A Brief Explanation of Brumark and its Implications
"Brumark" relates to a case brought by the receivers of a company called Brumark Investments Limited who were seeking an interpretation of a clause in a debenture granted to the Westpac Banking Corporation. The clause purported to give Westpac a fixed charge over the book debts of the company. Westpac anticipated that this charge would give them the right to receive the proceeds of these book debts as they were paid.
Brumark
The ruling in the Brumark case was that as the client was free to deal with the asset (the book debts) as it saw fit, without prior approval from the chargeholder, the asset could not be considered subject to the fixed charge.
UK banks have relied upon fixed charges over book debts (created within their debentures) against which to secure their lending. Although this ruling is not yet law within the UK the implications could be dramatic for the UK banks. Essentially, they could find themselves in a position where upon insolvency of a client, the insolvency practitioner could distribute the proceeds of the book debts to other creditors despite the bank's charge.
The nature of a factoring company's involvement with it's clients; the assignment of invoices, the collection of debts and the payment of the proceeds into the factor's designated bank accounts means that the Brumark ruling should not apply.
The implication of this is that many of the UK banks are taking steps to transfer some of their clients from traditional forms of finance such as overdrafts to their factoring and invoice discounting products. These are often delivered through subsidiary companies or divisions.
As independent brokers, Cashflow Acceleration Ltd are able to access and offer impartial advice about the wide range of different factors that are available in order to find the one that is most appropriate for any particular business.
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