, to that extent, bitten into' .
The 1897 and 1888 Acts were consolidated by the Companies (Consolidation) Act 1908 but there has been little-to no substantive change to these provisions since that date and they are largely reproduced in the current s.175 Insolvency Act 1986. The definition of preferential debts in that time didn't change much however there were significant changes to the whole of corporate rescue and insolvency law by the Enterprise Act 2002 which have changed the complexion of floating charges. The main changes are as follows:
- Administrative Receivership for most purposes was abolished. This was largely done because the procedure was seen as giving too much power to floating charge holders who lacked the incentive to rescue companies . However, they did gain a power to appoint an administrator without a court's permission. However, the administrator cannot be completely partial as they must act in accordance with a set of objectives set out in the Act. This seen as marrying the best of the Receivership mechanism with accountability to all creditors . The floating charge holder will have a relationship with the bank in administration but the administrator will be statutorily required to take account of all creditors interests.
- The operation of preferential debt has changed. Firstly, the Enterprise Act abolished the Crown's preferential status. Secondly, a proportion of floating charge recoveries must be set aside for general unsecured creditors . Whether this means they are giving with one-hand and taking with another remains to be seen.
These changes are some of the more radical since this system's inception in the Companies Act 1883. Fundamental to its aim was to enhance the position of unsecured creditors and inevitably this has, to use Lord Nicholl's phrase, 'bitten into' the rights of secured creditors but more particularly floating charge holders. There were some concessions that allowed security holders some preference in particular the prohibition on the administrator interfering with the security holder's ability to enforce the security . However, the point has been made that it is unclear how effective this will be; having abolished administrative receivership then the company is able to re-enter administration following crystallisation by a floating-charge holder and this would 'in effect forcibly de-crystallise the charge again' . In balance to this the administration process is not designed to affect the substantive rights of a security holder and there are provisions which will allow security holders to enforce their security. For example, requesting the administrator or court to enforce, the former will be committing an abuse of power if they refuse wrongfully.
The foregoing has highlighted a number of struggles with the concept of floating charges however the overall purpose was to analyse whether there ought to be a freedom to contract or whether the statutory system of attaching consequences to the type of charge is justified. We have seen how the concept of floating charge has changed over the years and largely this has been a result of political and commercial pressures in concert. Importantly the political pressures have been aimed at the distinction between secured and unsecured creditors, generally with favour to the latter and increasing their rights. The reasons for this go to the heart of whether we ought to collapse the fixed / floating distinction into an over-arching concept of secured chargees.
If we look back we saw that there was a feeling of great iniquity in the nineteenth century when, in effect, the floating and fixed charges were both equal forms of security. It was seen that all debenture holders were causing great iniquity by depriving unsecured creditors of all their money. This accusation was particularly aimed at a floating charge because it was viewed as 'a mechanism peculiarly conducive to the transfer of insolvency wealth from unsecured to secured creditors' . This is because the floating charge has the ability to create a massive windfall for the company who can get it to cover all the assets of a company, and to take into account prospective property. They usually achieve this through the charging of massive interest rates . It is thus argued that it is an iniquitous device for these reasons and we need to take care of unsecured creditors. This is even more important in small companies where such a charge might easily encompass all its assets. The fixed charge, as we saw, has as it's essence an inability of the chargor to use the property in the course of the business which clearly makes it unsuitable for many stores of value in a corporation such as book-debts or future-acquired property. This to some degree explains the ubiquity of the floating-charge, it is simply a more flexible mechanism to cover as much property as it possibly can.
The problem with Siebe Gorman was that in many ways, for an almost inexplicable manner, a fixed charge could be created over property of which the chargee had no control. This created a third avenue which become of utmost importance to large creditors. A loophole made necessary by the statutory degradation of the floating charge. This degradation was of such a nature that in effect a floating security was providing 'very poor priority' for any creditor; Mokal makes this argument in a very forcible manner. He draws on a number of empirical studies looking at returns for corporate creditors; in his review he notes that the statistics for preferential creditors are such that:
'Preferential creditors get back everything they are owed in just over twenty-five percent of insolvency proceedings, receive nothing at all in just under twenty-five percent of cases, and recover less than five pence on the pound in the remainder'
The result for floating charge holders, ranking lower than preferential creditors is that in just under twenty-five percent of cases the security holder receives nothing and in fifty percent of cases they receive almost nothing. These make stark reading for any floating charge holders. Mokal goes onto argue that given the floating charge is such a poor priority device it's ubiquity could only be explained in relation to it's powers to initiate receivership and control insolvency proceedings. However, with the advent of the Enterprise Act and it's abolition of receivership the government have effectively killed the need for a floating charge whatsoever and only succeed in creating circularity by making floating charges central to the process. In effect this is the extreme opposite of our hypothesised freedom of contract situation because statutory intervention has created so many consequences flowing from the floating charge that it defeats its original purpose.
