The House of Lords
have given its long awaited ruling on the case of NatWest.v.Spectrum
last week.
The Lords ruled that
in a collect out situation following a formal insolvency
appointment, banks’ charges over book debts, rather
than being fixed charge recovery, are merely covered by
the floating charge, from which preferential creditors
claims have to be paid out in priority to the banks.
The banks had, for
several years, anticipated the likely problems caused
by an adverse decision on the Spectrum case, pushing customers
down the factoring or invoice-discounting route. Nevertheless,
those companies which have declined to take up factoring/discounting
facilities, personal guarantors, and directors of companies
that have failed in recent years, could all suffer as
a result of the ruling in Spectrum.
This is because:
- The banks can be expected to reduce
the facilities they offer to existing customers who
have not taken up factoring etc, exacerbating pre-existing
cash flow problems, or causing problems where there
had been more previously.
- Companies that have already gone
into formal insolvency can also be affected. HM Customs
& Excise could reclaim monies already paid to the
banks.
- In each of these scenarios, company
directors could see a significant increase in their
personal exposure to a company’s borrowing to
the extent that PG’s they believed would not be
called upon, may now be enforced.
As a result of this
ruling, ALL lenders are expected to review their procedures,
particularly where debenture lending on overdraft exists,
and there is little doubt that they will be exerting some
pressure on their customers to switch to their in-house
factors/invoice-discounting providers.
In these circumstances,
we would strongly recommend that clients seek an independent
comparison with what they are being offered, so that they
can then make an informal decision based on not just price,
but on the overall service and flexibility offered.
We would be delighted
to arrange an independent review on your behalf. Please
contact us on 01902 717 175 for further information.
