Postponement of a floating charge

                                                     Postponement of a floating charge

when a mortgage is created it has priority over the floating charge which gets postponed. The floating charge is postponed in favour of the following persons if they act before the crystallization of the security:

1.       A landlord who distrains for rent.

2.       A creditor who obtains a garnishee order absolute.

3.       A judgment creditor who attaches goods of the company and gets them sold (but if the goods are not sold and the debenture holders take action in the meantime, the floating charge has priority).

4.       The employee of the company, as well as other preferential creditors in the event of winding-up of the company.

5.       The supplier of good to the company under a hire-purchase agreement on terms that goods are to remain the property of the seller until they are paid for in full, has priority over the floating charge, whether such hire-purchase agreement is made before or after the issue of the debentures with a floating charge. Floating charges should not be created on goods which are hire-purchased by the company.

Debenture –holders with a floating charge do not, therefore, enjoy the same rights as the secured creditors, for claims against the company. The deed creating the floating charge may, however, contain a clause restricting the power of the company to create charges in priority to or pari passu with it. But even in such a case a person who takes mortgage without notice of floating charge gets priority. But such a contingency can be safeguarded by registering the charge.

source: study mate of icsi