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

Orrin Ltd has a fixed charge in favour of Bank A, registered on 1 March, created on 20 February. Orrin gave a second fixed charge over the same asset to Bank B on 25 February, registered on 26 February. Bank B did not know about Bank A's charge. Where registration is a requirement and registration itself is not treated as notice, which statement best reflects the general priority rule?

Bank A ranks first because competing fixed charges over the same asset generally rank in the order they were created, and Bank A's was created on 20 February. Bank B's earlier registration does not change that order under the general rule.

  1. APriority generally follows the order of creation, so Bank A ranks first, subject to the rules on notice and registration in the relevant systemCorrect
  2. BBank B ranks first because it registered first
  3. CBoth banks share the asset equally
  4. DPriority is decided only by which loan is larger

Explanation

The general rule for competing fixed charges is that priority follows the order of creation, so Bank A, created on 20 February, ranks first. Bank B's earlier registration does not reverse this because the order of creation is the starting rule. Equal sharing is not the usual rule, and loan size is irrelevant.

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