Lords rule on ‘floating charge’

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A House of Lords ruling said holders of floating charges – typically banks – should be paid ahead of liquidators’ costs and expenses, The Financial Times reported.

A floating charge is a form of security granted over a company’s general assets, such as stock, which may change from time to time.

Floating charge holders rank ahead of unsecured creditors. However, there has been uncertainty as to where liquidators themselves fit into the picture, as they are both responsible for making distributions to the ‘queue’ and a part of it.

The case revolved around distributions from the liquidation of truck maker Leyland Daff.

Lord Millett said funds in a winding up should be considered as two separate pools – one comprising assets in a floating charge, the other the proceeds of ‘free’, or uncharged assets.

‘In principle, the expenses of a winding-up are borne by the assets comprised in the winding-up – the company’s free assets,’ he said.

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