BL - Avoidance of floating charge

Question 1

Avoidance of certain floating charges
What is Avoidance of certain floating charges?

Answer 1

Prevent an unsecured creditor obtaining a floating charge to secure an existing loan for no new consideration, at the expense of other unsecured creditors.

Question 2

Avoidance of certain floating charges
When must the floating change have been created?

Answer 2

• Unconnected: 1 year
• Connected: 2 years

Of onset of insolvency

Question 3

Avoidance of certain floating charges
When may a floating change be invalid for an connected person?

Answer 3

• The floating charge must have been created within 2 years preceding the onset of insolvency.
• there no insolvency requirement.

Question 4

Avoidance of certain floating charges
When are new floating charges valid?

Answer 4

To the extent that ‘new money’ or other fresh consideration is provided to the company (even if this didn’t come from the lender) 🎁

Question 5

Avoidance of certain floating charges
What happens if a floating charge is found to be void?

Answer 5

Only the security is void and not the debt itself

Question 6

Avoidance of certain floating charges
What must be proved to avoid a floating charge for an unconnected person?

Answer 6

• company was insolvent
• on either a cash-flow or balance sheet basis
• at the time of the floating charge’s creation or
• became insolvent in consequence of the transaction under which the charge was created.