Advantages_and_disadvantages_of_the_floating.DOC

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    Tolley's Company Law Service/Division C/Company Charges II: Advanages and Disadvanages o! he"loaing Charge# and Charges over $oo% De&s/Advanages and disadvanages o! he !loaing charge

    ADVANTAGES AND DISADVANTAGES OF THE FLOATING CHARGE

    The advantages of the floating charge

    [C5201]

    The !loaing charge was !irs recognised &y he cors in Re Panama, New Zealand and Australia Royal MailCo (1870) 5 Ch A !18 ( The !ndamenal advanage o he company and charge holder ali%e arises !rom isnare as a charge which does no aach o speci!ic asses nil crysallisaion# here&y permiing hecompany o condc is &siness wiho he concrrence o! he holder( "or he holder# he charge will aachpon he occrrence o! some even wiho any !rher ac on he par o! he company( I! he !loaing chargeconains a negaive pledge prohi&iing he company !rom graning secriy ineress in is propery# heprohi&iion will &e &inding on a person wih acal noice o! i )see Re "tandard Rotary Ma#hine Comany

    $td  (1%0&) %5 $' 8%* ilson * +elland  1%10- Ch !0&  and C+212 &elow* c!( .ri//iths * orshire 2an l#  1%%3- 1 $R 137 ,.

     A signi!ican advanage !or he holder resls !rom he erms in which mos de&enres are dra!ed whichpermi he holder o demand paymen and# a!er a very shor ime and s&-ec o he limiaions imposed &yhe Insolvency Ac 1.0 )'IA 1.0', )as amended &y he nerprise Ac 22 )'nA 22', 33 see C+22&elow, and he Insolvency Ac 2 )'IA 2', )see C+24 &elow,# appoin a receiver )R A Cris 4 "on(Pharma#euti#als) $td * i#enden 1%7!- 1 $R %33* 2an o/ 2aroda * Panessar  1%87- $R 08 * &conras Ronald lwyn $ister * 6unlo (1%8) 1!5 6$R (!d) 1 at 1&  where he Spreme Cor o! Canadaheld ha a 'reasona&le ime o pay' ms &e a commercially reasona&le ime# recognising ha !ew companiescan immediaely prodce s!!icien cash o discharge he de&s owing o a de&enre holder,( The &orroweris given a reasona&le opporniy o implemen whaever reasona&le mechanics o! paymen i may need oemploy o discharge he de&( This 'mechanics o! paymen' es does no allow a &orrower ime o raise he

    money &y# !or e5ample# new !inancing arrangemens( The amon o! ime o &e given is essenially apracical 6esion( Accordingly# where he &orrower admied ha i wold no &e a&le o mee he lender'svalid demand !or repaymen# i has &een held ha a period o! !i!een mines &eween service o! he demandand appoinmen o! a receiver was s!!icien )"heard 4 Cooer $td * '"2 2an l#  1%%&- All R &53,(In he a&sence o! &ad !aih# he lender can e5ercise he righ o appoin a receiver a any ime and has nody o! care o he company or any s&se6en chargee as o he iming o! he appoinmen )"hami *ohnson Matthey 2aners 1%8&- 2C$C 78 * 6owns*iew Nominees $td * 9irst City Cororation 1%%!- AC%5 ,( This means ha he lender can# in he a&sence o! agreemen resricing is righs and i! he charge soprovides )see# !or e5ample# Cryne * 2ar#lays 2an l#  1%87- 2C$C 538  where he cor held ha here wasno implied righ o appoin a receiver where he lender considered is secriy o &e in -eopardy,# a any ime&ring an end o he &siness operaions &eing condced &y he company(

    The effect of the Enterpr!e Act 2002

    [C5202]

    The relevan provisions o! he nA 22 have s&sanively a!!eced he law relaing o adminisraivereceiverships )as well as ma%ing varios changes a!!ecing he se and condc o! adminisraions,( Inpariclar:

    1 )a, The holder o! a !loaing charge graned on or a!er 1+ Sepem&er 24 )he 'prescri&ed

    dae', is no longer a&le o appoin an adminisraive receiver )IA 1.0# s 72A,( 8owever# a

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    !loaing charge graned prior o he prescri&ed dae conines o enile is holder o appoin anadminisraive receiver( There are varios e5cepions o he general prohi&iion )se o in IA1.0# ss 72$3729A,# e(g( !or he capial mar%es# p&lic3privae parnerships and pro-ec!inance(

    2 )&, Crown pre!erence was a&olished in relaion o de&s de o 8er a-esy's ;evene and

    Csoms and social secriy conri&ions )oher pre!erenial crediors# namely conri&ions ooccpaional pension schemes# remneraion o! employees !or he relevan period and levieson coal and seel prodcion# remain in place,( This amendmen a!!eced all !loaing charges#whenever graned(

    3 )c, "or !loaing charges graned on or a!er he prescri&ed dae# par o! he propery s&-ec

    o a !loaing charge )he 'prescri&ed par', is ring !enced !or nsecred crediors )IA 1.0# s170A,( The amon o! he prescri&ed par is crrenly !i5ed as !ollows:

    o! ha propery

    o! he !irs =1## pls 2> o! he properywhich e5ceeds =1## p o a ma5immprescri&ed par o! =0#

    4 )See he Insolvency Ac 1.0 )Prescri&ed Par, ?rder 24 )SI 24 @o 2.7,# e!!ecive 1+

    Sepem&er 24,(

    5 There are provisions disapplying he ring !encing:

    6

    1. )i, where he ne propery is less han he prescri&ed minimm )crrenly !i5ed a

    =1#, and he insolvency o!!ice3holder hin%s ha he cos o! ma%ing a disri&ion ohe nsecred crediors wold &e disproporionae o he &ene!is*

    2. )ii, where he ne propery is =1# or more and he o!!ice3holder applies o cor !or 

    an order disapplying he ring !encing* or 

    3. )iii, where i is disapplied &y he erms o! a company volnary arrangemen or a

    scheme o! compromise or arrangemen#1

    7 and recen ahoriies relaing o he 'prescri&ed par' are discssed in C+22(1 &elow(

    8 )d, The nA 22 inrodced he concep o! a 'holder o! a 6ali!ying !loaing charge' )IA

    1.0# Sch $1,( A !loaing charge 6ali!ies i! i is creaed &y a charge docmen which:9

    4. )i, saes ha paragraph 1 o! Schedle $1 applies o he !loaing charge*

    5. )ii, prpors o empower he holder o appoin an adminisraor*

    6. )iii, prpors o empower he holder o appoin an adminisraive receiver* or 

    7. )iv, prpors o empower he holder in Scoland o appoin a receiver who on

    appoinmen wold &e an adminisraive receiver(2

    10 In addiion# in order o &e a holder o! a 6ali!ying !loaing charge# a person ms hold one ormore de&enres o! he company secred &y eiher:

    11

    8. )i, a 6ali!ying !loaing charge which relaes o he whole or s&sanially he whole o!he company's propery*

    9. )ii, &y a nm&er o! 6ali!ying !loaing charges which ogeher relae o he whole or

    s&sanially he whole o! he company's propery* or 

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    10. )iii, &y charges and oher !orms o! secriy which ogeher relae o he whole or

    s&sanially he whole o! he company's propery and a leas one o! which is a6ali!ying !loaing charge(

