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

Orla plc created a floating charge over all its assets in favour of Debenture holder Hassan. Later, in the ordinary course of business, Orla plc sold some inventory to a customer for full value before the charge crystallised. What is the position of the customer?

The customer takes good title free of the charge. Until a floating charge crystallises, the company may dispose of the charged assets in the ordinary course of business, so a purchaser for value in an ordinary sale is not bound by the debenture holder's charge.

  1. AThe customer takes good title free from the floating chargeCorrect
  2. BThe customer takes the inventory subject to the charge until Hassan consents
  3. CThe sale is void because the company needs Hassan's permission for every disposal

Explanation

A floating charge hovers over a class of assets that changes, and the company may deal with them in the ordinary course of business until crystallisation. A buyer in the ordinary course therefore obtains title free of the charge. Requiring consent is a feature of a fixed charge, not a floating one.

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