Floating Charge

An issue of distinguishing a fixed and a floating charge has considerable significance particularly for the parties involved in commercial relationships. It follows from the fact that under English law a fixed charge has a priority over a floating charge that means the former will prevail over the latter even though the company has granted a floating charge to the creditor prior to the creation of a fixed security. Another reason is that under the provisions of Insolvency Act 1986 holders of a floating charge are placed in a less favourable position than the holders of a fixed charge particularly due to sec. 176 of the Act which prevents the distribution of a certain portion of the company’s net property to the holder of a floating charge unless the claims of unsecured creditors are satisfied in full. Furthermore, general expenses incurred during administration can be covered by the assets which are granted to the holder of a floating security. In order to attribute a particular charge to one of the above categories no straightforward exercise can be applied. Despite the fact that the parties are free to decide what rights and obligations to grant each other, it is a question of law whether a charge is fixed or floating and certain rules developed by the English courts must be taken in consideration (Agnew).
This essay will examine the criteria of distinguishing the fixed and floating charge as well as discuss in which cases a charge over book debts should be regarded as a floating or fixed charge.
The foundation of establishing differences between the above charges is the Yorkshire Woolcombers case where Romer LJ delivered his speech in defining a floating charge which depended on three criteria: 1) if the charge on a class of assets of a company present and future 2) if that class is one which in the ordinary course of the business would be changing from time to time 3) if until some future step is taken by or on behalf of those interested parties in the