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

Kestrel Ltd issued debentures to Tomas secured by a floating charge over its stock and receivables. Tomas argues his position is stronger than a shareholder's. Which statement is most accurate about the effect of this floating charge on Kestrel's business dealings before crystallisation?

Until the floating charge crystallises, Kestrel may keep dealing with the charged stock and receivables in the ordinary course of business. The charge only gives security over a shifting pool of assets; it does not give ownership or membership rights.

  1. AKestrel cannot sell any stock without Tomas's consent
  2. BThe charge converts Tomas into a member with a right to vote
  3. CKestrel may continue to deal with the charged assets in the ordinary course of businessCorrect
  4. DThe charge gives Tomas immediate ownership of the stock and receivables

Explanation

A floating charge hovers over a changing pool of assets, allowing the company to trade freely and dispose of assets in the ordinary course until crystallisation. Consent is not needed for ordinary sales, and the charge gives security rather than ownership or membership.

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