Q&As

Are there any circumstances in which a floating charge could satisfy the control or possession requirement for the purposes of the Financial Collateral Regulations?

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Published on LexisPSL on 09/06/2016

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • Are there any circumstances in which a floating charge could satisfy the control or possession requirement for the purposes of the Financial Collateral Regulations?
  • Why might a secured party want a floating charge to qualify as a financial collateral arrangement?
  • Is the question of whether a floating charge qualify as a financial collateral arrangement addressed by cases and/or legislation?
  • What is the specific concern relating to floating charges?
  • When might a floating charge qualify as a financial collateral arrangement?
  • The cases of and
  • Conclusion

Why might a secured party want a floating charge to qualify as a financial collateral arrangement?

Where a charge qualifies as a 'security financial collateral arrangement' (SFCA) under the Financial Collateral Arrangements (No 2) Regulations 2003, SI 2003/3226, this can confer significant benefits on the secured party, or 'collateral taker'. Practice Note: Key provisions of the financial collateral regulations sets out in detail the impact of qualifying as an SFCA. In particular:

  1. Easier creation/registration of security explains how an SFCA does not need to be registered at Companies House in order to be valid and enforceable

  2. Disapplication of insolvency law sets out which aspects of insolvency law are disapplied—of particular relevance in relation to floating charges are:

    1. hardening period for new floating charges

    2. requirement to set aside ring-fenced funds for unsecured creditors 

    3. requirement to pay preferential creditors out of floating charge assets 

    4. the right of an administrator to deal with or dispose of property

  3. Enforcement of security over shares explains that security over shares will be easier to enforce (if they fall within the Financial Collateral Regulations) as the collateral taker may exercise a right of appropriation without needing to apply to court for an order for foreclosure

Situations in which the question of whether a floating charge falls within the ambit of the Financial Collateral Regulations may be relevant include:

  1. where a charge is taken

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