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I have come across a question:
Identify the type of charge that was created over Milly Co’s trade receivables.
This is the answer:
Although the charge documentation states that a fixed charge was created, Milly Co may deal with the charged asset as it wishes to. This fulfils the criteria for a floating charge and therefore the charge will be registered as a floating charge.
Please can you explain this?
Thanks
Where an asset is the subject of a fixed charge, the borrower is no longer free to deal with that asset without first notifying the lender and probably settling the debt.
But with current assets like inventory and receivables, these are transient in nature and change on a daily basis. Because the borrower is free to collect debts and create new debts (the receivables balance) this cannot be a fixed charge, no matter how it is described in the loan agreement.
I suggest that you look up the case Yorkshire Woolcombers – it’s in the course notes but if you want greater detail, check it out on the Internet
Ok?
I have looked this case up online. I take it that these cases are just to help our understanding as we are not tested on them specifically.
Thanks for your explanation I will make sure that I also go over the notes again.
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