    3

    12 )e, The adminisraion procedre was 'sreamlined' o ena&le# in cerain circmsances#

    holders o! 6ali!ying !loaing charges )IA 1.0# Sch $1# paras 1321, and companies anddirecors )IA 1.0# Sch $1# paras 2234, o place a company ino adminisraion wiho heneed o apply o cor( A cor &ased mehod o! appoining an adminisraor# wih a !ewmodi!icaions# also conines o &e availa&le )IA 1.0# Sch $1# paras 1314 and 4+34,( Theadminisraion procedre conained in IA 1.0# Par II# srvives in relaion o a nm&er o!caegories o! p&lic3iliy companies and o &ilding socieies(

     Alhogh nder he o o! cor procedres no cor applicaion is re6ired# cerain papers sill have o &e!iled a cor &y he person wishing o se he relevan o o! cor procedre( The conens o! he !iling varydepending on wheher he process is commenced &y eiher )i, a holder o! a 6ali!ying !loaing charge or )ii,&y he company or is direcors(

    I! he company or he direcors wish o appoin an adminisraor sing he o o! cor procedre# he relevan

    person has o !irs give !ive &siness days' wrien noice o! he inenion o appoin an adminisraor o anyperson who is eniled o appoin an adminisraive receiver or who is or may &e he holder o! a 6ali!ying!loaing charge( As soon as reasona&ly pracica&le !ollowing he giving o! sch noice# he company or hedirecors are hen re6ired o !ile a copy o! he noice a cor# accompanied &y a saory declaraioncon!irming# among oher hings# ha he company is or is li%ely o &ecome na&le o pay is de&s# ha hecompany is no in li6idaion and ha here is no osanding winding3p peiion or applicaion !oradminisraion( @o appoinmen can &e made nil sch noice period has e5pired# or he holder o! sch6ali!ying !loaing charge has consened o i and dring his period he charge holder can sill appoin anadminisraor# eiher sing he o o! cor procedre or &y ma%ing a cor applicaion prsan o paragraph12 or 4+ o! Schedle $1( I! he holder o! a 6ali!ying !loaing charge applies o he cor nder paragraph 4+)as opposed o paragraph 12, i is no necessary !or i o show ha he company is or is li%ely o &ecomena&le o pay is de&s )alhogh he 6ali!ying !loaing charge ms have &ecome en!orcea&le,(

    I! an o o! cor appoinmen is o &e made# i is necessary o !ile a cor a noice o! appoinmen#

    accompanied &y a saemen !rom he prospecive adminisraor consening o his appoinmen andcon!irming ha in his opinion he prpose o! an adminisraion is reasona&ly li%ely o &e achieved( In addiiono his:

    13 )i, where he procedre is commenced &y he holder o! a 6ali!ying !loaing charge# he

    charge holder is re6ired o !ile a saory declaraion con!irming# amongs oher hings# hahe appoinor is he holder o! a 6ali!ying !loaing charge and ha sch charge is en!orcea&le(In addiion# i! here is a prior ran%ing 6ali!ying !loaing charge hen he holder o! sch chargems have &een given wo &siness days' wrien noice# or have consened in wriing o heappoinmen# &e!ore any oher charge holder can appoin an adminisraor sing his mehod*

    14 )ii, where he procedre is commenced &y he company or he direcors he !iling needs o

    inclde a !rher saory declaraion con!irming# among oher hings# ha# so !ar as he personma%ing he saemen is a&le o ascerain# he saemens made and in!ormaion given in hesaory declaraion !iled wih he noice o! inenion o appoin remain accrae( Accordingly# i!#in he meanime# he holder o! a 6ali!ying !loaing charge has isel! appoined an adminisraoro o! cor or made an adminisraion applicaion o he cor# i will no longer &e possi&le aha sage !or he company or is direcors o conine wih an o o! cor appoinmen )IA1.0# Sch $1# paras 7 and 2+)&,,(

    I! he company or direcors decide no o ma%e an o o! cor appoinmen & insead o ma%e a corapplicaion !or he appoinmen o! an adminisraor# hey will have a dy o noi!y# inter alia# any 6ali!ying!loaing charge holder as soon as reasona&ly pracica&le !ollowing he ma%ing o! he applicaion( I! he

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    charge holder disagrees wih he ideniy o! he proposed adminisraor# he charge holder can decide eihero appoin is own adminisraor sing he o o! cor procedre or o allow he cor applicaion o proceed& apply o cor o have a speci!ied person )oher han he adminisraor proposed &y he company or isdirecors, appoined as adminisraor )IA 1.0# Sch $1# para 40,( The cor is o&liged o gran he chargeholder's applicaion nless he cor hin%s i righ o re!se he applicaion &ecase o! he pariclar

    circmsances o! he case( I! he company is already in li6idaion# he holder o! a 6ali!ying !loaing chargemay no ma%e an o o! cor appoinmen o! an adminisraor & may# where he winding p is &y cororder# apply o cor o appoin an adminisraor )IA 1.0# Sch $1# paras and 47,(

    The "pre!cr#e$ p%rt"

    [C5202&1]

    There have &een a nm&er o! cases in which he parameers o! he 'prescri&ed par' provisions o! secion170A o! IA 1.0 have &een discssed(

    In Re :ydroser*e $td  B27 All ; )D, 1 )n,# 122 crediors who wold have &een eniled o a share o!he prescri&ed par were eniled o sch a small sm# a&o =+# &eween hem# ha he cos o! agreeinghe vale o! heir claims and ma%ing a disri&ion o hem wold have &een disproporionae o he &ene!is(Conse6enly# he cor made a disapplicaion order nder secion 170A)+, o! he IA 1.0# wih a provisioneniling any credior o apply o se he order aside wihin 2 days(

    'horniley and another * Re*enue and Customs Commissioners and another  B2 All ; )D, 7 )"e&,concerned wheher he prescri&ed par o! he company's ne propery )as de!ined in secion 170A)0,, wasavaila&le o sais!y any par o! he de&s de o a credior which were secred &y a !loaing charge in hacredior's !avor# & which cold no &e paid o o! he realisaion o! he ne propery# de o a shor!all in hevale o! he secriy( Paen held ha# on he re consrcion o! secion 170A# he ! loaing charge holderand !i5ed charge holder were e5clded !rom paricipaing in he prescri&ed par o! he company's ne pro!i asde!ined in secion 170A)0,( The prescri&ed par was held !or he &ene!i o! nsecred crediors alone(

    In Re Courts l#  B2 All ; )D, 4 )?c,# he applican -oin li6idaors applied !or a 6ali!ied disapplicaionorder )'ED?', prsan o secion 170A)+, o! IA 1.0 ha secion 170A)2, wold no apply so as o re6ire a

    disri&ion o! he prescri&ed par o any nsecred credior owed =2# or less( The applicans &elievedha he cos o! ma%ing a disri&ion o sch nsecred crediors wold &e disproporionae o he &ene!is(They also applied !or a coss order in he even ha he cor did no ma%e he ED?# no e5ceeding =02##sch coss o &e paid o o! he prescri&ed par in accordance wih ;le 12(2 o! he Insolvency ;les 1.0($lac%&rne allowed he applicaion in par( 8e held ha he correc ndersanding o! secion 170A)2, washa i applied eiher in is enirey or no a all( There was no discerni&le legislaive inenion ha he power odisapply secion 170A)2, shold &e capa&le o! prodcing he resl ha he larges crediors shold a%e heprescri&ed par in is enirey leaving he remaining crediors o receive nohing( The applicaion !or a cossorder wold# however# &e allowed !or he processing o! all he company's nsecred claims )!or an amonno e5ceeding =02#,(

