Invalidity of floating charge

                                                  Invalidity of floating charge

A floating charge remains afloat until a winding up commences, unless it has already crystallized through the intervention of the charge holder. Also, a floating charge is valid only against the unsecured creditors, whether in a winding-up or otherwise. But the act prevents unsecured creditors to get priority over the other creditors by obtaining a floating charge when he learns that the company’s liquidation is imminent.

Accordingly, sec 332 of the act provides that a floating charge  which is created within 12 months immediately preceding the commencement of the winding-up proceeding of a company shall be invalid, unless it is proved that the company was solvent immediately after the creation of the charge. But the charge will be valid to the extent of the amount of any cash paid to the company at the time of or after the creation of, and in consideration for the charge, together with interest on that amount at 5 per cent per annum or such other rate as may be notified by the central government.