On Thursday 8th November 2001, the House of Lords delivered its much awaited ruling in the case of Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgen County Council in which it established, amongst other issues, that the standard condition 63 of the Institution of Civil Engineers form of contract creates a floating charge which is registerable under s 395(1) of the Companies Act 1985. Condition 63 provides that if the original contractor abandons the contract the employer can employ another contractor to complete the works using the plant on site which is deemed to become the property of the employer under clause 53 and can sell the plant and apply the proceeds in or towards satisfaction of any sums due to the employer from the contractor under the contract.
Their Lordships, while reversing the decision of the Court of Appeal, explained that a right to sell an asset belonging to a debtor and apply the proceeds to payment of the debt was a charge. Consequently, if the property subject to the charge was a fluctuating body of assets subject to change in the ordinary course of the contractor's business, as was the case in Cosslett, the charge was a floating charge and subject to registration.
This point, and the other technical issues, decided by the House of Lords in this case, will be dealt with in more detail in an article which will be available shortly. These points include:(i) whether section 395 of the Companies Act 1985 should be interpreted as meaning that an unregistered charge is void against the company acting by its liquidator/administrator not just void against the liquidator/administrator; (ii) whether there is a right of equitable set-off under rule 4.90 of the Insolvency Rules 1986 applies in the circumstances of this case; and (iii) whether there was a conversion when the Council agreed to the removal of the plant by the new contractor at the end of the contract, even though at that time the company had no immediate right to possession.
For further information on this decision, please contact Inga West at inga.west@cms-cmck.com or on +44 (0)20 7367 3478 or Belinda Hackett at belinda.hackett@cms-cmck.com on +44 (0)20 7367 2807
