Additional matters to be considered for 'all sums' clauses and multi-purpose clauses

September 1994

63.25 ‘All sums’ clause

An ‘all sums’ clause is sometimes referred to as an ‘all monies’ clause or a ‘current account’ clause. In such a clause the supplier will stipulate that the title to the goods supplied under any contract with the insolvent will not pass until all sums due under any contracts have been paid. Where the official receiver is satisfied that such a clause exists, he will not need to ensure that the goods being claimed relate to an unpaid invoice as the supplier may have a valid claim to any goods which he supplied which are still with the insolvent at the date of the liquidation or bankruptcy (Aluminium Industrie Vaassen BV v Romalpa Aluminium Limited [1976] 2 All ER 552 and Armour and another v Thyssen Edelstahlwerke AG [1990] 3 All ER 481). The supplier will not have a claim to goods which were contracted for on a date prior to there being a nil balance or a balance in favour of the supplier on the insolvent’s account. The reason for this is that the title of those goods will have passed to the insolvent at the time that no monies were due to the supplier. An ‘all sums’ clause does not always constitute the creation of a charge (Clough Mill Limited v Martin [1985] 1 WLR 111) but once such a clause attempts to recover the proceeds of sub-sales then it will do and so should be registered (Compaq Computer Limited v Abercorn Group Limited [1991] BCC 484) (see also paragraphs 63.26 to 63.28). However, even if the clause is not registered it may still be valid as regards unused or unsold goods which the official receiver recovers.

63.26 Right to trace proceeds of sale

(amended August 2012)

Where a supplier tries to claim the proceeds of sale of goods which were received by the insolvent and mixed with the insolvent’s money prior to the insolvency, then the supplier needs to show that he had a fiduciary relationship with the insolvent (or that the proceeds of the sale were subject to a charge on book debts that has been registered). A fiduciary relationship is one where the insolvent holds the goods and any proceeds of sale for the benefit of the supplier and must account to the supplier for any sale proceeds. A fiduciary relationship will not arise in a contract for sale unless there is specific agreement between the parties creating one. It is necessary to look closely at the relationship that existed between the parties and not merely the labels attached to the relationship in the contractual documentation. It may be that the actions of the parties are inconsistent with a fiduciary relationship so that it should be inferred that the relationship has not been established. An example of this is the giving of a fixed period of credit (see (f) below). The official receiver should satisfy himself that all of the following terms (as well as those matters referred to in paragraph 63.13 (a) to (d)) were part of the contract before agreeing to pass the sale proceeds of the goods to the supplier:-

  1. that the passing of the title to the goods was postponed until all the indebtedness to the supplier was discharged rather than on the full payment being made for a particular consignment;
  2. that the insolvent was selling the goods on behalf of the supplier eg as agent or bailee. If the insolvent had to refer to the supplier prior to disposal of the goods, the insolvent will be a bailee of the supplier since a bailee cannot normally resell without the consent of the bailor. If the contract does not prevent the resale of the goods then there will not normally be a fiduciary relationship;
  3. that the supplier indicated to the insolvent that the goods were to be stored in a manner which manifested the supplier’s ownership of the goods;
  4. that there was an express acknowledgement in the contract of a fiduciary relationship and provision that the supplier should obtain the benefit of monies paid to the insolvent on the sub-sale of the goods;
  5. that there was an obligation on the insolvent to keep the sale proceeds of the goods in a separate account. Where the proceeds of sale were paid into a separate bank account prior to the winding up or bankruptcy order, the supplier will have a claim to the funds and if there was a fiduciary relationship between the insolvent and the supplier, the supplier will have a right to trace any proceeds of sale that have been mixed with the insolvent’s funds. However, he will have no such right where the insolvent’s bank account is overdrawn, as the monies are no longer identifiable.
  6. that no credit period has been incorporated into the contract. If a credit period was specified it can be inferred that within that period the insolvent was free to use the sale proceeds, which defeats the supplier’s claim to those proceeds (even where the monies were placed in a separate account).

If there was a fiduciary relationship, it is likely that there will not be a charge created (Re: Andrabell Limited [1984] 3 All ER 407). Generally, where the contract allows the insolvent to treat either the goods supplied under it, the products incorporating goods supplied, or the proceeds of sale of either of these as his own, it is unlikely that a fiduciary relationship will exist. If there is no fiduciary relationship, a clause seeking to claim the proceeds of sale may create a charge which would be void (against the liquidator or trustee as per section 874 of the Companies Act 2006) if not registered in accordance with section 860 of the Companies Act 2006, for a company or the Bills of Sale Act 1878, for an individual (see also paragraphs 63.28 and 63.29). Alternatively it may be avoided by the trustee as a general assignment of book debts. Therefore the official receiver should exercise care in deciding whether the above matters have been established by the supplier. If the official receiver is in doubt then he should consult Technical Section.

