Spectrum opened an overdraft facility, and made an agreement with, National Westminster Bank Plc ("NatWest") that said it was granting a fixed charge, or in the words of the contract, a "specific charge [of] all book debts and other debts… now and from time to time due or owing to [Spectrum]" to secure a £250,000 overdraft.

The Inland Revenue, which was a major creditor, argued the debenture was merely a floating charge, so its claim for tax owed took priority over the bank under Insolvency Act 1986 section 175.

It was apparent that if the House of Lords decided in favour of the Inland Revenue, the expectations of a significant number of banks, who had relied on being able to have "fixed charges" and thus absolute priority in insolvency, would be defeated.

In the High Court, the Vice Chancellor held, applying the ruling of Lord Millett in the Privy Council decision of Agnew v Commissioners of Inland Revenue (Re Brumark) and declining to follow Re New Bullas Trading Ltd, that because the charge allowed Spectrum to use the proceeds of the debts in the normal course of business it must have been a floating charge (therefore not following Siebe Gorman & Co Ltd v Barclays Bank Ltd either).

In the Court of Appeal, Lord Phillips MR held that he was bound by Bullas and where a chargor is prohibited from disposing of receivables before they are collected and must pay them into a chargee’s account, the charge must be construed as fixed.

He said Siebe Gorman was correctly decided given that the debenture there clearly restricted the company’s ability to draw on the bank account into which the proceeds of the book debts were paid.

Also relevant, but not determinative were the extent of the restrictions imposed by the debenture, the rights retained by Spectrum to deal with its debtors and collect the money owed by them, Spectrum's right to draw on its account with the bank into which the collected debts had to be paid, provided it kept within the overdraft limit, the description "fixed charge" attributed to the charge by the parties themselves.

It is not easy to reconcile the company's need to continue to collect and use these sums for its own business purposes with the lender's wish to escape from the priority which section 175(2)(b) gives to preferential debts over the claims of the holder of a floating charge by subjecting the uncollected book debts to a security which will operate as a fixed charge over them.

This is the only method which is known to Scots law which, as I have said, insists upon assignation of the book debts to the security holder and its intimation to the company's debtor as the equivalent of their delivery.

But this method too is likely to be unacceptable to a company which wishes to carry on its business as normally as possible by maintaining its cash flow and its working capital.

It was selected, no doubt, because it enabled the company to continue to trade as normally as possible while restricting it, at the same time, to some degree as to what it could do with the book debts.

There is no doubt that their effect was to prevent the company from entering into transactions with any third party in relation to the book debts prior to their collection.

In Agnew v Commissioners of Inland Revenue [2001] 2 AC 710, 722, para 22 Lord Millett said that the critical feature which led the Irish Supreme Court in In re Keenan Bros Ltd [1986] BCLC 242 to characterise the charge on book debts as a fixed charge was that their proceeds were to be segregated in a blocked account where they would be frozen and unusable by the company without the bank's written consent.

Lord Phillips of Worth Matravers MR said that, even if Slade J's construction of the debenture in Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd's Rep 142 had appeared to him to be erroneous, he would have been inclined to hold that the form of the debenture had, by custom and usage, acquired the meaning and effect that he had attributed to it: [2004] Ch 337, 383, para 97.

The commercial life of this country depends to a large extent on the reliability of the security arrangements that are entered into between debtors and their creditors.

It is a tribute to the great respect which Slade LJ's outstandingly careful judgments, both at first instance and the Court of Appeal, have always commanded that his decision in that case has remained unchallenged for so many years.

There can, in my opinion, be no difference in categorisation between the grant of a fixed charge expressed to come into existence on a future event in relation to a specified class of assets owned by the chargor at that time and the grant of a floating charge over the specified class of assets with cystallisation taking place on the occurrence of that event.

Moreover, recognition that this is the essential characteristic of a floating charge reflects the mischief that the statutory intervention to which I have referred was intended to meet and should ensure that preferential creditors continue to enjoy the priority that section 175 of the 1986 Act and its statutory predecessors intended them to have.Regarding the prospective ruling issue, Lord Nicholls said that judges had been described as "developing" the law for some time when making novel decisions, and that a judge is not free to repeal laws or distance themselves from bad laws; their only power is to impose a new interpretation.

He then went on to rule: But, even in respect of statute law, they do not lead to the conclusion that prospective overruling can never be justified as a proper exercise of judicial power.

Constitutionally the judges have power to modify this practice.He held that in exceptional cases, it would be open to the court to hold that a new interpretation of the law should be applied only prospectively.

In relation to the substantive issues, the Revenue had already indicated that it would not seek to reopen recent liquidations that had been distributed in compliance with the understandings of the old law so in many senses, the ruling took prospective effect only with respect to the largest preferred creditor.

The drafting of security documents has also been modified by the legal profession, and debentures now usually contain provisions stating that the proceeds of book debts may not be assigned and must be paid into a blocked account.

In Launchbury v Morgans [1973] AC 127 (at 137), Lord Wilberforce had expressed that view that "We cannot, without yet further innovation, change the law prospectively only".