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

Karlo Ltd granted a floating charge to Bank A over all its assets. Later, in the ordinary course of business, Karlo sold a machine to Delia, who had no knowledge of any restriction. The floating charge has not crystallised. What is the position of Delia?

Delia takes the machine free of the floating charge. Before crystallisation, the company may dispose of assets in the ordinary course of business, so the charge does not follow assets lawfully sold to a buyer, and the lender's claim attaches only to assets still held.

  1. AShe takes the machine free of the floating chargeCorrect
  2. BShe takes the machine subject to the floating charge
  3. CThe sale is void because Bank A must consent to every disposal
  4. DShe must repay the price to Bank A

Explanation

Until crystallisation the company may deal with the assets subject to a floating charge in the ordinary course of business. A buyer in such a dealing takes good title free of the charge. Bank A's rights attach only to assets remaining in the company's hands when the charge crystallises.

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