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

Tessa Ltd has given Lender Y a floating charge. Later Tessa gives Lender Z a fixed charge over its factory, and Z has no notice of any restriction in the earlier charge document. The floating charge has not crystallised. Which lender normally has priority over the factory?

Lender Z normally has priority. A fixed charge ranks ahead of a floating charge, even an earlier one, because the company could deal with the assets before crystallisation, and Z had no notice of any restriction on creating later secured charges.

  1. ALender Y, because its charge was created first
  2. BLender Z, because a later fixed charge normally takes priority over an earlier uncrystallised floating chargeCorrect
  3. CNeither, because the lenders share equally
  4. DLender Y, because floating charges always rank above fixed charges

Explanation

A fixed charge normally ranks ahead of a floating charge, even if the floating charge was created earlier, because the company was free to deal with the asset. Priority could change if Z had notice of a restriction on later charges, but here it had none. Time of creation alone does not decide it.

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