Company law Coursework Example | Topics and Well Written Essays - 1000 words - 1

Company law - Coursework Example creditor is provided with a way of protection on certain specified assets of the company and if subsequently there is default the creditor can sell the assets so as to cover up the debt that is owed to him. A fixed charge in a situation of liquidation or receivership ranks highest in the order of priority. The most common feature of a fixed charge is that it attaches to the asset which is relevant upon creation. Thus fixed assets which are to be kept by the company for the long run are best suited for the creation of a fixed charge. On the other hand a floating charge has been defined in Re Yorkshire Woolcombers Association1 as â€Å"A charge on a class of assets of company, present and future; which class is, in the ordinary course of the company’s business, changing from time to time; and until the holders enforce the charge the company may carry on business and deal with the assets charged†. Thus it can be seen from the definition that contrary to a fixed charge, a floating charge does not attach to the property unless the charge has crystallized. A floating charged can therefore be applicable to fixed as well as current assets that is if upon ‘the undertaking and assets’ a charge has been created. Crystallization of a floating charge can occur by various ways and one of them is the liquidation of the company. The identification of a fixed or floating charge is not easily made at times but it is pertinent to mention that if a receiver is appointed the preferential creditors of a company are paid first. (s.40 Insolvency Act 1986). The labeling of a charge is not in itself conclusive. (Street v. Mountford). Thus a charge is not fixed where there the asset that has been charged can be dealt with by the company. (R in Right of British Columbia v. Federal Business Development Bank). The priority of charges is important when different charges have been created over the same property, if the question of registration of a charge is kept aside then an equitable