Principle of floating charges, Business Law and Ethics

Principle of floating charges:

The general purpose of the rule is to prevent an unsecured creditor of an insolvent company from getting advantage over other creditors by obtaining a floating charge to secure an existing debt at a time when the company is heading towards insolvent liquidation.  It is only the charge (as security) not the debt itself which becomes void.

If the charge is created to secure a loan of new money the rule is generously interpreted.

                                      Case: RE F AND E STANTON (1929)

A lender agreed to lend money to a company on the security of a floating charge.  The money was lent but the charge was not created until afterwards.  A few days after the creation of the charge the company went into liquidation.

Held:

The charge was valid since the loan was made in consideration of the promise of security.  It was not material that the money was lent before the charge was created.

On the other hand if money is lent after a floating charge is created but is used (as was intended) to pay off an unsecured debt (of the same creditor) existing when the charge was created, this will not be treated as a new loan and the charge will be void (as security for the later loan).

In determining the date when money is lent through transactions on running account the rule in Clayton's Case is applied, ie. any repayment is applied to pay off the earliest advance.

                                      Case: RE YEOVIL GLOVE CO (1965)

At the time when the floating charge was created the company had a bank overdraft of about 68,000 pounds.  Over the next few months it paid in cheques totalling 111,000 pounds and drew cheques totalling 110,000 pounds.  At the commencement of liquidation (within 12 months of creating the charge) the debt balance on the account was 67,000 pounds, ie. Nearly through the same as when the charge was created.

Posted Date: 1/15/2013 5:39:12 AM | Location : United States







Related Discussions:- Principle of floating charges, Assignment Help, Ask Question on Principle of floating charges, Get Answer, Expert's Help, Principle of floating charges Discussions

Write discussion on Principle of floating charges
Your posts are moderated
Related Questions
For the transactions provided below for the Braves Corporation during 2011, complete the following steps of the accounting cycle (round all answers and journal entries to the neare

Committal Stage: In this such order 103 offers that a Bill having been read a second moment shall stand committed to a committee of the Whole House, unless the House commits t

Two very important resolutions which had a great impact on description of terrorism UNSC has also declared incitement as an offence. The interpretation of terrorism formulated

hi there, we are looking forward your assistance to do our business law assignment as we have 4 legal issue and we have to use law in commerce (5th edition) text book for that assi

Question 1: (a) In the Mauritian Legal System, there is a hierarchy of courts. Describe the various courts. (b) State and critically examine the features of the 5 main sour

Determine the term - Real Income Effects This linkage between countries takes place through the current account of the balance of payments. It occurs when a change in one count

Question 1: (a) Explain the term Corporate Social Responsibility. Critically examine the moral responsibility of corporations towards their stakeholders. (b) Discuss the stre

Question 1: In order to ensure health and safety of employees at the workplace, the Occupational Safety and Health Act 2005 imposes duties on employers only. Discuss. Quest

What do you mean by breach of duty? Breach of duty: It is based onto a “reasonable man” would conclude if there has been any negligence, so. The basis stems through what

Article 3 - State Responsibilty Article 3. This article is about the Characterisation of an act of a State as Internationally wrongful. A local law that results into violatio