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was that different legal forms could be used to achieve the same economic object or end and that
some legal forms legitimately fell outside the statutory provisions.
The court construed the documents and concluded that they constituted a genuine sale and
buyback, even though there were elements in the documents that were at variance with the
transactions being a sale and buyback. Firstly, the prices bore no relation to the value of the
shares at the date of the two agreements but were based simply on the financing requirements.
Secondly, there were some terms in the repurchase agreement which were not usually found in a
contract for the sale of shares.
[Slide 18-20] Re Spectrum Plus Ltd
Reasoning
The court cited from the case of Agnew v Commissioner of Inland Revenue:
While a debt and its proceeds are two separate assets, however, the latter are merely the
traceable proceeds of the former and represent its entire value. A debt is a receivable; it is
merely a right to receive payment from the debtor. Such a right cannot be enjoyed in specie; its
value can only be exploited by exercising the right or by assigning it for value to a third party.
An assignment or charge of a receivable which does not carry with it the right to the receipt has
no value. It is worthless as a security.
The court makes clear that while there are theoretically two assets (debts and proceeds), the debt
is worthless as security without the proceeds, so in effect the two assets are one asset the
receipt of money due.
Where there are distinct assets (Lord Millett gave the example in Brumark of land
generating rental income, and which would also apply to other assets such as equipment
and intellectual property rights which also generate income), then there can be distinct
charges secured on the asset and on the income stream derived from the asset.
The court held that since the chargor remained free to draw on the proceeds of the book debts in
the ordinary course of business for its own benefit, the charge cannot be a fixed charge. Hence
the charge over the entire book debts is a floating charge.
The essential characteristic of a floating charge is that the asset subject to the charge is not
finally appropriated as a security for the payment of the debt until the occurrence of some
future event. In the meantime, the chargor is left free to use the charged asset and to
remove it from the security.
In any case where the chargor is free to remove the charged assets from the security, the
court said that the charge should in principle be categorised as a floating charge for the
assets would have the circulating, ambulatory, character distinctive of a floating charge.
The decision in Siebe Gorman & Co Ltd v Barclays Bank Ltd which had determined that the
charge over uncollected book debts was held to be fixed charge was wrong and overruled.
Priorities Floating Charge
Kay Hian v Phua Ooi Yong Jon
- In the case of Kay Hian v Phua Ooi Yong Jon, it has been held that the person asserting
priority over a prior registered floating charge has the burden of proving that he had no notice
of that charge and the particulars registered with ACRA.
- Therefore, one can argue that in view of the nature of the form provided by ACRA that there
is a specific section for Restrictions/Prohibitions to be stated for registration of charges, it
is practically impossible for a person to prove no knowledge of a negative pledge clause if
the prior floating charge had been properly registered with that form at ACRA.