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The Floating Charge - Case Study Example

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The Floating Charge

A search at Company's House had not revealed any other existing charges. This floating charge was registered on the 24th of April 2008 at Companies' House, the same day it was created. In October 2008 Marina and Mortimer also decided to double their orders for polymeric fibers with Synthetic Fibres Plc, needed for the production of fake furs. Synthetic Fibres Plc insisted on a reservation of title clause in all contracts for future supplies of polymer fibers. In November 2008 Synthetic Fibres Plc made a delivery of '30,000 worth of polymeric fibres to Imitation Furs Ltd. Following the advice of their accountants on the 18th of March 2009, Imitation Furs Ltd is now in insolvent liquidation.
To come up with an answer to the question, it is necessary to define first the meaning of floating charge and reservation of title clause (or simple retention of the title clause), where, when and how they are used, who can use, and the extent of their use. This paper will first begin with the discussion on the floating charge on the first part and the discussion of the simple retention of title clause on the second part. The discussion and conclusion will be based available scholarly works and decided cases relevant to the topic from reputable sources in the internet in answering the question.
Generally speakFloating Charge Defined
Generally speaking, a floating charge (FC) is an unsecured charge applied on the assets of a borrower company made by another company as a security on the amount of money or loan acquired by the borrower company to it. It is not as effective as a fixed charge but is more flexible.1 Unlike a fixed charge that attaches immediately to the assets of the borrower company as soon as the charge is created, a floating charge only attaches to the asset after it crystallizes.2 Crystallization occurs when the borrower company gets into financial trouble and needs to declare bankruptcy, insolvency, or needs to be sold.3 Therefore, the borrower could still deal with the stocks in the normal course of business, for example, use or sell the assets or stocks even without the permission from the creditor or charge holders as if they weren't secured.4
History of Floating Charge
Floating charge has its roots at the United Kingdom.5 Its history can be traced back on the descriptions given by Lord Macnaghten in two cases: in Government Stocks and Other Securities Investment Co Ltd v Manila Rly Co6 and in Illingtonworth v Houldsworth7. 8 Romer's LJ's description of the term floating charge given in Re Yorkshire Woolcombers Association9 is generally cited as "the most authoritative definition of what a floating charge is:
it is a charge over a class of assets present and future;
that class will be changing from time to time; and
until the change crystallizes and attaches to the assets, the chargor may carry on its business in the ordinary way." 10
(Simple) Retention of the Title Clause
The Retention of the Title Clause (RTC), on the other hand, is a provision usually used in a contract of sale which allows for a supplier of goods to transfer possession of goods to the buyer under a credit system but ...Show more

Summary

Marina and Mortimer are the sole shareholders and directors of Imitation Furs Ltd. In order to expand their business they applied for a loan from Easy Bank Plc. Easy Bank Plc agreed to grant a loan of ' 500,000 to Imitation Furs Ltd, to be secured by a floating charge over the company's stock in trade…
Author : deloreskilback
The Floating Charge essay example
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