What the foregoing boils down to is a simple proposition - Do we prefer larger secured creditors or unsecured creditors? The floating charge and fixed charge in their present forms are imperfect forms of security because of statutory intervention. If we remove those interventions undoubtedly the pre-1897 Act situation will return and the scandalous depriving unsecured creditors of their money. This is the sole focus of the insolvency law's that surround floating charges, this is visible in the stated aim of the Enterprise Act: 'to facilitate company rescue and to produce better returns for creditors as a whole' . This balancing has come at a price of removing much of the purpose of the floating charge and much of the powers of security holders. However, both the judicial response in Spectrum and the statutory-response from the 1897 Act to the Enterprise Act have been reactionary to the attempts of large creditors to secure their debts at the expense of unsecured creditors. Although not applicable precisely these days it is still the same equitable discretion that the court in Holroyd used. The aim of the equitable courts was to achieve the result that the law ought to achieve in a particular situation; the courts and legislature clearly feel that unsecured creditors (whether preferential or not) need protection.
Undoubtedly, freedom of contract as a principle is supported in modern law by the doctrine of consideration. The hallmark of consideration is that it divides enforceable from non-enforceable promises however what makes it so important in freedom of contract is that it places absolutely no restrictions on the adequacy of that consideration or whether the bargain was fair. However, consideration is an extremely flawed and has numerous exceptions such as performance of an existing contractual duty and use of past consideration. The number of exceptions to consideration is numerous which impacts on straightforward freedom of contract and that doesn't even encompass the remit of the Unfair Contract Terms Act 1977. Furthermore, in a broadly analogous contractual field to that of securities is the contract of employment. In the 1960's, 1970's and more recently there were large legislative interventions to protect employees from the grossly disproportionate bargaining position and effectively 'overrode the freedom of contract of the individual parties'.
A final consideration to make is that of registration. Currently securities have to be registered with Companies House and certain specific details have to be given on a Form 395. One argument against collapsing the distinction between Fixed and Floating Charges may be that registration may become detail if it were to encompass all the freedly agreed terms of the security. However, a quick glance at Form 395 shows that it is not of much force because there is ample room for a large description of the charge and if there were no distinction there would be enough room to show the intention of the parties.
Such social legislation and equitable judicial decision-making is necessary to depart from the over-arching principle of freedom of contract, this is not the place to enter a large debate over freedom of contract but the point of the preceding paragraph is to show it is by no means an ultimate principle. I think the development of case-law shows the aim is an equitable result for all involved in the corporate nexus and this is fair because it simply seems iniquitous for the large creditors to be able to bolster their risk at the expense of unsecured creditors so some restrictions are necessary just as they were in the employment sphere.
We briefly touched on this subject in the conclusion of the last section but we are concerned with analysing in more detail the credit risk of unsecured creditors in order to analyse the impact of secured credit and whether reforms to the laws on security may increase unsecured creditor risk. A major source for these statistics is the annual reports from the Association of Business Recovery Professionals which gives statistics from their members on the recoveries of various corporate constituents including unsecured creditors .
In 2004 there were significant regional variations of returns for unsecured creditors but the U.K. average was 4.3% of a return compared to a national average of 22.6% for secured creditors and an average of 25% for preferential creditors. These figures on their own are somewhat opaque because they don't tell us a great deal. We can see that returns for unsecured creditors are generally low however of interest would be the change over the years to see what difference the Enterprise Act has made to these statistics .
