Avoiding invalid floating charges under section 245 of the Insolvency Act 1986
Avoiding invalid floating charges under section 245 of the Insolvency Act 1986

The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:

  • Avoiding invalid floating charges under section 245 of the Insolvency Act 1986
  • Avoiding floating charges—the conditions required
  • What is a floating charge and are fixed charges caught?
  • Timing and insolvency
  • Insolvency event
  • Relevant time
  • Consideration
  • Setting aside avoidable floating charges

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Avoiding floating charges—the conditions required

Under section 245 of the Insolvency Act 1986 (IA 1986), there are provisions for liquidators and administrators to set aside certain floating charges. For a floating charge to be declared invalid, certain conditions as set out in this Practice Note must be satisfied.

Broadly speaking, a floating charge will be avoided if:

  1. the company has entered either administration or liquidation

  2. the charge is a floating charge

  3. the floating charge was created at the relevant time

  4. in certain circumstances, the company was either insolvent at the time or as a cause of the floating charge

  5. the consideration provided was not provided at the time (or subsequently to) and in consideration for the creation of the charge

The overall aim of the section is to prevent creditors from obtaining an unfair advantage over other creditors (like trade creditors) at a time when the company's ability to repay its debts is in doubt. It is therefore similar to a preference claim, although it is the security over the debts that will be avoided, as opposed to the actual repayment of the debt.

What is a floating charge and are fixed charges caught?

One of the first things to consider when investigating whether the floating charge is void is if the charge is in fact a floating charge. The