The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:
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:
the company has entered either administration or liquidation
the charge is a floating charge
the floating charge was created at the relevant time
in certain circumstances, the company was either insolvent at the time or as a cause of the floating charge
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.
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
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