Looking at the appendix, unfortunately, the change in format by the ABRP has made comparative conclusions difficult to draw upon. However, what we can see is that generally returns to unsecured creditors have stayed significantly lower than returns to other constituents and this seems to be the case both pre- and post-Enterprise Act. The statistics have stayed at about 75% for cases where there is no recovery for unsecured creditors and only about 2% where they receive everything back. Whilst recently we have statistics that on average returns to unsecured creditors are increasing there is no evidence from the ABRP of how this is impacting on the number of cases in which unsecured creditors receive nothing back.
Extrapolating from this it is arguable that there would be significant increases in credit risk to unsecured creditors were we to collapse the distinction of fixed and floating securities and allow freedom of contract. It is clear that pre-Enterprise Act returns were very low and post-Enterprise Act they are marginally better. Although the statistics are isolated it is suggestive that the statutory measures are beneficial and removal of them would only lead to poorer returns for unsecured creditors. However, this observation is rather simplistic and ignores a somewhat more sophisticated understanding of the situation.
If we return briefly to re-iterate Mokal's argument about why Floating Charges are inefficient we will more readily grasp the force of the more sophisticated formulation: Namely that the high proportion of cases in which preferential creditors receive nothing or hardly anything mean that a massive proportion of floating charge holders would receive nothing . This highlights that in a large proportion of cases, about 45-47% according to the statistics in the Appendix from ABRP, nobody receives anything. What is surprising from the ABRP findings is the degree to which there is a variation dependant on the type of Insolvency method used. Thus, as we shall see, it is arguable that returns to unsecured creditors don't vary much correlative to the strength of secured credit.
We shall use the most recent year's statistics to exemplify this argument. The most successful procedure for maximising returns was CVA followed by appointed receivers (no longer available under the Enterprise Act), compulsory liquidation then Administration and finally CVL. CVA roughly receives three times the level of return across the board for all creditors . The ABRP conclude from their studies:
'...other than in Creditors' Voluntary Liquidation, secured creditors (usually the insolvent organisation's bankers) get a remarkably similar level of return across all procedures, it can be seen that unsecured and preferential creditors get much more back from a CVA than they do from any other procedure.'
Despite these statistics in 2004 the most commonly used insolvency mechanism was CVL accounting for 54% of all Insolvency proceedings and thus the most used mechanism clearly is the one that the ABRP discovered gives the worst return for all corporate constituents. Whereas 'Voluntary Arrangements' including CVA accounted for just 4.2% despite being the best performing as far as creditor returns are concerned . This problem is further compounded by the fact that the second most popular method, Compulsory Liquidation, is the second worst performing as far as creditor returns are concerned. These statistics tell us that one of the large reasons for across the board low creditor returns isn't the operation of secured debt in relation to unsecured debt but is much more related to the choice of insolvency proceeding.
As we will recall from the previous section a large motivation of the Enterprise Act was encouraging corporate rescue through forcing large creditors holding floating charges to enter more rescue-oriented procedures and thus encourage an increase in creditor returns. However, whilst early days it seems as though the availability of CVL and Compulsory Liquidation continue to dominate insolvency proceedings accounting for 86% of all Insolvency proceedings in 2004 . Although Administration under the Enterprise Act has increased it is still the least utilised form of insolvency proceeding accounting for only 3.2%.
The foregoing provides support for the argument that the secured / unsecured debate may obscure the fact that overall low returns for unsecured creditors is more related to insolvency proceedings than any other factor. The small variations pre and post-Enterprise Act just go further to strengthening the argument that removal of the statutory framework wouldn't necessarily make a large difference to the credit risk of unsecured creditors.
Small Firms Loan Guarantee Scheme
The Small Firms Loan Guarantee Scheme is a scheme run jointly by the Department of Trade & Industry and participating private lenders as part of a bundle of schemes setup pursuant to section 8 of the Industrial Development Act 1982. That section provided for the Secretary of State, with the permission of the Treasury, to have very wide powers so setup financial assistance where it is 'likely to benefit the economy of the United Kingdom' , 'in the national interest' or 'cannot, or cannot appropriately, be so provided otherwise than by the Secretary of State' .
