Floating Charges Flashcards
(21 cards)
What is a floating charge?
A security interest over a class of fluctuating assets (e.g., stock, receivables) that allows the company to deal with them until the charge ‘crystallises’.
What is the main advantage of a floating charge?
It allows a company to continue using and disposing of the secured assets in the ordinary course of business.
What is the key case that defines the characteristics of a floating charge?
Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284
How is a floating charge created?
By deed or debenture and registered with the Companies Registration Office (CRO) under s.409 CA 2014.
What happens if a floating charge is not registered within 21 days?
It becomes void against a liquidator, examiner, or creditor (s.409(4)).
What is crystallisation of a floating charge?
The point at which the floating charge becomes a fixed charge, attaching to existing assets.
What events can trigger crystallisation?
Appointment of a receiver, Commencement of winding-up, Business ceasing, Default under the loan.
What case confirmed that directors lose power to deal with assets upon crystallisation?
Re Cimex Tissues Ltd [1991] 1 IR 299
Are floating charges strong or weak in insolvency?
Weaker than fixed charges due to their subordination to certain statutory priorities.
What claims take priority over floating charges in liquidation?
Liquidator’s costs and expenses, Preferential debts (e.g., wages, taxes), Receiver’s fees (s.440 CA 2014).
What section makes recent floating charges vulnerable?
s.444 CA 2014 – charges created within 12 months before winding up may be invalid if the company was insolvent.
What case confirmed this vulnerability?
Re Patrick & Co Ltd [1933] IR 413
How is a floating charge usually enforced?
By appointing a receiver under s.433 CA 2014.
What happens to the charge upon receivership?
It crystallises, and the receiver takes control of the charged assets.
What case established that court protection halts receivership?
Re Holidair Ltd [1994] 1 ILRM 481
What distinguishes a fixed charge from a floating charge?
Control – under a fixed charge, the lender must control how the asset is used or disposed of.
What case recharacterised a ‘fixed’ charge as floating due to lack of control?
Re Keenan Bros Ltd [1986] 1 IR 401
What approach do courts use to distinguish charge types?
Substance over form – labels don’t determine the true nature of the charge.
What is a negative pledge clause in a floating charge?
A clause preventing the company from creating new charges without consent.
Can a later creditor take priority despite a negative pledge clause?
Yes, if they had no notice and the earlier charge was not properly registered.
What is an all-assets debenture?
A security instrument combining fixed charges (on land, IP) and floating charges (on stock, receivables).
