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

Kelmar Ltd granted Bank A a floating charge over all its assets on 1 March. On 1 June it granted Bank B a fixed charge over its factory. Bank A's debenture did not prohibit later fixed charges, and Bank B had no notice of any restriction. Which statement about priority is correct?

Bank B's fixed charge ranks ahead of Bank A's earlier floating charge on the factory. A floating charge lets the company deal with its assets, so a later fixed charge can take priority, unless the earlier debenture restricted this and the later lender had notice.

  1. ABank A has priority because its charge was created first
  2. BBank B's fixed charge has priority over Bank A's floating charge on the factoryCorrect
  3. CBoth rank equally and share in proportion to their debts
  4. DBank B's charge is void because a floating charge already existed

Explanation

Under the general rule, a fixed charge takes priority over an earlier floating charge, because the floating charge allows the company to deal with the assets and so permits later fixed charges. There was no prohibition and no notice of one. Ranking by date of creation applies to charges of the same type, not here.

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