The SFLSG was setup in 1981but has recently been subject to an overhaul following the Graham Commission which produced its final report in September 2004 . In a nutshell the SFSG's purpose is to guarantee 'loans from banks and other financial institutions for small businesses who have viable business propositions, but who have been unable to secure a loan because of a lack of security and / or a track record' . Prior to the Graham Commission this scheme was generally considered fairly successful but with certain drawbacks for a number of reasons that we will go onto consider. Between 1981 and 2003 a total of 83, 9054 loans valued at £3.3 billion were guaranteed under this scheme and is described as 'one of the main government support schemes to business' . The increase in uptake has been phenomenal in 2003 - 2004 the uptake of the SFLGS increased by 52% and this followed a similar jump between 1994 and 1997. .However, prior to the Graham Commission there were a number of preconditions that had to be fulfilled. In particular it had to be a company with turnover of less than £1.5 million, unless it was a manufacturing firm in which case the upper limit was £3 million. Furthermore there was a general size of loan requirement as it had to be between £5000 and £100,000. Although this was subject to a number of exceptions such as a higher upper limit of £250,000 for companies who have been trading for longer than two years and a £500 minimum for inner city areas. The SFLGS doesn't guarantee the whole amount but varies between 75% - 85%, depending on the area (i.e. inner city or not) of the whole amount and the borrower must pay a premium to the SBS .
The Graham Commission was the latest of many updates of the SFLGS but it is potentially one of the more significant of recent years. The Graham review felt that there were a number of problems with the SFLGS in particular they perceived it not to be maximising it's potential. In particular they felt the large raft of access to finance schemes such as the UK High Technology fund, various grants, Business Angels, Bridges Fund and many others that the SFLGS could be used to target those businesses which need it most. They also wished to encourage 'a more consistent availability' between and within various lenders. The overarching aim was to maximise its impact, there was a clear feeling that the SFLSG had not changed with the times and needed refining to suit its needs.
In this vein they made a number of substantive proposals. On the back of consultation they found that 'start-ups and early stage businesses' were suffering disproportionately to other groups and that in fact most established businesses had absolutely no trouble accessing mainstream debt. They suggested that the SFLGS be limited to those groups. They suggested there should be a maximum age limit of five tax years or accounting periods so as to effectively narrow the scope of the SFLGS. They wish to reserve a proportion of the SFLG funds to reward lenders who demonstrate an ability to target 'high-growth businesses' . They suggested allowing all eligible SME's to gain the maximum upper limit of £250,000. Importantly they suggest changing the turnover limit to be in line with the Company Law definition of an SME which has turnover at £5.6 million and also should remove the maximum limit on employees that had subsisted beforehand. Further suggestions included: increasing the availability throughout the branch network, improve documentation, various measures to increase lender involvement with the SFLGS, requirement to get the SBS' consent for large loan, develop a web portal for checking eligibility and many others of less importance to this work.
What can be seen from the foregoing is that the clear focus of the Graham Review was to narrow the overall remit of the SFLGS but within that narrower remit to remove, or alleviate, all internal barriers so that within that focus the scheme has a big impact. The relevance of the SFLGS to this work is that the scheme is covering a niche of those firms which cannot grant securities because they don't have the fixed or current assets to do so. However, for this work we have to question whether the current approach of the Graham Review is correct and whether there could be any improvements or extensions to the framework setup by the review which has recently been taken on board in whole and the recommendations have taken effect since the 1st December 2005 .
The first issue to be mindful of is that the setup of the SFLGS is similar to many international Loan Guarantee Schemes such as Canada and the U.S.A. In Canada they have had a loan guarantee scheme since 1961 and the Small Business Loans Act 1961 and it had much of the same facets such as maximum guarantee of 85-90%, maximum loan size of $250,000, eligibility for those with revenues less than $5 million and raising the interest rate chargeable. This system was swept away by the Canada Small Business Financing Act 1998 it has much the same eligibility criteria but, similar to the Graham Review, it narrowed the focus so that whilst the same criteria were used the loan could only be used for specific purposes which generally include the purchase or improvement of fixed assets or equipment of the business . However, there is no age limit so the focus is not on targeting 'start-ups and early stage businesses' as it is here.
