ACCA LW ^Eng Syllabus E. Capital And The Financing Of Companies - Explain The Concept Of A Company Charge - Notes ^{3 / 3}

If a company is being wound up, the creditor with a debt secured by a charge will receive any payment before unsecured creditors and shareholders.

There are two types of charges available to debenture holders:

Fixed Charges

• Attach to specific assets

• The charged asset may not be disposed of

• If the company defaults on the loan - the charge holder sells the asset and recover his / her money owed

• On liquidation fixed charge holders get paid first

Floating Charges

• They 'hovering' over classes of assets - not attached to specific ones

• The charge attaches to class assets when:

  A company can't pay its debts
  A receiver gets appointed
  A company stops business
  A company goes into liquidation

• The company can deal in charged assets before such events

• The floating charge ranks behind fixed charge holders

Registering Charges

Must be registered within 21 days but are effective from date of creation – not registration. 

Fixed charges always rank above floating charges. 

So -  a fixed charge created beats a floating charge created earlier

However a floating charge holder can create a Negative Pledge Clause (NPC) - which prevents a later dated fixed charge beating them. There must be some consideration paid for it and all subsequent charge holders are informed of the NPC

Any money owed to charge holders (after selling charged assets) becomes unsecured. So...

Fixed charge holders
Can appoint a Receiver to take control of the charged asset.

Floating charge holders
Can appoint an administrative receiver but their powers are limited by the Enterprise Act 2003.