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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › What happens if fixed or floating charge becomes invalid?
1-
Charge becomes invalid if:
Floating charge: 12 months period
Fixed charge: 6 months period
…of commencement of liquidation period.
(note: this part is clear, but 2 part is not clear)
2-
What I cant able to understand what does that mean by
– invalidity of charge, and why liquidator would try to prove invalidity?
Its bit confusing.
What Im guessing is
– liquidator proving invalidity hence the charge wont classed fixed or floating,
– and it doesnt get any priority in asset distribution in liquidation
– and goes to other category for this, thus it goes in favor of issuer or company
Kindly answer my this confusion, I look forward to it, and would really appreciate your help.
Thanks Sir!
You’re almost there (except I couldn’t understand your last line about “thus it goes in favour of issuer or company”!)
If a liquidator can show that a charge is invalid, then it will no longer rank as a secured debt.
And if it’s not secured then it’s …unsecured
And, as an unsecured debt, it ranks alongside all the other unsecured trade creditors and non-preferential creditors
All clear?
Thanks alot sir! Really appreciate your help. Stay blessed!
You’re very welcome
