If the test for a fixed charge is not met, would that charge be a floating charge or would it be void altogether?

Requirement:

Critically evaluate the differences between fixed/floating charges and the advantages/disadvantages of both.

25 marks

Q. 2

On 1 January 2019, Dull Detectives Ltd created a floating charge over its assets in favour of Regional Bank plc as security for a loan of 200,000. The charge was not registered.

On 1 February 2019, Dull Detectives created a second floating charge in favour of Bold Bank plc as security for an existing overdraft facility of 50,000. The charge contained a term prohibiting Dull Detectives Ltd from creating subsequent charges that would rank in priority to that of Bold Bank plc. The Bold Bank plc charge was duly registered.

On 1 March 2019, Dull Detectives Ltd purchased computer and surveillance equipment form LowTech Ltd at a cost of 125,000. Dull Detectives Ltd paid 25,000 in cash, and created a fixed charge over its premises and book debts in favour of LowTech Ltd to secure the balance of the purchase price. This charge was duly registered.

Dull Detectives Ltd is now in some financial difficulty and the directors Homes and Crick go to their lawyer to discuss the legal position of the above charges.

Requirement

Explain the validity of the charges and transactions undertaken by Dull Detectives Ltd.

25 marks