    In Re ;nternational "e#tions $td (in #reditors< *oluntary li=uidation) B2. All ; )D, )"e&,# he applicaiono! he prescri&ed par wold have resled in each o! he nsecred crediors receiving a dividend o! 1(pence in he pond# wih 0 crediors receiving a ma5imm dividend o! =1(( The li6idaor applied o hecor nder secion 170A)+, o disapply secion 170A)2,( dge Perle EC re!sed he applicaion( 8e heldha# in deciding wheher o disapply secion 170A)2,# he cor had o &e sais!ied ha he cos o! ma%ing adisri&ion wold &e disproporionae o he &ene!is# and ha i was righ o disapply he secion on hagrond( The correc approach !or a cor o a%e in sch cases was o loo% a he &ene!is o crediors as a&ody and he cor shold no &e oo ready o disapply he secion &ecase he dividend wold &e small("rher# he disapplicaion o! secion 170A)2, prsan o secion 170A)+, shold &e he e5cepion# and nohe rle(

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    I shold &e noed ha secion 170A does no apply o any charge creaed or oherwise arising nder a'!inancial collaeral arrangemen' wihin he meaning o! he "inancial Collaeral ;eglaions re!erred o inC+2+ &elow )see reglaion 1)4,,(

    In!o'(enc) Act 2000* +or%tor,+ connecte$ to % co+p%n) (o',nt%r) %rr%n-e+ent

    [C520.]

    The IA 2 inrodced a new !orm o! company volnary arrangemen )re!erred o &elow as he 'smallcompany CFA', !or small companies ha incldes a moraorim on credior acion which cold a!!ec a!loaing charge holder's a&iliy o en!orce is secriy )IA 1.0# s 1A and Sch A1# insered &y IA 2 33 !or !lldeails# see I0 onwards I@S?LF@CG: F?LH@TA;G A;;A@9@TS,( The de!iniion o! 'smallcompany' is !ond in secions 4134 o! he CA 20 and applies )s&-ec o cerain saory e5cepions, i!a company sais!ies a leas wo o! he !ollowing crieria in he relevan !inancial year or years:

    15 )a, is rnover is less han =0(+ million*

    16 )&, is &alance shee oal is less han =4(20 million* or 

    17 )c, i has no more han + employees(

     A paren company will &e a 'small company' only i! he grop headed &y i is a 'small grop'( In hisconnecion# wo o! he hresholds are di!!eren !rom hose saed a&ove: here is an aggregae rnoverhreshold o! no more han =0(+ million ne )or =7( million gross, and an aggregae &alance shee oalhreshold o! no more han =4(20 million ne )or =4(. million gross,(

    The moraorim is commenced &y he direcors o! he company !iling cerain papers a cor# a which poinhe moraorim will aomaically apply( ?nce he papers have &een !iled he procedre canno &e &loc%ed&y a !loaing charge holder( I shold &e noed# however# ha a company is no eligi&le !or a small companyCFA i! an adminisraor or adminisraive receiver is in place# and here!ore a !loaing charge holder canpoenially preven a small company CFA &y acing !irs and en!orcing is secriy &e!ore he direcors ma%ehe necessary !iling(

    The moraorim iniially lass !or a period o! 2 days# alhogh his can &e e5ended !or a !rher wo monhswih he consen o! crediors# and dring he moraorim secred crediors are prevened !rom en!orcing heir secriy(

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    as hose relaing o companies engaging in cerain ypes o! )predominanly !inancial, &siness# woldremain,# as well as a longer )iniially 2 days# & e5enda&le, cor3sancioned moraorim( The secondconslaion# 'Proposals !or a resrcring moraorim' )ly 21,# proposed a moraorim )iniially hreemonhs# & e5enda&le, which wold &e availa&le o companies see%ing a conracal compromise orpreparing a saory compromise proposal )a company volnary arrangemen or a scheme o! arrangemen,(

    I is here!ore possi&le ha here will &e legislaion in his area in he near !re(

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    sch applicaion# he ons is on he secred credior o show ha# having regard o all relevancircmsances and he ineress o! secred and nsecred crediors# leave shold &e given(

    IA 1.0# Sch $1# para 7 provides ha# once appoined# he adminisraor may dispose o! or a%e acionrelaing o propery o! he company which is s&-ec o a !loaing charge secriy 'as i! i were no s&-ec ohe charge'( The charge holder hen has he same prioriy in respec o! he ac6ired propery as he had in

    respec o! he propery disposed o!# & s&-ec o he de&s and lia&iliies arising o o! conracs enered ino&y he adminisraor )IA 1.0# Sch $1# para ..),, and he adminisraor's remneraion and e5penses )IA1.0# Sch $1# para ..)4,,( In his connecion# ac6ired propery means propery o! he company whichdirecly or indirecly represens he propery disposed o!(

    I is now esa&lished ha here can &e no o&-ecion o a lender a%ing a 'lighweigh !loaing charge' )ReCro/t?ell $td  1%%0- 2C$C 833,( This is a charge docmen which conains a !loaing charge prely !or heprpose o! giving he lender he power o &loc% he appoinmen o! an adminisraor# alhogh i shold &enoed ha his is now e!!ecive only where he !loaing charge is an e5ising A; !loaing charge( Sch chargeswill no preven or resric he &orrower !rom creaing oher !i5ed or !loaing charges in !avor o! hird paries(The e!!eciveness o! a lighweigh !loaing charge raises he prospec ha a &orrower may have graned anm&er o! sch charges dring he 'old !loaing charge' regime( I! so# migh here &e more han oneadminisraive receiver appoined o! he &orrower's propery Alhogh a poin no !ree !rom do&# he &eerview is ha i is no possi&le o have mliple concrren adminisraive receivers )see "idelis ?diah# $e@al

     Ase#ts o/ Re#ei*a?les 9inan#in@  )1..1, a 123121,(

    C%pt%' +%r3et! ch%r-e!

    [C5205]

    Cerain capial mar%es charges are proeced !rom he moraorim provisions o! he IA 1.0 )wheher as aresl o! adminisraion or a company volnary arrangemen,( Sch charges inclde a 'mar%e charge' )givenin !avor# amongs ohers# o a 'recognised invesmen e5change' or a 'recognised clearing hose'# asdescri&ed in Par FII o! he Companies Ac 1..,* a 'sysem3charge' given o a selemen &an% )whichreceives proecion nder he "inancial ar%es and Insolvency ;eglaions 1..0 )SI 1..0 @o 10., )as

    s&se6enly amended,,# and a 'collaeral secriy charge' )which is given !or he prpose o! secring righsand o&ligaions poenially arising in connecion wih a sysem which is 'designaed' nder he "inancialar%es and Insolvency )Selemen "inaliy, ;eglaions 1... )SI 1... @o 2.7., )as s&se6enlyamended# he 'Selemen "inaliy ;eglaions', 33 &eing secriies selemen and paymen sysems,( I isalso he case ha an adminisraor's power o re6ire a receiver o vacae o!!ice# and o deal wih chargedpropery# is disapplied where he receiver is appoined or propery is charged prsan o a collaeral secriycharge nder reglaion 1.)1, o! he Selemen "inaliy ;eglaions,( In addiion# !ollowing implemenaion o! Direcive 22/7/C on !inancial collaeral arrangemens )see C+ C?PA@G C8A;9S I,# ceraincollaeral arrangemens over secriies and cash credied o an accon are en!orcea&le !ree !rom heconsrains o! a moraorim# nder he "inancial Collaeral Arrangemens )@o 2, ;eglaions 24 )SI 24@o 4220, )as amended &y he "inancial Collaeral Arrangemens )@o 2, ;eglaions 24 )Amendmen,;eglaions 2. )SI 2. @o 202,# ogeher he '"inancial Collaeral ;eglaions',(