The U.S.A has a similar program known as the Small Business Administration Loan Guarantee Program. It setup the Small Business Administration (SBA) which provided multiple functions including direct loans, loans in conjunction with banks and loan guarantees . The guarantee was 90% and the upper limit was $155,000 furthermore under the U.S. scheme the position was that they secured as much of the debt as was possible which clearly shows a slightly different ethos to the U.K. system. However, the SBA is charged with determining what a small business is and in this respect it is similar to the U.K. setup because they have Small Business Size Regulations which vary from industry to industry by looking at the 'degree of competition, average firm size, start-up costs and entry barriers, and distribution of firms by size' .
The foregoing tells us a few things about our SFLGS. Primarily, as regards the turnover, loan amount and percentage of loan guaranteed there seems to be a large degree of international parity. This is only sensible the government needs to make sure it keeps within budget, doesn't over-extend itself and that the scheme is to some degree linked to the size of the company. However, what is potentially controversial is the decision by the DTI in this country, on the back of the Graham Review, to limit the access to this scheme.
It is worthwhile, in this respect, to analyse the economic rationale generally for loan guarantee schemes. Overall, the aim of any loan guarantee scheme is to address the situation where 'SME's face disproportionate difficulty with access to debt' . This will occur in two situation; firstly where the risk of lending is too high so as to be uneconomical for the lending institutions and secondly, where lenders place importance on their being sufficient assets to have a security over . The point is made by Riding & Haines that these situations are 'not an imperfection in the credit market; rather, this condition is an aspect of normal operation of credit markets' and one which 'is...common to young firms' . Therefore, the question for this work becomes whether these economic pre-conditions in which loan guarantee schemes are supposed to work and help remedy are best-served by de-limiting the focus of the scheme to young firms and start-ups. The force of this argument always has to be tempered by consideration of other financial assistance schemes that the government runs which cater for any people not included within the SFLGS. Thus we will look in slightly more depth at the rationale for this limiting as provided by the Graham Review and see if it squares with other commentators.
These issues were largely dealt with in the Interim Report of the Graham Review . They drew on statistics from the British Bankers Association which argued that 'businesses with a turnover of under £1mn have, in aggregate, been net creditors to the banking system since the mid-1990's' . However, they looked at a number of surveys carried out by the Small Business Service and Global Entrepreneurship Monitor that found the major reason for people deciding not to start-up, and failure of new firms once they had, was an inability to access either unsecured or secured bank loans. On Consultation the banks further admitted that the lack of records of a new business will often make it hard to assess risk and thus require a cash contribution by the owners . The whole tone of this was premised on the vast literature on the economics of lending to SME's. In particular the Graham Review pointed to the fact that one of the major difficulties, in the literature, was that there was an asymmetry of information between lender and borrower because the latter would know more about the business than the former. However, surveys clearly showed that established SME's had that track record and were thus able to access credit from large banks but that the demographic which requires access is 'start-ups, with no track record or proven income stream' . These proposals being relatively new have not been the subject of much academic commentary and thus my conclusions and counter-arguments here are tentative and not presented as conclusive of the issue by any means.
However, a point that the Graham review never dealt with was if this was the case then what the case for reform was. There is a clear distinction from saying that demographic x is the one that is most in need of the SFLGS and that the scope of that scheme ought to be limited to that demographic. The logical argument against such a move is that it removes flexibility in the scheme to be able to adapt to economic change in relation to the debt requirements of established SME's with little collateral. It is in this nexus that the Graham Review have failed, whilst it is a useful piece of knowledge that 'start-ups and early stage businesses' are the ones that most require the SFLGS there is no suggested harm from keeping it open and available in principle to other corporate demographics. This is the opposite of the U.S. system with its flexibility and there seems to have been little consideration of having flexible regulations administered by the Small Business Service or the DTI. Furthermore, whilst upper limits on turnover and similar criteria are practically universal to Loan Guarantee Schemes there are no such criteria in the European Union or any other well-established scheme. Finally, the year limit clearly has a lot of thought put into it and is based on numerous age-related statistics such as average age of default and the general statistics on the age of firms taking up the SFLGS. However, here again there is little explanation of how age-related statistics mandate a year limit. This double failing has lead to a rigid system which has little statistics to back-up the requirement. For example there are no statistics that suggest established SME's are exploiting the SFLGS at the expense of start-ups. This is never made explicit in either the interim or final reports. Furthermore looking at the Annual Report there is no mention of an excessive burden on the Scheme or an exploitation of it. This writer has been unable to find any academic or statistical work that provides any support for this position therefore it seems unjustified to delimit the scheme in the way done.
