refer this and answer the questions below

Floating Charge

• A company may also create a floating charge over its present and future assets.
• A floating charge is ambulatory and shifting in its nature, hovering over the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge.
• The essence of floating charge is that it does not relate to specific

assets until it crystallizes and becomes a fixed charge.

• A floating charge is a charge on a class of assets e.g. stock in

trade

• While the charge remains uncrystallized, the company may sell part of its stock and purchase replacements as the existence of a floating charge does not affect the goods once its disposed of.
• The advantage of a floating charge is that it allows a company to give security over assets that are numerous and of little individual worth.

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Creation of Floating Charge

• Theres no particular forms of words required to create a floating

charge more of question of interpretation of the instrument used.

• Buckley L J made the distinction between fixed and floating charges

in the English case of Evans v Rival Granite Quarries Ltd . He said:

• A floating security is not a future security; it is a present security, which presently affects all the assets of the company expressed to be included in it. On the other hand, it is not a specific security; the holder cannot affirm that the assets are specifically mortgaged to him. The assets are mortgaged in such a way that the mortgagor can deal with them without the concurrence of the mortgagee. A floating security is not a specific mortgage of the assets, plus a license to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallize into a fixed security.

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• Generally a charge will be a floating charge if:
  • It is a charge on a class of assets of the company, present

and future;

• That class is one , which in the ordinary course of business

of the company would be changing from time to time; and

• It is contemplated that until some future steps is taken by or on behalf of those who are interested in the charge, the company may carry on its business as usual as far as the particular class of assets is concerned

• If the chargor is at liberty to deal with the charged assets, it is a floating charge and conversely, if the chargor is not at liberty to deal with the assets charged, then it is more likely to be a fixed charge
  • ** Chargor is the person who grants the charge i.e. the

company. The charge is the person who takes the benefit of the charge the creditor / bank

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Fixed vs Floating Charg

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Disposal of Floating Charge

• A floating charge enables the borrowing company to deal freely with the assets subject to the charge in the ordinary course of its business.
• What dealings are in the ordinary course of business?
• In Reynolds Bros (Motors) Pty Ltd v Esanda Ltd , the New South Wales Court of Appeal held that transactions are within the ordinary course of business if they are made for the purpose of carrying on the business. This is so even where a particular transaction is exceptional in nature provided its purpose is to maintain the company as a going concern.

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• In that case Reynolds, a dealer in agricultural equipment, entered into an agreement in 1980 with Esanda.
• The agreement provided that Reynolds had possession of certain tractors as bailee for Esanda. This enabled it to sell the tractors as Esanda's agent and earn a commission.
• Reynolds also owned a number of its own tractors. In 1981 Reynolds granted the State Bank of New South Wales a floating charge over all its assets.
• In 1982 Reynolds breached its agreement with Esanda when it sold Esanda's tractors and failed to account for the proceeds. In order to reduce this debt Reynolds transferred ownership of ten of its own tractors to Esanda.
• The State Bank treated this as a breach of the terms of its floating charge and appointed a receiver and manager who challenged the validity of the transaction with Esanda.
• The court held that the transfer of the tractors to Esanda was within Reynolds ordinary course of business. This was because it enabled Reynolds to maintain itself as a going concern and meant that the tractors were not covered by the State Bank's floating charge.

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• A company can in the ordinary course of its business dispose of assets subject to a floating charge.
• It is also within the ordinary course of business for a company to grant a later fixed charge over specific assets which has priority over a prior floating charge covering that category of assets.
• A disposal of a company's business in its entirety as a preliminary step in ceasing business would not be in the ordinary course of business.

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Crystallization of Floating Charge

• A floating charge becomes fixed when events occurs which crystallized it.
• These events are usually set out in the charge documents
• This may occurs in one of several ways:
  • If the company goes into liquidation.
  • The appointment of a receiver by the court or by a creditor under a

power contained in the debenture

• Steps taken by the creditor to enforce the security
• Upon cessation of the companys business
• At the option of the creditor
• Upon the happening of a specific events
• Defaults in payment of interest for a specified period;
• Breaches restrictions on future borrowings;
• Allows the value of charged assets to decline below a minimum amount;
• Ceases to deal with the charged assets in the ordinary course of its

business

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• When a floating charge crystallized, it is treated as a fixed charge.
• However the crystallization does not affect its nature for the purpose of registration nor does it improves its priority vis-a-vis other charges existing at that time.

