Floating charges—advantages and disadvantages
Floating charges—advantages and disadvantages

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Floating charges—advantages and disadvantages
  • Summary of advantages and disadvantages of the floating charge
  • Advantage: Ability of company to dispose of assets
  • Advantage: Ability to charge all assets
  • Advantage: Appointment of administrator and/or administrative receiver
  • Administrator
  • Administrative receiver
  • Disadvantage: Invalid Floating Charges
  • Unconnected persons
  • Connected persons
  • More...

Summary of advantages and disadvantages of the floating charge

This Practice Note discusses the advantages and disadvantages of taking a floating as opposed to a fixed charge, predominantly from the perspective of the chargee.

For detailed information on the nature of fixed and floating charges, see Practice Notes: Fixed and floating charges and Crystallisation of floating charges. For information on how to take a floating charge, see Practice Note: Floating charges.

The table below provides a summary of the key advantages and disadvantages; each of these is discussed in more detail in the relevant section below.

Summary
Advantages of floating chargeChargor can dispose of assets and otherwise carry on its business without the consent of the floating charge holder
Floating charge holder can take floating charges over every asset of the company
Floating charge holder can appoint administrator or, in some circumstances, an administrative receiver
Disadvantages of floating chargeFloating charges may be held to be invalid if created within a certain period prior to a chargor's insolvency
Costs of liquidation and administration are deducted from floating charge proceeds prior to distribution to the floating charge holder
Amounts owed to preferential creditors are deducted from floating charge proceeds prior to distribution to the floating charge holder
A certain amount (known as the prescribed part) is deducted from floating charge proceeds by law for the benefit of unsecured

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