    The 4%n3n- Act 200/

    [C5205&1]

    Insiions o which he $an%ing Ac 2. )and is associaed s&ordinae legislaion, applies are s&-ec omodi!ied li6idaion and adminisraion procedres( These provide !or new overriding o&-ecives !or hoseprocedres in line wih he aims o! he special resolion regime creaed &y Par I o! he $an%ing Ac 2.(This regime was inrodced as a response o he glo&al !inancial crisis )which &egan in 2, o proec andenhance he sa&iliy o! he HJ !inancial sysem and con!idence in he HJ &an%ing sysems# and o proec

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    he ineress o! deposiors )as well as p&lic !nds,( In addiion o he overriding o&-ecives# manyconse6enial modi!icaions o he provisions o! IA 1.0 )as well as oher legislaion, apply# inclding some o! hose re!erred o in his secion# which shold &e considered in deail where appropriae( In addiion# 8Treasry has recenly issed a conslaion )Sepem&er 21, regarding he possi&le inrodcion o! aspecial adminisraion regime !or invesmen !irms# in he ligh o! he serios challenges !or insolvency

    regimes posed &y he !ailre o! Lehman $rohers( I! enaced# he inrodcion o! sch a regime woldinrodce applica&le overriding o&-ecives and !rher conse6enial modi!icaions o IA 1.0 )and oherlegislaion,(

    The disadvantages of the floating charge: Insolvency Act 1986, section 245 

    [C520]

    $y secion 2+ o! he IA 1.0# i! a company eners adminisraion or goes ino li6idaion# a !loaing charge'creaed a a relevan ime' is invalid e5cep o he e5en o! he aggregae o!:

    20 )a, money paid or he vale o! goods and services spplied o he company a he same ime

    as or a!er creaion o! he charge )he vale o! goods and services !or he prposes o! hesecion is he amon in money which# a he ime hey were spplied# cold reasona&ly have&een e5peced o &e o&ained !or spplying he goods or services in he ordinary corse o!&siness and on he same erms )e5cep price, as hose on which hey were spplied,*

    21 )&, he vale &y which any de& o! he company is discharged or redced a he ime o! or

    a!er creaion o! he charge* and

    22 )c, ineres paya&le on an amon !alling wihin )a, or )&, in prsance o! an agreemen(

    The 'relevan ime' is# e5cep as saed &elow# a period o! welve monhs ending wih he 'onse o! insolvency'#ha is )as he case may &e, he dae on which an applicaion !or an adminisraion order is made or he daeon which he noice o! inenion o appoin he adminisraor is !iled or )i! he adminisraor is oherwiseappoined, he dae on which he appoinmen a%es e!!ec# he passing o! a resolion !or volnary winding3

    p or# i! here has &een no sch resolion# he presenaion o! a peiion !or winding p o he cor )IA 1.0#s 12.,( I! he person in whose !avor he charge is creaed is no 'conneced' wih he company# hen i! hecompany was solven when i graned he charge and remained solven a!er graning he charge# he chargeis valid( In he words o! IA 1.0# he period o! welve monhs ending wih he onse o! insolvency is no arelevan ime i! he charge is graned in !avor o! a person no conneced wih he company a he dae o! hecreaion nless:

    23 )i, he company is 'na&le o pay is de&s wihin he meaning o! secion 124 o! he IA 1.0'(

    Hnder ha secion# a company is deemed o &e na&le o pay is de&s i!# amongs oher hings#a wrien demand in he !orm prescri&ed &y he Insolvency ;les 1.0 in respec o! a sme5ceeding =7+ remains npaid !or hree wee%s# or i is proved o he cor ha he company isna&le o pay is de&s as hey !all de# or he vale o! he company's asses is less han heamon o! is lia&iliies# a%ing ino accon is prospecive and coningen lia&iliies )see 2y?los

    2an * Al+hudhairy  1%87- 2C$C !  and Re a Comany  1%8&- 2C$C &1 as o he meaningo! secion 224)d, o! he Companies Ac 1.# he !orernner o secion 124 o! he IA 1.0,* seealso Re Cheyne 9inan#e l#  B27

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    graned o a lender who is no conneced wih he company# hen sch charge is a ris% !or a period o! welvemonhs a!er he creaion o! sch charge# e5cep o he e5en o! new vale acally provided o he companygraning sch charge(

    I! he holder o! he !loaing charge is 'conneced' wih he company graning i# he period o! vlnera&iliy ise5ended o wo years !rom he creaion o! he charge and even i! he company was and remained solven#

    he ime will &e a 'relevan ime'( A person is 'conneced' wih he company i! he is a direcor or shadowdirecor o! he company or an associae o! a direcor or shadow direcor or i! he or any oher company is anassociae wihin secion 4+ o! he IA 1.0 )IA 1.0# s 2.,( The de!iniion o! associae in secion 4+ is verywide# and i incldes relaionships which arise when companies have conrol o! oher companies )secion4+)0,,( Conrol isel! is de!ined as where a company's direcors )or hose o! a company which conrols hacompany or any o! hose direcors, are accsomed o ac in accordance wih anoher person's direcions orinsrcions# or where a person is eniled o e5ercise )or conrol he e5ercise o!, one hird or more o! hevoing power o! a company )or a company which conrols ha company, a is general meeing )secion4+)1,,(

    I shold &e noed ha money paid or goods or services spplied o he company )or he discharge orredcion o! is de&, prior o he creaion o! he charge# do no consie new vale( oney paid )e5cep indischarge or redcion o! a de& o! he company, or goods or services spplied o a hird pary )which willinclde any relaed companies or companies in he same grop,# wheher &e!ore or a!er creaion o! hecharge# will no &e inclded# nor will new vale advanced &y a hird pary# nless he hird pary is an agen or rsee !or he credior o whom he charge is graned )Re 'homas Mortimer  1%&5- Ch 18& ,( I is arga&leha# i! an advance is made !or a speci!ic prpose and is s&-ec o a rs# he paymen does no consie!nds 'paid ((( o he company' and does no consie new vale nil he money is applied !or he prpose(

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    arga&le ha secion 2+ wold no apply o anyhing done nder he ahoriy o! he !loaing charge &e!orehe onse o! insolvency( "or e5ample# a li6idaor or adminisraor cold recover neiher paymens made &yhe company o he lender nor proceeds o! sale realised &y a receiver and paid o he lender( I! he onse o!insolvency occrs &e!ore acal paymen# he li6idaor or adminisraor migh &e eniled o preven paymen&eing made o he charge holder(

