Floating charge can be saved but only to extent of goods and services actually supplied

Insolvency Bitesize - September 2019

The Court of Appeal has clarified a technical question on the proper operation of Section 245 IA 1986 and the extent to which it might invalidate floating charges taken to secure the supply of goods or services.

Section 245 IA 1986 invalidates floating charges created during the 12 months before insolvency, except (among other matters) to the extent of:

“the value of so much of the consideration for the creation of the charge as consists of money, or goods or services supplied, to the company at the same time as, or after, the creation of the charge”.

The Court of Appeal recently clarified that what must be ascertained is the value of the services actually supplied during the relevant period -  not what was merely promised to be, but was not in fact, supplied: Re Peak Hotels and Resorts Limited (in liquidation) [2019] EWCA Civ 345.

Once you know what has to be valued, section 245(6) then specifies how its value is to be ascertained, namely: the amount in money which at the time the goods/services were supplied could reasonably have been expected to be obtained for supplying the goods/services in the ordinary course of business and on the same terms, apart from the consideration, as those on which they were supplied to the company.

On the facts in this case, that meant valuing the legal services actually supplied to the company (for which a floating charge had been taken) and ignoring a fixed fee arrangement. The calculation of that value would be remitted to the High Court for determination.