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Floating Charges in Liquidation and Receivership

• Once a floating charge crystallizes, the chargee is entitled to rank as a secured creditor
• Until that happens, the chargee cannot prevent the company from paying off its unsecured creditors in the course of doing business.
• When company is would up, or receiver appointed on behalf of debenture holder or possession is taken of property subject to floating charge certain preferred creditor will have priority over the holder of floating charge
  • i.e. Employees claim over wages, termination benefits, EPF, payment in lieu of notice

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Floating Charge and Judgment Debts

• A judgment creditor of a company takes subject to all equities and is therefore postponed to the rights of debenture holders if he has not completed execution before crystallization.
• If execution is completed before crystallization should be entitled to retain the proceeds notwithstanding the rights of debenture holders.

Floating Charge in Winding up

• Sec 529 - Floating charge created within six month of the commencement of winding up is void unless the chargee can show that the company is still solvent at that time.
• This rule is to prevent some unsecured creditors being given priority over other creditors by a creation of a floating charge when insolvent liquidation of the company is imminent.

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Registration of Charges

• Division 7 of CA 2016 provides for a system of registration of company charges with the Registrar.
• The main purpose of these provisions is to enable a potential creditor of the company, who proposes to lend money on security of particular assets, to ascertain whether the company has already given a charge over those assets.
• They also enable an unsecured creditor to determine the extent to which the assets of a company have been charged, and thereby to ascertain the rights of secured creditors who rank ahead of an unsecured creditor in priority of payment.
• Further provisions also determine the priorities of registrable

charges as against each other.

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• Sec 352 (1) company to lodge statement of particulars of the charge within

30 days

• If contravene subsection (1) charge is VOID against liquidator and any creditor so far as any security on the property is conferred
• However the loan is not prejudiced and shall immediately be payable
• Contravention of this subsection company and every officer liable to a fine not exceeding RM50,000

• Section 353 list the types of charges that requires registration.
• Section 357 sets out the particulars of a charge kept in the register by the

Registrar, inter alia:

• Date of creation
• Date of acquisition of property if the charge is existing on property

acquired by company

• The amount secured by the charge
• Description sufficient to identify the property charged
• Name of person entitled to the charge

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• The time of registration is important because it determines priorities among different registered charges over the same property.
• The registration of a charge gives constructive notice to all the world of the existence of the charge but apparently not of its terms.
• In Wilson v Kelland [1910] 2 Ch 306, the company created a floating charge over its undertaking.
  • The terms of the charge restricted the right to create further charges. Eve J held that the registration of the charge amounted to notice to the world that the charge existed; however, it was not notice that there were any special restrictions on the way that the company might deal with its property.
• This was adopted by the Supreme Court in the case of United Malayan Banking Corporation Bhd v Aluminex (M) Sdn Bhd .

ANSWER THIS QUESTION!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

SUBJECT : CORPORATE LAW/ COMPANY LAW

Abang Sdn Bhd had been engaged in the business of selling machinery for drug factories in Bangi since the last 10 years. One day, it entered into an agreement with Syarikat Adik Beradik Sdn Bhd which was embodied in a document called Machinery Bailment Plan. In this agreement, Syarikat Abang had agreed to sell 10 types of machinery received in return for a commission from Syarikat Adik Beradik for every machine sold to customers. Syarikat Abang Sdn Bhd had been doing quite good in the business, it decided to expand its business and apply a loan from a bank, then it gave to the MAMA Bank a floating charge over all its assets as at that time he had 500 new, updated and large machinery to be sold as usual. Abang then bought a land in Melaka using the money it received from the bank as part of its expansion plan. After several months, Syarikat Abang still needed some money to build a warehouse for the new place. He then sold 300 of his machinery to Syarikat Kakak Sdn Bhd and started to build a warehouse using the money. By the end of that month, the bank received a statement stated that 300 machinery had been sold without having new inventory coming in for sales rolling.MAMA Bank then treated this as a breach of the terms of its floating charged and appointed a receiver and manager who challenged the validity of the transaction with Syarikat Kakak.

If MAMA bank can proceed with crystallization of Syarikat Abangs floating asset. Why yes why no.