    Hnder he pre3IA 1.0 provisions# he ons o! proving he company's solvency was on he holder o! he!loaing charge )Re Patri# and $yon $imited  1%!!- Ch 78& at 7%1,( Accordingly# where no money was paido he company giving he !loaing charge as# !or insance# where a s&sidiary gave a charge o secre agaranee given &y i !or money advanced o is paren# i was common pracice !or wo direcors )orsomeimes he adiors, o! he company o &e as%ed o ceri!y ha i wold &e solven immediaely a!er hecreaion o! he charge( The ons o! proving he company's insolvency a he relevan ime is now on heli6idaor or adminisraor# however a lender may re6ire he company )or he adiors, o con!irm ha hecompany is no and will no as a conse6ence o! he ransacion &e or &ecome 'insolven' wihin he relevanmeaning in he Ac )o!en in con-ncion wih heir consideraion o! wheher he ransacion is a anndervale* see C+27 &elow,(

    Hnder secion 2+ o! he IA 1.0# he new vale ms &e paid or given 'a he same ime as# or s&se6eno' he creaion o! he charge( This is an isse o! !ac and degree: Re "hoe $a#e $td ( In ha case# moneywas advanced in !or paymens on di!!eren daes in April# ay# ne and on 10 ly# !ollowing a resolion o! he company's direcors o gran he de&enre in arch( In !ac# he de&enre was no e5eced nil 2ly( The Cor o! Appeal )1%%!- 2CC &0%,# a!!irming he decision o! 8o!!mann )1%%- 2CC !&7 ,# held hahe paymens cold no &e said o have &een made a he same ime as e5ecion o! he de&enre( oneysadvanced prior o he e5ecion o! a de&enre will only 6ali!y !or he e5empion nder secion 2+ i! eiher:

    25 )a, he inerval &eween paymen and e5ecion is so shor ha i can &e regarded as

    minimal and paymen and e5ecion can &e regarded as conemporaneos* or 

    26 )&, he promise o e5ece a de&enre creaes a presen e6ia&le righ o a secriy )see

    C++ a&ove,# and moneys are advanced in reliance on i(

    In he case o! )?,# any delay &eween he advance and he e5ecion o! he !ormal insrmen is immaerial*he charge has already &een 'creaed' and is immediaely regisra&le )Re "hoe $a#e 1%%!- 2CC &0% at &1%,(

    Secion 2+ o! he IA 1.0 does no apply o any charge creaed or oherwise arising nder a 'secriy!inancial collaeral arrangemen' wihin he meaning o! he "inancial Collaeral ;eglaions re!erred o inC+2+ a&ove )see reglaion 1)+,,(

    Insolvency Act 1986: sections 238 and 239

    [C520]

    The !loaing charge and# indeed# any oher secriy graned &y a company o a lender may &e vlnera&lender secion 24 o! he IA 1.0 )ransacions a an ndervale, and secion 24. o! he IA 1.0)pre!erences,( )"or a general discssion o! hese provisions and he e6ivalen provisions applica&le o

    Scoland# he reader is re!erred o I+2 onwards I@S?LF@CG: LIEHIDATI?@S IF(, The sa!er view is hahe creaion o! a !loaing charge over a company's asses may &e vlnera&le o challenge as a ransacion aan ndervale( This is so nowihsanding he decision o! ille in Re MC 2a#on $td  1%%0- 2C$C !3 at!30 ( In ha case# i was said ha he mere creaion o! secriy cold no consie a ransacion a anndervale &ecase i does no deplee or oherwise diminish he vale o! he company's asses( I wasarged ha loss &y he company o! he a&iliy o apply he proceeds o! he asses oherwise han insais!acion o! he secred de& is no capa&le o! valaion in money erms( The rling in MC 2a#on wasapplied &y he Cor o! Appeal in National 2an o/ +uwait * Menies 1%%3- 2C$C !0& . 8owever# i has

    s&se6enly &een re-eced &y he Cor o! Appeal in :ill * "read 'rustee Comany $td and another  00&- CA Ci* 53 # 007- 1 All R 110&  per Arden L a para 14( Arden L saes ha he proposiion ha# as a

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    maer o! law# he gran o! secriy does no involve a diminion in he vale o! asses canno &e acceped aswhile here may &e

    'no change in he physical asses o! he de&or when he secriy is given ((( here seems o &e no reason why he valeo! he righ o have recorse o he secriy and o a%e prioriy over oher crediors ((( shold &e le! o o! accon('

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    a !loaing chargee( "rhermore# in :MRC * Royal 2an o/ "#otland l#  he Cor o! Appeal adoped a wideview o! he concep o! 'a%ing possession'# alhogh here had o &e an ac &y which he de&enre3holderrealised is secriy# no simply he ordinary discharge o! he de&or's lia&iliy* his is a 6esion o! s&sanceraher han !orm(

    I shold &e noed# in addiion# ha in Re : 4 + (Medway) $td  1%%7- All R !1# a !irs insance decision# i

    was held ha pre!erenial crediors ran%ed ahead o! a !loaing charge creaed &y a company even hogh hereceiver had &een appoined nder he erms o! anoher !loaing charge )in !avor o! a di!!eren credior,creaed &y he same company( The case rned on wheher he pre!erenial crediors promoed &y secion o! he IA 1.0 were only promoed ahead o! he !loaing charge nder which a receiver was acallyappoined or ahead o! any !loaing charge hen e5an( Alhogh considered# he pro&lem )re!erred o a&ove,o! receip or realisaion &y a credior oside o! a li6idaion oher han &y way o! appoinmen o! a receiver or a%ing possession was no resolved(

    Hnder secion )4, o! he IA 1.0# paymens made o pre!erenial crediors in prioriy o he claims o! he!loaing charge holder may &e recoped &y he !loaing charge holder o o! he asses o! he company )i!any, availa&le !or paymen o! general crediors(

    Secion 17+ o! he IA 1.0# which applies where a company is &eing wond p# provides ha a company'spre!erenial de&s shall &e paid in prioriy o all oher de&s and ran% e6ally among hemselves# a!er he

    e5penses o! he winding3p( To he e5en ha he asses availa&le o general crediors are ins!!icien# hepre!erenial de&s have prioriy over he claims o! a holder o! a !loaing charge and are o &e paid o o! anypropery comprised in or s&-ec o he charge( I! he asses o! he company are ins!!icien# he pre!erenialde&s a&ae in e6al proporions(

    Hnil Re $eyland 6a/ $td, 2u#hler * 'al?ot  003- B+:$ %# 003- 1 All R 18%# i was ndersood haasses s&-ec o a !loaing charge which were sill in he receiver's hands when winding3p commenced !ellnder secion 17+)2,)&, o! he IA 1.0 and were availa&le o mee &oh pre!erenial de&s and he li6idaor'se5penses( 8owever he $eyland 6a/  decision reversed his posiion &y holding ha he !loaing charge asseswere he propery o! he !loaing charge holder and ha here!ore hey comprised a disinc pool o! asses ohose o! he li6idaion which were no availa&le o mee he li6idaor's e5penses( 8owever# secion 122 o!he CA 20 reinsaed he original posiion &y enacing a new secion 170KA o! he IA 1.0 givingli6idaor's e5penses prioriy in relaion o !loaing charge realisaions )o he e5en ha hey canno &e me!rom he asses o! he company availa&le !or he paymen o! general crediors,(

