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

Rania Ltd grants a lender a charge over all its present and future trade receivables. Rania Ltd remains free to collect the debts and use the proceeds in its day-to-day business until the lender takes action. How is this charge best classified?

The charge is floating. It covers a changing class of assets, present and future receivables, and the company may collect and use the proceeds freely in its ordinary business until the lender intervenes. Freedom to deal with the assets is the key feature of a floating charge.

  1. AA floating charge, because the company can deal with the assets in the ordinary course of businessCorrect
  2. BA fixed charge, because it is over identified classes of asset
  3. CA fixed charge, because the lender holds the security from the date of the agreement

Explanation

A floating charge covers a class of assets that changes from time to time, and the company can deal with those assets freely in the ordinary course of business until the charge crystallises. Here the company collects debts and uses the proceeds freely, so the charge is floating. The fact that a class of assets is named does not make it fixed.

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