It might be argued that one reason for requiring a mandatory limit is to facilitate another aim of the Graham Review, namely handing more responsibility for administration to the lenders and removing the SBS' oversight of the whole process. However, again the Review failed to make this explicit and it isn't implicit in the Reviews either. There was not a cost-benefit analysis done to see whether the administrative costs of providing flexibility in application of the scheme were outweighed by the minimal cost of excluding certain demographics.
In conclusion the reforms of the Graham Review were necessary and in many ways did improve and extend opportunities for Small Companies with little collateral. However, the arbitrary time-limit imposed has no basis in recognised International practice, logic or statistical necessity. Adoption of a situation as exists in the U.S. would be ideal. In particular giving the SBS the discretion to alter its definition of SME to adapt to different markets and economic climates. Furthermore, the publication of administrative priorities reflecting the desire to promote younger firms but which are subject to an 'all things considered' override. Clearly these tentative proposals for reform would be subject to countervailing arguments of the administrative cost of running such a system and removing lenders from their central position however the SBS still has a role in overseeing other criteria there seems no reason why it couldn't in theory do the same for a flexible definition of SME.
It is undoubtedly true that Small Companies make 'a vital contribution to output, employment and productivity in the UK' . However, this work was designed to look at the role of creditors in relation to these small companies. Clearly any such work is in danger of over-emphasising the role of debt in modern corporations, especially considering the large amount of capital raised through equity. However, debt is big business in the U.K. and it plays a disproportionately larger role in Small Companies. Thus the issues of jurisprudence over the fixed and floating charges become of the utmost importance as well as consideration of the situation where Small Companies are unable to get securities.
This work does have a reformist undertone and in this conclusion we will draw together the foregoing and look to the future for small companies. This has both legal importance, as mentioned in the introduction, on the need for creditor-director relations and social importance given the rising number of corporate failures. It is clear from the foregoing that the law is in flux in recent years and in that respect it maybe to early to fully comprehend all the changes. The Spectrum case, Enterprise Act 2002 and Graham Review of the Loan Guarantee scheme have fundamentally changed the landscape for Small Companies all within the last three years . However, these changes have delivered a mix bag of results.
Firstly, in relation to the fixed / floating jurisprudence the law has probably achieved some internal coherence for the first time in many years. It is clear that in many ways the choice for the courts is between Charbydis and Scyrra as regards the distinction. Either they prefer large secured creditors and follow Siebe Gorman or they try and find some balance and follow Spectrum. Unfortunately in many respects both are important to Start-ups and Small Companies because a lowering of security for unsecured creditors may impact on their ability to inject needed capital. However, unease from unsecured creditors could stop its day-to-day business. In my opinion the courts have made the right decision because following Siebe Gorman and its potential for analogous arguments could provide a route for a similar domination as existed for floating charges prior to the 1897 Act. The question of removing the fixed and floating distinction and replacing it with freedom of contract as an abstract question appeals to formal legal principles. However, similar to the court's choice in Spectrum the collapsing of any distinction would probably tend to favour security holders over unsecured holders, which from a social perspective is probably dissatisfactory.
Secondly, the Enterprise Act had a stated aim of promoting a rescue culture but it's concentration on the rhetoric of the abuses of floating charge holders skewed the debate. In my opinion further measures are required that tackle the fact that the poorest creditor returns are achieved by the most ubiquitous Insolvency procedure. The situations in which CVL and Compulsory liquidation are available need to be limited or perhaps subject to a requirement to try other rescue procedures first. In particular a promotion of Creditor Voluntary Arrangements, in many respects this may not necessarily be a battle for which the law is an appropriate tool. A changing of creditor attitudes seems to be more necessary and increased edification of insolvency practitioners to the stark statistical facts. Thus in conclusion the secured / unsecured distinction becomes of less importance in determining credit risk than insolvency proceedings
Finally, for those Small Companies without the collateral with which to secure the required capital the SFLGS is a great scheme and in its current form probably suits our current economic climate perfectly. However, as the Foot-and-Mouth outbreak in 2001 showed , the DTI requires to respond to external circumstances that impact on the economy. The rigidity of the current scheme is not justified and should be replaced with a more flexible administrative scheme.