    There was no provision !or pre!erenial de&s in a company adminisraion nder he original IA 1.0 Par II#e5cep where he adminisraion was lin%ed wih a volnary arrangemen or where a winding3p orderimmediaely !ollowed pon he discharge o! he adminisraion order( 8owever secion 47)4A, o! IA 1.0#which applies o all adminisraions !rom 1+ Sepem&er 24# &rogh adminisraions ino line wih oherinsolvency procedres in his respec( In his regard# IA 1.0# s 17+ applies o any disri&ion &y anadminisraor as i applies in relaion o a winding p )IA 1.0# Sch $1# para 0+)2,,(

     Adminisraion de&s and lia&iliies and he adminisraor's remneraion and e5penses are paya&le in prioriyo any !loaing charge )IA 1.0# Sch $1# paras ..),# ..)4, and 7,(

    In addiion# as noed a&ove )see C+22,# where a company which has graned a !loaing charge over ispropery on or a!er 1+ Sepem&er 24 goes ino li6idaion# adminisraion# provisional li6idaion# orreceivership# he li6idaor# adminisraor or receiver shall )s&-ec o cerain e5cepions,:

    27 )a, ma%e a 'prescri&ed par' o! he company's ne propery availa&le !or he sais!acion o!

    nsecred de&s# and

    28 )&, no disri&e ha par o he proprieor o! he !loaing charge e5cep inso!ar as i e5ceeds

    he amon re6ired !or he sais!acion o! he de&s(

    The posponemen o! he !loaing charge o pre!erenial de&s and insolvency coss had long &een regardedas one o! he wea%nesses o! he !loaing charge and i is one o! he principal reasons why &an%s sogh)and# nowihsanding he enacmen o! nA 22# sill see%, o a%e !i5ed charges over as many caegories

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    o! asse as possi&le( The inrodcion o! he 'prescri&ed par' arrangemens has also conri&ed o heconinaion o! his pracice(

    IA 1.0# secion 40 and Schedle 0 lis he pre!erenial de&s !or he prposes o! secions and 17+# andIA 1.0# secion 47 siplaes he dae !or deermining sch claims( See I+04 onwards I@S?LF@CG:;CIF;S IF )PA;T I, !or a discssion o! pre!erenial claims(

    ;eglaion 1)+, and )0, o! he Selemen "inaliy ;eglaions provides ha in cerain circmsances heclaims o! a chargee nder a 'collaeral secriy charge' )a%en in connecion wih a 'designaed' sysem, shall&e paid in prioriy o pre!erenial de&s and he e5penses o! a winding3p or adminisraion( Similar# & noidenical# provisions apply o 'secriy !inancial collaeral arrangemens' nder he "inancial Collaeral;eglaions in relaion o pre!erenial crediors and he 'prescri&ed par' arrangemens 33 see regs 1)4, and)0,(

    The disadvantages of a floating charge: priorities

    [C520/]

    I is o! he essence o! a !loaing charge ha# nil he charge crysallises# he company reains he a&iliy odeal wih he asses s&-ec o he charge in he ordinary corse o! is &siness )nless he charge provideso he conrary# in which case he charge may no consie a !loaing charge a all,( As a resl# he holder o! a !loaing charge is lia&le# s&-ec as menioned &elow# o &e posponed o ineress in he charged properywhich are creaed or arise in he ordinary corse o! he company's &siness(

    In he a&sence o! some provision o he conrary# a !loaing charge leaves he company !ree o sell is asses#wherepon a prchaser will a%e !ree o! he charge# or o creae speci!ic charges over is propery which willhave prioriy over he !loaing charge# even i! he !loaing charge is saed o &e 'a !irs charge' )Re Colonial'rusts Cororation (1880) 15 Ch6 3&5 at 37  and heatley * "ilstone and :ai@h Coal Comany  (1885) %Ch6 715 , )a prohi&iion agains graning s&se6en charges ran%ing in prioriy or pari pass"  wih he!loaing charge is invaria&ly inclded,( The main ypes o! sch ineress which may a!!ec he holder o! he!loaing charge are descri&ed &elow(

    %ther charges and clai$s

    6%7 S,#!e8,ent f'o%tn- ch%r-e

    [C5210]

    The a&iliy o! he company o gran a second !loaing charge depends on he nare and erms o! he !irs!loaing charge( I! he !irs !loaing charge encompasses all o! he company's propery# asses andndera%ing# he company will no &e eniled# in he a&sence o! a special or implied permission# o creae asecond !loaing charge ran%ing ahead o! or pari pass"  wih he !irs charge* he second charge ran%s &ehindhe !irs since i is incompai&le wih he conrac creaing he !irs charge ha anoher shold en-oy prioriy ore6aliy )Re 2enamin Coe 4 "ons $imited  1%13- 1 Ch 800 ,( I! he !irs charge covers only a par o! heasses# he company migh &e !ree o gran a second !loaing charge which# as o he remaining asses# ran%sahead o! he !irs charge )see 9oode# $e@al Pro?lems o/ Credit and "e#urity  )h diion# 2, a pp 2321,(

    The &eer view is ha i! a company creaes more han one !loaing charge# he !irs charge will have prioriyeven i! he second charge is he !irs o crysallise# assming ha each has &een per!eced &y imelyregisraion )Re :ousehold Produ#ts Co $td  (1%81) 13 6$R (!d) !5 ,( Th! ! on the #%!! of the -ener%'prort) r,'e th%t9 %! #et:een co+petn- e8,t%#'e ntere!t!9 the fr!t n t+e pre(%'!& Crysallisaionshold no a!!ec his principle# as crysallisaion merely convers a charge# which as creaed was a !loaingcharge# ino a !i5ed e6ia&le charge !or prposes o! en!orcemen(

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    8owever# in .ri//iths * orshire 2an l#  )see C+2 a&ove,# orri e5pressed he view ha prioriy as&eween compeing !loaing charges is deermined &y he iming o! crysallisaion )a 14+,( Prior o he.ri//iths case# i was &elieved ha crysallisaion had no e!!ec on he ran%ing o! a !loaing charge incompeiion wih anoher !loaing charge( Hn!ornaely# he decisions in Re 2enamin Coe 4 "ons $td  andRe :ousehold Produ#ts Co $td  were no drawn o he aenion o! orri &e!ore he e5pressed his views on

    he e!!ec o! crysallisaion( "or his reason# i is &elieved ha hese views are no good law )see .oode onCommer#ial $aw  )h ediion# 21, a 744# !oonoe 7.,(

     A permission o creae secriy incldes he graning o! a !loaing charge )Re Automati# 2ottle Maers$imited  1%&- Ch 31 ,(

    6#7 ;,rch%!e +one) ch%r-e!

