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State the disadvantages of floating charges.

State the disadvantages of floating charges.

Answers

Kavungya
i. The value of the assets charged is uncertain since no particular assets are charged.
ii. A floating charge created within six months before the commencement of winding up is
deemed to be a fraudulent preference and is void.
iii. It is postponed to a later fixed charge.
iv. The charge may be avoided, during the company’s liquidation, under Section 314 of the
Act; unless it is proved that the company immediately after the creation of the charge
was solvent.
v. Where a seller of goods reserves title until payment, a floating charge will not, on
crystallisation, attach to these goods. This is illustrated by Aluminium Industries Vaassen
v Romalpa Aluminium (647).
vi. Certain other interests e.g. landlords distress for rent have priority over floating
charges.
Kavungya answered the question on April 15, 2021 at 19:53

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