ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Zentra Ltd borrows from Norbank and grants it a charge over all of its present and future inventory and receivables. Zentra remains free to sell inventory and collect receivables in the ordinary course of business without Norbank's consent. How is this charge most likely to be classified?
The charge is a floating charge. It covers a changing class of assets, inventory and receivables, and the company may freely sell and collect them in the ordinary course of business, which is the defining feature of a floating charge until crystallisation.
- AA floating charge, because the company can deal with the assets in the ordinary course of businessCorrect
- BA fixed charge, because it covers identifiable classes of assets
- CA fixed charge, because the charge was given to a bank
- DAn equitable mortgage, which cannot be a floating charge
Explanation
A floating charge hangs over a class of assets that changes from time to time and the company may deal with those assets in the ordinary course of business until the charge crystallises. Freedom to sell inventory and use receivables is the key feature. The class of asset or the identity of the lender does not make a charge fixed.
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