Floating charges—differences between Scots and English law
Floating charges—differences between Scots and English law

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

  • Floating charges—differences between Scots and English law
  • The floating charge
  • Debentures v floating charges
  • Effects of enforcement
  • Registration and amendments

Described once as a 'manifestation of the English genius for harnessing the most abstract conceptions to the service of commerce', floating charges are now not only commonly used but form virtually an essential component in financing transactions. This Practice Note seeks to highlight the differences in the laws of Scotland and England with regards to floating charges. In doing so, it considers the composition, registration requirements and enforcement procedures under each jurisdiction.

This Practice Note focuses on the position of a 'qualifying floating charge' as such term is defined in the Insolvency Act 1986 (IA 1986) as that concept applies to both Scotland and England.

The floating charge

While fixed securities provide a lender with preferential ranking, they are restricted by reference to the specific asset over which they are granted and by reference to the ability of the borrower to transact with the asset. Given their narrow scope and restrictive nature, fixed charges are not suitable for many classes of asset (particularly those that regularly turnover such as stock). However, these asset classes may still hold a substantial amount of value which a borrower may wish to utilise by offering them as security for a loan. The floating charge solves this problem by being suspended above (or floating over) the company's assets until an enforcement event occurs. On this