    [C5211]

    The !loaing charge will no en-oy prioriy over a prchase money charge(

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    ahoriy# no advance shold &e made# nless and nil he prchase money lender has in place anagreemen o gran a charge in wriing which sais!ies he re6iremens o! he 1.. Ac(

    Cann was applied in hale * Fiasystems 'e#hno@rah $td  00- All R (6) 357 (Mar)# a converse case( Inhale a company graned a de&enre which conained a !i5ed e6ia&le charge o! all is presen and !releasehold propery( Sch a charge creaed an immediae e6ia&le charge over any leasehold propery

    herea!er ac6ired &y he company as !rom he momen o! is ac6isiion( The company laer ac6ired alease o! propery and almos simlaneosly graned a s&3lease o! ha propery( The cor held ha he!i5ed e6ia&le charge creaed &y he de&enre over he lease did no a%e prioriy over he s&3lease as hecompany# in s&sance# only ever ac6ired a nominal reversion( I was only ha reversion o which hede&enre cold aach( The Cann principle was no con!ined merely o propery ac6isiion charges(

    6c7 S,#!e8,ent f %n$ /o .oore v er"vian /orp td  198 1 /h 647& @owihsanding he radical proposals conained in he Law Commission's !inal repor o! Ags 2+ )LC2.0, on secriy ineress creaed &y companies regisered in ngland and

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    t%3e! h! !ec,rt) 6'e-%' or e8,t%#'e79 he $oe! not o#t%n prort) 6+ilson v ;elland  191 2 /h 36 7& The crren posiion# however# is ha here is no ahoriy o sgges ha sch a s&se6en encm&rancerwold &e a%en o have noice o! sch prohi&iion or resricion merely &ecase he same had &een incldedin a "orm 91(

    In .ri//iths * orshire 2an l#  1%%3- 1 $R 137 at 13!5 # orri e5pressed he view ha sch a

    resricive clase cold no a!!ec he prioriies as &eween a !loaing chargee and a s&se6en chargee wihacal noice o! he resricion( I is no clear on he !acs o! .ri//iths wheher he relevan chargee had noiceo! he &an%'s negaive pledge( Accordingly# hese o&servaions are no par o! he raio and have no &een!ollowed on he &asis o! heir inconsisency wih previos ahoriy( The effect of notce ! to !,#=ect the!,#!e8,ent p,rch%!er or ch%r-ee to % per!on%' e8,t) n f%(o,r of the f'o%tn- ch%r-ee9 !o th%t the'%tter h%! prort) e(en tho,-h h! ch%r-e h%! not )et cr)!t%''!e$ 6!ee Goo$e9 egal role$s of/redit and ec"rity  6th E$ton9 2007 %t pp 1/@1/7&

    @owihsanding ha a !loaing charge prohi&is he creaion o! charges ran%ing in prioriy# a charge graneds&se6enly will ran% ahead o! he !loaing charge in he !ollowing circmsances:

    31 )i, where he hird pary ac6ires a legal morgage o! he propery# f he h%$ no notce of the

    proh#ton %t the t+e of +%3n- h! %$(%nce 67nglish cottish .ercantile Invest$ent

    /o$pany i$ited v r"nton 1892 2 0 7> %n$32 )ii, where he propery is land and he hird pary ac6ires an e6ia&le morgage# f he h%$

    no %ct,%' or con!tr,ct(e notce of the proh#ton %n$ o#t%ne$ % $epo!t of the tt'e$ee$!9 the!e h%(n- #een 'eft n the co+p%n)"! po!!e!!on #) the ho'$er of the f'o%tn-ch%r-e )Re Castell 4 2rown $imited  18%8- 1 Ch !15 * Re Falletort "anitary "team $aundryComany $imited  1%0!- Ch &53,( )These cases may also apply &y analogy o insanceswhere he hird pary o&ains a pledge or charge over shares or oher secriies &y he deposio! he relevan ceri!icaes(,

     Acal %nowledge ha a company has issed de&enres does no resl in he imped %nowledge hahese conain a !loaing charge )Re Falletort  a&ove, or consrcive %nowledge o! he prohi&iion againsprior3ran%ing charges which hey conain )n@lish 4 "#ottish Mer#antile ;n*estment Comany $td * 2runton )a&ove,,(

    6$7 Len!

    [C521.]

     A resricive clase which provides ha he company is 'no o &e a li&ery o creae any morgage or charge'in prioriy o he !loaing charge does no apply o a lien# as a maer o! inerpreaion# i! he lien is con!erred&y he general law and arises incidenally hrogh he company carrying on is &siness in he ordinarycorse(

    A 'en ! % po!!e!!or) !ec,rt) ntere!t :hch confer! % r-ht %t '%: to $et%n propert) ,nt' +one)o:e$ to the $et%nee ! p%$& It $ffer! fro+ % "p'e$-e" n th%t t -ener%'') $oe! not confer % r-ht of

    !%'e& An e5ample is a solicior's lien o reain deeds and papers nil his &ill o! coss is sais!ied( In sch a case#he lien arises &y operaion o! law and is no creaed &y he company )2runton * le#tri#al n@ineerin@Cororation 18%- 1 Ch 3!3,( "or a case where an npaid vendor's lien was descri&ed as arising &yoperaion o! law and no &y reason o! a conrac &eween he paries so ha i was no a charge creaed &y acompany wihin he meaning o! secion .+ o! he CA 1. )he !orernner o! secion 4.+ o! he CA 20 andsecion 0 o! he CA 20, and accordingly no void agains he chargees !or non3regisraion# see $ondonand Cheshire ;nsuran#e Co $td * $ala@rene Proerty Co $td  1%71- Ch 3%%,( A possessory lien# however#may also &e creaed &y conrac(

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    $oh a pariclar lien and a general conracal lien ).eor@e 2arer ('ransort) $td * ynon 1%73- 1 $R3& , will have prioriy over a !loaing charge# so long as he lien is no a disgised charge )ha is# i isinended and does a%e e!!ec as a secriy ineres which is per!eced &y possession o! an asse ile owhich is redci&le o possession, creaed in !avor o! a chargee who has acal noice o! he !loaing chargeand he relevan resricive clase(

    I has &ecome common !or he resricive clase o &e e5ended wih a view o preclding sch liens arising#& i is do&!l wheher his wold &e e!!ecive nless he person claiming he lien had acal noice o! heprohi&iion( I is also arga&le ha sch a clase# in order o have &siness e!!icacy# ms &e read s&-ec oan implied e5cepion !or liens arising in he ordinary corse o! rading since oherwise some very normalransacions# sch as he delivery o! a vehicle o a garage !or repairs# wold &e prohi&ied on he &asis ha icold resl in he garage having a lien on he vehicle !or he reasona&le cos o! he repairs compleed( veni! he clase is so e5ended# i will have no applicaion o a !reeing )previosly a Mare*a, in-ncion# &ecaseno righs in he nare o! a lien arise when sch an in-ncion is graned )Cretanor Maritime Co $imited * ;rishMarine Mana@ement $imited  1%78- 1 $R %&& ,(

    6e7 S%'e! of %!!et!