63.27 Deciding whether the clause is a charge

A charge may be expressly created by a company or individual but it is more usual for the granting of a charge to be implied from the terms of the contract to supply goods. Specific examples are given in paragraph 63.30. Where the official receiver has considered the circumstances of the case and is unclear whether or not a charge has been created he should consult Technical Section at HQ London. Registration of a charge is necessary for both companies and individuals if the supplier’s claim is to be valid (see paragraphs 63.28 and 63.29).

63.28 Registration of clause which is a charge (companies only)

(amended August 2012)

In the case of a company; if a charge has been created by the clause, particulars and the charge instrument must be delivered to the Registrar of Companies within 21 days of creation (although the court may allow registration out of time) if the clause is to be valid against the liquidator. Where the official receiver encounters a registered clause he should check the timing of the registration and consider its priority with any other charges, before accepting the supplier’s claim.

Notes: [ss 860, 870 and 873 CA 2006]

63.29 Registration of clause which is a bill of sale (individuals only)

A bill of sale will be created where an individual transfers personal chattels to another but retains possession of those chattels. A bill of sale should be registered under the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882. It should be noted that a bill of sale over future acquired chattels may be void (see paragraph 63.19). Where the official receiver considers that a bill of sale should have been registered, he may make a search by writing to: The Chief Clerk, Filing and Record Department, Royal Courts of Justice, The Strand, London WC2A 2LL for which a charge of £2 per name will be made. Full details of the name, address and occupation of the bankrupt should be given. In urgent cases official receivers may wish to have a personal inspection of the Register made. The Register is kept in Room 81 of the Royal Courts of Justice and a charge of 5p per name is made for personal inspection. These fees should be charged to the bankrupt’s estate (and a debit balance may be incurred for this purpose, if necessary). Where the official receiver encounters a registered bill of sale, he should check its validity by ensuring that the bill of sale:-

(a) is in the format of the Schedule to the Bills of Sale Act (1878) Amendment Act 1882 (see annex 2 to this chapter), where it is a security bill under Section 9 of that Act (ie. personal chattels were transferred to the supplier to secure the bankrupt’s indebtedness);

  1. (b) was registered within seven days of creation (or such longer period as the court may have allowed);
  2. (c) has been re-registered every five years.

Where the official receiver does encounter a validly registered clause he should also consider its priority with any other charges before accepting the supplier’s claim.

63.30 Examples of circumstances which create a charge

Examples of the circumstances where a charge will be created in favour of the supplier are where the clause:-

  1. attempts to retain ‘equitable and beneficial ownership’ of goods for the supplier. Following the decision in the case of Re: Bond Worth Limited ([1979] 3 All ER 919), this should be interpreted as a charge securing a debt, since the term ‘equitable ownership’ means the insolvent as the legal owner holds the goods for the supplier in a trust-like fashion until payment is made for them.
  2. seeks to retain title to goods supplied once they have lost their identity in the manufacturing process of the insolvent. (Further details on the identification of goods are given in paragraphs 63.17 and 63.18. Reference should also be made to paragraph 63.19 as the official receiver should make enquiries regarding any agreement on the ownership of the manufactured goods which may have been made.)
  3. seeks to claim the proceeds of sale of the goods or the proceeds of sale/debts owed by sub-purchasers unless a fiduciary relationship exists. (Further details on the right to claim proceeds of sale and the establishment of a fiduciary relationship are given in paragraph 63.26). A claim to the proceeds of sale where no fiduciary relationship exists will be invalid against a liquidator or trustee unless registered as a charge or bill of sale (E Pfeiffer Weinkellerei- Weineinkauf GmbH & Co v Arbuthnot Factors Limited [1987] 3 BCC 608; Tatung (UK) Limited v Galex Telesure Limited and others [1989] 5 BCC 325; and re: Weldtech Equipment Limited [1991] BCC 16). Furthermore, in the case of an individual, it may well be void to the extent that it purports to cover after acquired chattels (see paragraph 63.19). In the Re: Weldtech case it was held that the standard terms of sale of the German supplier involved relating to book debts created a charge which was void due to non-registration with the Registrar of Companies. If, in the case of an individual, the clause assigned book debts to the supplier in respect of the sale of the finished product incorporating goods of the supplier, then it is likely the clause would be void against the trustee, unless registered as a bill of sale.

Notes: [s344]


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