Pound Sign in the SeaThe recent Court of Appeal decision in Saw (SW) 2010 Ltd and another v Wilson and others (as joint administrators of Property Edge Lettings Ltd) is the first case to address the effect of automatic crystallisation of an earlier floating charge upon a later floating charge.

In order for a floating charge to be a valid qualifying floating charge it must comply with the requirements of paragraph 14 of Schedule B1 Insolvency Act 1986 (“para 14”). These requirements are that (1) the instrument must either state that para 14 applies or empower the holder of the charge to appoint an administrator or an administrative receiver and (2) the floating charge must relate to the whole or substantially the whole of the company’s property.

This case dealt with two principle issues: whether the debenture created a qualifying floating charge within the meaning of para 14 and, if so, whether the floating charge was enforceable under paragraph 16 of Schedule B1 (“para 16”) at the date of the administrators’ appointment.


Property Edge Lettings Limited (“Property Edge”) was acquired by Saw (SW) 2010 Limited (“SAW”) in 2007. SAW granted Property Edge a long lease over 6 residential apartment blocks in Bartholomew House in Exeter.

In December 2007, Property Edge took out a buy-to-let loan of £1.25m from Capital Home Loans Ltd (“Capital”) secured by six fixed charges over the individual flats within Bartholomew House and a floating charge over all of Property Edge’s assets (the “Capital Charge”). The Capital Charge contained an automatic crystallisation clause, a trigger for which was the granting of any security over Property Edge’s assets without the consent of Capital (i.e. in breach of the negative pledge in the Capital Charge).

Property Edge subsequently sought to borrow £3.9m to finance the acquisition of development land for the purpose of constructing 23 residential apartments. This money was loaned to Property Edge by the Derbyshire Building Society (“Derbyshire”). The security granted to Derbyshire in relation to this loan included a first ranking mortgage debenture which created a floating charge over all of the assets of Property Edge (the “Derbyshire Charge”). In taking/granting this security, neither Property Edge nor Derbyshire sought the consent of Capital.

Property Edge began to experience financial difficulties and Nationwide, the successor in title to Derbyshire, sought to enforce the Derbyshire Charge and appointed an administrator, with the consent of Capital, as a qualifying floating charge holder. SAW, acting as creditor in respect of unpaid ground rent and loans, challenged the validity of the administrators’ appointment on, inter alia, the following grounds:

  1. the Derbyshire Charge did not constitute a qualifying floating charge under para 14 because, at the time of its creation, the Capital Charge had crystallised over Property Edge’s assets and there were therefore no unencumbered assets to which the Derbyshire Charge could attach; and
  2. under para 16, an administrator could not be appointed by Nationwide as the Derbyshire Charge was unenforceable at the time of appointment of the administrators because, following crystallisation of the Capital Charge, there remained no property to which the Derbyshire Charge could attach.

 High Court decision

 It was held by the High Court that although the creation of the Derbyshire Charge operated to crystallise the Capital Charge, this had no effect on the status of the Derbyshire Charge. The Derbyshire Charge was a qualifying floating charge at the time of its creation as it fell within the meaning of a “qualifying floating charge” in para 14 and nothing thereafter deprived it of this status.

The court also determined that the Derbyshire Charge was enforceable. In circumstances where there was already a crystallised fixed charge (the Capital Charge in the current case), this would not render the subsequent floating charge unenforceable, it would simply mean that it would take effect subject to the rights of the earlier charge holder. The Derbyshire Charge would therefore still be a qualifying floating charge, it would just rank after the Capital Charge in terms of priority.

SAW appealed.

Court of Appeal decision

The Court of Appeal affirmed the decision of the High Court. As the Derbyshire Charge satisfied the statutory requirements of para 14, the court determined that it was a qualifying floating charge. There was no additional condition in para 14 that there ought to be any assets available at the time the charge was created.

On the second point, the Court of Appeal held that a floating charge is enforceable if any condition precedent to enforcement is satisfied and there remains a debt for which the floating charge acts as security, regardless of whether there are assets available against which to enforce the security. To come to any other conclusion would render paragraph 15 of Schedule B1 (which allows a second or subsequent ranking secured creditor to appoint administrators with the consent of prior ranking secured creditors) effectively redundant. The Derbyshire Charge was therefore held to be enforceable as the loan was still outstanding at the time the administrators were appointed.


In an age where multiple secured lenders are much more common, this decision will be welcomed by second or subsequent security holders as it reassures them that their charge is valid and enforceable despite the crystallisation of a prior ranking charge and irrespective of the availability of assets to satisfy it. The case also illustrates the limited scope of negative pledge clauses. Whilst they provide a contractual remedy to the earlier charge holder, a floating charge granted in breach of a negative pledge clause will not be deemed automatically unenforceable. Administrators should always, however, obtain a report as to the validity of their appointment to include the validity and enforceability of the qualifying floating charge under which they were appointed.