    [C521]

    Hnless here is a speci!ic resricion in he charge insrmen# a company ha has graned a !loaing chargeis permied o manage and deal wih is asses 'in he ordinary corse o! is &siness'( The decision o!heron in Ash?order 2F * .reen .as Power $td  003- :C 1517 # 005- 1 2C$C &! clari!ied anm&er o! principles relevan o a deerminaion o! wheher a disposal &y a company# which has given a!loaing charge# is properly o &e considered as &eing carried o 'in he ordinary corse o! &siness' 33 see!rher he discssion a C+2 C?PA@G C8A;9S I( I has &een held ha he !ac ha a company hasgiven a !loaing charge over all is ndera%ing and asses does no preven i !rom selling s&sanially all isasses# inclding goodwill# o a new company !ormed !or he prpose in e5change !or shares and de&enresin he new company( In he ligh o! he principles esa&lished in he Ash?order  case# his is li%ely o &epermissi&le i!:

    33 )i, an o&-ecive o&server wih %nowledge o! he company# is consiion and is &sinesswold view he ransacion as having a%en place in he ordinary corse o! &siness*

    34 )ii, on he proper inerpreaion o! he docmen creaing he !loaing charge# and applying

    normal echni6es o! inerpreaion# he paries inended ha he ransacion shold &eregarded as &eing in he ordinary corse o! he company's &siness !or he prpose o! hecharge*

    35 )iii, here is no oher special resricion conained in he charge insrmen* and

    36 )iv, nowihsanding he sale# he vendor company conines o carry on &siness# even i! i is

    no he &siness on he secriy o! which he holder o! he !loaing charge relied )Re 2oraGComany, 9oster * 2oraG Comany  1%01- 1 Ch !& # & see :u??u# * :elms (1887) 5& $Ch 5!& ,(

    De&enres and de&enre soc% rs deeds here!ore sally conain provisions prevening companies !romdisposing o! a s&sanial par o! heir asses wiho he holder's or rsee's prior consen(

    "re6enly more deailed resricions on disposals are inclded( Sch provisions will no# however# &ind aprchaser who had no acal or consrcive noice o! hem and# in his cone5# he consideraionsmenioned a&ove in relaion o he e!!eciveness as agains hird paries o! prohi&iions on graning priorcharges shold &e noed )see also C+212 a&ove,(

    6f7 E

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    [C5215]

    The righs o! he holder o! a !loaing charge will prevail agains hose o! a credior who levies e5ecion overpropery s&-ec o he charge i! he !loaing charge crysallises &e!ore he sheri!! sells he goods )Re"tandard Manu/a#turin@ Comany  18%1- 1 Ch &7 at &30 * Re >era 18%1- ! Ch &0 ,# or &e!ore heproceeds o! sale are paid over o he e5ecion credior( )The main ahoriies !or his view are dica in *ans* Ri*al .ranite Huarries $td  1%10- +2 %7% at %%5 and 1000 # 'aunton * "heri// o/ arwi#shire 18%5- Ch!1% and Norton * ates 1%0&- 1 +2 11 (,

    Similarly# he righs o! he holder o! a !loaing charge will prevail agains hose o! a credior who see%s &ygarnishee proceedings o aach a de& de o he company only i! a receiver is appoined or he chargeoherwise crysallises &e!ore he garnishor o&ains paymen o! he de& aached or# perhaps# &e!ore heorder a&sole is graned )Norton * ates 1%0&- 1 +2 11 * Cairney * 2a#  1%0&- +2 73& * *ans * Ri*al.ranite a %%7  and .eisse * 'aylor  1%05- +2 &58 ,( A !loaing charge will only prevail agains a disress &yhe landlord i! he charge crysallises &e!ore he disrain )Re Roundwood Colliery Comany  18%7- 1 Ch !7!*Metroolitan $i/e Assuran#e Co o/ New Zealand * ssere Print $td  1%%1- ! NZ$R 170 * and see 9ogh#Comany Char@es a 417341,(

    Ths# i! he holder o! a !loaing charge is o ensre ha his righs prevail agains sch crediors# he migh

    need o a%e promp acion o appoin an adminisraor or adminisraive receiver or oherwise crysallise andperhaps en!orce his charge &e!ore he e5ecion is compleed(

    6-7 Se''er! ,n$er tt'e retenton c'%,!e!

    [C521]

     As a general rle# he holder o! a !loaing charge can ac6ire no ineres in an asse which# alhogh in hepossession o! he company# is in !ac owned &y someone else( Since he case o! Aluminium ;ndustrieFaassen 2F * Romala $imited  1%7&- 1 $R &7&  i has &ecome common !or sppliers o inclde a'reenion o! ile' clase in he spply conrac where&y propery in and ile o he goods remains vesed inhe spplier nil hey have &een paid !or &y he prchaser(

    There are many variaions on he heme# inclding a reenion o! ile o secre all amons owing &y heprchaser )he 'all moneys' clase, and a claim o all 'proceeds'# ha is# he proceeds o! sale o! any goodsspplied wheher in he same or an alered !orm( The prchaser migh &e o&liged o %eep sch proceedsseparae !rom oher receips and &e consied he rsee o! sch proceeds !or he spplier(

    ?ne o! he prposes o! sch clases is o preven he goods !rom &ecoming he propery o! he company ands&-ec o he !loaing charge( An e!!ecive reservaion o! ile clase allows he spplier o reclaim he goodsand# possi&ly# he proceeds o! sale so ha he is no resriced o his o!en empy claim as an nsecredcredior in he even o! non3paymen &y he prchaser( 8owever# he will &e a mere nsecred credior i! hereservaion o! ile clase consies a charge and is no regisered( )I seldom is regisered and o!enconsies a charge 33 see also C+1 C?PA@G C8A;9S I(,

    There were several repored cases dring he 1.s and early 1..s concerning aemps o creae e!!ecivereenion o! ile clases( The principle in Romala has &een limied &y he cors and is now li%ely only oproec a simple reservaion o! ile o he goods acally spplied )Clou@h Mill * Martin 1%83- ! All R %8 *ohn "now 4 Co $td * 62. ood#ro/t $td  1%85- 2C$C 53,# & will no normally e5end o he proceeds o!sale )'atun@ (B+) $td * .aleG 'elesure $td  (1%88) 5 2CC !5 * Coma= Comuter $td * A?er#orn .rou $td  1%%1- 2CC 383 and Model?oard $td * >uter 2oG $td  1%%- 2CC %35 , nor o goods which have &eenprocessed )Re Pea#hdart  1%8!- ! All R 03,( In each case# wheher a clase validly reserves ile is amaer o! consrcion and cone5 )see 2ul?inder "in@h "andhu (tradin@ as ;sher 9ashions B+) * et "tarRetail $imited 'IA Mar >ne (;n Administration) and others B21

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    even where he clase is an 'all moneys' reservaion o! ile clase: Armour * 'hyssen delstahlwere A. 1%%1- AC !!%( Sch clases are# in cerain circmsances# e!!ecive agains he holder o! he !loaingcharge and on crysallisaion# he charge holder will a%e s&-ec o he claim o! he spplier wih he &ene!io! he reenion o! ile clase( Since sch goods in hose circmsances never &ecome he propery o! hecompany# here is no proprieary ineres o which he !loaing charge can aach( "or a more comprehensive

    discssion o! reenion o! ile clases# re!erence shold &e made o I+017 onwards I@S?LF@CG:;CIF;S IF )PA;T I,( See also Law Commission !or ngland and

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    Cerain o! hese insolvency provisions have also &een disapplied in relaion o '!inancial collaeralarrangemens' pon he implemenaion o! Direcive 22/7/C on !inancial collaeral arrangemens as paro! he law o! he Hnied Jingdom )see C+ C?PA@G C8A;9S I, prsan o he "inancial Collaeral;eglaions( These reglaions also disapply# among oher hings# IA 1.0# s 170A )share o! asses !ornsecred crediors,# IA 1.0# s 2+ )avoidance o! cerain !loaing charges, and he e!!ec o! he moraorim

    on crediors where here is a 'small company CFA' nder IA 1.0# Sch A1(

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