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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Delta Ltd gave Bank A a floating charge over all its assets. Later, in the ordinary course of its business, Delta Ltd sold goods from its inventory to a customer who knew nothing about any irregularity. The charge has not crystallised. What is the position of the customer?

The customer takes good title free of the charge. Before crystallisation, the company is allowed to sell assets covered by a floating charge in the ordinary course of business, so the lender cannot follow the goods into the buyer's hands and its consent is not required.

  1. AThe customer takes good title free of the floating chargeCorrect
  2. BThe customer takes the goods subject to the charge unless Bank A consents
  3. CThe customer takes good title only if the charge was not registered

Explanation

Until crystallisation, a company may deal with assets subject to a floating charge in the ordinary course of business. A buyer in such a sale takes the goods free of the charge, and the lender's consent is not needed. Registration does not alter this, as the charge simply does not attach to assets properly disposed of.

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