The future for small companies is very much at the centre of the UK Government's agenda however serious thought has to go into the detail of the legal provisions that cover this area otherwise the future of small companies will be impaired, we already lag other countries in start-ups and entrepreneurialism and whilst the law is only a tool that can facilitate these things it is imperative that we have the most logically consistent and socially helpful system possible. At the moment there is too much rhetoric which grips the psyche of law-reformers, such as the iniquity of floating charges in modern day, once these have been debunked we can understand where reform is necessary.
- Deakin, Simon & Morris, Gillian 'Labour Law' 2001, 3rd ed., Butterworths
Journal & Other Articles
- Armour, John 'Floating Charges: All Adrift?' 2004 63 Cambridge Law Journal 560
- Armour, John & Mokal Rizwaan Jameel 'Reforming the Governance of Corporate Rescue: The Enterprise Act 2002' June 2004 Working Paper No. 289 ESRC Centre for Business Research, University of Cambridge
- Association of Business Recovery Professionals '12th Survey of Corporate Insolvency in the U.K.' 5th July 2004, Published by R3 - ABRP, Available at www.r3.org.uk
- Association of Business Recovery Professionals '11th Survey of Corporate Insolvency in the U.K.' 28th July 2003, Published by R3 - ABRP, Available at www.r3.org.uk
- Association of Business Recovery Professionals 'A Decade of Change (10th Annual Company Survey' 27th July 2002, Published by R3 - ABRP, Available at www.r3.org.uk
- Association of Business Recovery Professionals '9th Survey of Corporate Insolvency in the U.K.' 27th July 2001, Published by R3 - ABRP, Available at www.r3.org.uk
- Association of Business Recovery Professionals '8th Survey of Corporate Insolvency in the U.K.' 27th July 2000, Published by R3 - ABRP, Available at www.r3.org.uk
- Atherton, Stephen & Mokal, Rizwaan Jameel 'Charges Over Chattels - Issues in the Fixed / Floating Jurisprudence'September 2004, Available at SSRN: http://ssrn.com/abstract=593448
- Berg, Alan 'Charges over Book Debts: a Reply' 1995 Journal of Business Law 433
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- Dodd, E M For Whom Corporate Managers Are Trustees 1932 Harvard Law Review 1147
- Hanlon, James & Heywood, Rob 'Spectrum Plus and Book Debts: The Final Chapter?'  1 Web Journal of Current Legal Issues
- HMSO Publication 'Graham Review of the Small Firms Loan Guarantee Recommendations' September 2004 -HMSO
- HMSO Publication 'Industrial Development Act 1982 - Annual Report 2003' 26th June 2003 - HMSO.
- Jones, Clive 'Siebe Gorman is Right!' 21st July 2004 Online Article available from www.newsquarechambers.co.uk
- Law Commission 'Company Security Interests' August 2005 LAW COM No. 296
- Mawson, J 'Central Government Support To SMEs Compared to Business Link, Business Connect and Business Shop and the Prospects for the Small Business Service' 2000 Volume 33.8 Regional Studies 779
- Mitchell QC, Gregory 'Fixed and Floating Charges after Spectrum' 2005 155 NLJ 1309
- Mokal, Rizwaan Jameel 'The Search for Someone to Save: A Defensive Case for the Priority of Secured Credit' 2002 Oxford Journal of Legal Studies 687
- Mokal, Rizwaan Jameel 'The Floating Charge - An Elegy' Commercial Law And Commercial Practice, Sarah Worthington, Ed., Oxford: Hart, August 2003 Available At SSRN: Http://Ssrn.Com/Abstract=386040
- Pennington, Robert 'The Genesis of the Floating Charge' 1960 23 Modern Law Review 630
- Pogue, Lauren 'The Spectrum Plus Case: Fixed or Floating Charge over Book Debts in England?' 2005 9 North Carolina Banking Institute 419.
- Riding, A & Haines, G 'Loan Guarantees - Costs of Default and benefits to small firms' 2001 Volume 16 Number 6 Journal of Business Venturing 595
- Wood, Phillip 'Fixed and Floating Charges' 2001 60 Cambridge Law Journal 472
- Wood, Roderick J. 'The Floating Charge in Canada' 1989 27 Alberta Law Review 191
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