Restriction on the power to create floating charge

                                        Restriction on the power to create floating charge

There is basic intention of the company to create floating charge since company can freely deal with the asset on which floating charge is created. In many cases it is seen that property have been mortgaged which is previously charged. In such a situation a confusion regarding the right on that asset is raised.  To solve this type of problem companies act restrict the power of a company by giving some guidance in this respect.

If the company creates a mortgage in favour of any person who has notice of the floating charge and restriction such person ranks after the floating charge. But if a person who obtains a valid mortgage and can show either (i) that he was not aware of the existence of the floating charge.  (ii) that though he was aware of the charge, he was not aware of the restriction Is entitled to priority by virtue of the legal estate.

Furthermore, where a specific charge is created expressely subject to a floating charge, the floating charge will prevail over specific charge, when the floating charge have been fixed against the assets by the appointment of a receiver.