''Re Yeovil Glove Co Ltd'' 965Ch 148 is a leading

UK insolvency law United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the ...

case, concerning

voidable floating charge {{Insolvency In law, a voidable floating charge refers to a floating charge entered into shortly prior to the company going into liquidation which is void or unenforceable in whole or in part under applicable insolvency legislation. Generally spe ...

s for past value. It holds that a

floating charge A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulator ...

can harden (or crystallise) when it secures a debt in an overdraft account, when the bank keeps the facility open as a company takes money out and puts money in.

Facts

The liquidator of Yeovil Glove Co Ltd, a

glove A glove is a garment covering the hand. Gloves usually have separate sheaths or openings for each finger and the thumb. If there is an opening but no (or a short) covering sheath for each finger they are called fingerless gloves. Fingerless glov ...

manufacturer in

Yeovil Yeovil ( ) is a town and civil parishes in England, civil parish in the district of South Somerset, England. The population of Yeovil at the last census (2011) was 45,784. More recent estimates show a population of 48,564. It is close to Somer ...

, sued

National Provincial Bank National Provincial Bank was a British retail bank which operated in England and Wales from 1833 until 1970 when it was merged into the National Westminster Bank. It continued to exist as a dormant non-trading company until 2016 when it was vo ...

rescind In contract law, rescission is an Equity (law), equitable legal remedy, remedy which allows a contractual party to cancel the contract. Parties may rescind if they are the victims of a vitiating factor, such as misrepresentation, Mistake (contrac ...

a floating charge taken within 12 months before insolvency. The bank's floating charge was to secure Yeovil Glove's overdraft, which (on top of debts of £94,000 to other unsecured creditors) had grown to £67,000 when the bank took fixed security and then as money was still unpaid, a floating charge. Over the next year, Yeovil Glove paid £111,000 and drew out (through cheques written to other people that the bank was honouring) £110,000. At the time the

Insolvency Act 1986 The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication and ...

, section 245 (formerly

Companies Act 1948 The Companies Act 1948 (11 & 12 Geo.6 c.38) was an Act of the Parliament of the United Kingdom, which regulated UK company law. Its descendant is the Companies Act 2006. Cases decided under this Act *''Bushell v Faith'' 970AC 1099 *''Scottish ...

, section 322) read that a floating charge was voidable ‘except to the amount of any cash paid to the company at the time of or subsequently to the creation of, and in consideration for, the charge.’ The bank argued that because more money had been paid out of the account than was covered by the charge (albeit that new debts were run up) the charge was not voidable. As in ''

Clayton's case ''Devaynes v Noble'' (1816) 35 ER 781, best known for the claim contained in ''Clayton's case'', created a rule, or more precisely common law presumption, in relation to the distribution of money from a bank account. The rule is based upon the d ...

'', money going into an account is presumed to discharge the last debt first. So money had been advanced to the company to a greater extent than the charge, and the turnover of money converted the old value given into new value. Plowman J held that the ability to make drawings after was good consideration for the charge.

Judgment

Harman LJ noted the liquidator’s argument, that because no cash or promise to pay cash was made when the debenture was made, there was no consideration except the bank’s immediate forbearance. But he held that the act of the bank in meeting the company’s cheques was equivalent to money given, relying partly on a decision by Romer J in '' Re Thomas Mortimer Ltd''. By the rule in '' Clayton’s case'', the bank could claim the whole £67,000 was cash advanced subsequently to the creation of the charge, so the security was valid. His judgment went as follows 965Ch 148, 173-175

Notes

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References

* United Kingdom insolvency case law 1965 in British law 1965 in case law High Court of Justice cases

Facts

Judgment

See also

Notes

References