
Contents
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A. Overview A. Overview
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B. History B. History
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C. Fixed Charges C. Fixed Charges
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D. Charges That Have Crystallized and Been Enforced D. Charges That Have Crystallized and Been Enforced
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E. New Value E. New Value
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Categories of ‘value’ Categories of ‘value’
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Money Money
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Goods Goods
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Services Services
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Discharge or reduction of any debt Discharge or reduction of any debt
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Interest Interest
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Valuation Valuation
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Value must be in consideration for the charge Value must be in consideration for the charge
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Consideration for the creation of the charge Consideration for the creation of the charge
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Advance not made directly to the debtor Advance not made directly to the debtor
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Company as a mere conduit Company as a mere conduit
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Recharacterized transactions Recharacterized transactions
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Consideration checklist Consideration checklist
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F. The Creation of the Charge: Contemporaneity F. The Creation of the Charge: Contemporaneity
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The approach pre-1986 The approach pre-1986
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Re Shoe Lace Ltd: Hoffmann J Re Shoe Lace Ltd: Hoffmann J
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Re Shoe Lace Ltd: Court of Appeal Re Shoe Lace Ltd: Court of Appeal
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A. Delay must be de minimis A. Delay must be de minimis
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Agreement to create a charge Agreement to create a charge
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An agreement creating present equitable security An agreement creating present equitable security
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An agreement to create security in future An agreement to create security in future
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Hardening the charge: Re Yeovil Glove Co Ltd Hardening the charge: Re Yeovil Glove Co Ltd
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G. Relevant Time G. Relevant Time
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Onset of insolvency Onset of insolvency
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Connected parties Connected parties
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Banks Banks
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Non-connected parties Non-connected parties
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H. Effect of Invalidity H. Effect of Invalidity
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Effect on administrative receivership Effect on administrative receivership
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Example Example
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Implications where an administration order is proposed Implications where an administration order is proposed
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I. Other Remedies I. Other Remedies
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Preferences Preferences
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Misfeasance Misfeasance
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Unregistered charges Unregistered charges
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Transaction at an undervalue Transaction at an undervalue
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J. Agricultural Credits Act 1928 J. Agricultural Credits Act 1928
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17 Avoidance of Floating Charges (Insolvency Act 1986, Section 245: Corporate Insolvency Only)
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Published:March 2018
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Abstract
A floating charge, of course, increases the likelihood upon the winding up of the debtor that a creditor will receive payment for sums that the creditor has advanced. Conversely, the existence of a charge over property reduces the likelihood of payment for creditors, such as those who supplied the property in the first place. Limitations have accordingly been placed on the availability of such charges in order to ensure that any creditor obtaining the advantage of this method of security has earned the priority that it confers. Section 245, which applies only in the context of liquidation and administration, provides that any floating charge that is created within a specified period of the onset of insolvency is void except to the extent that the charge holder advanced value to the debtor at the same time as, or after, the creation of the charge. Unlike many of the other avoidance provisions, the operation of section 245 is automatic and does not depend on an application being made by the liquidator or administrator. An exception to the operation of section 245 applies in the context of financial collateral arrangements.
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