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In Both Re Florence Land And Public Works Co. Ex Parte Moor And In Re ...

In both Re Florence Land and Public Works Co. ex parte Moor and In re Colonial Trusts Corporation, above, the lead judgement was given by Jessell, M.R. who made the first reported use of the term ‘floating security' which he defined as ‘ a charge upon assets for the time being, leaving the company to deal with them as they think fit till they are stopped either by a receiver or a winding-up'. These decisions established floating charges as a feature of the commercial and legal landscape.
However, as with any judicially created concept which becomes an established part of our common law, the exact dimensions and nature of a floating charge have never been made explicit from this date onwards there has been hesitancy to provide an authoritative definition and whilst undoubtedly the commercial pressure that lead to creation of the ‘floating security' by the judiciary did have it's drawbacks for example Lord Macnaghten stated as early as 1896 that ‘Everybody knows that when there is a winding-up, debenture holders generally step in and sweep off everything. And a great scandal it is.'. Lord Macnaghten was referring to the defeating of unsecured trade creditors by debenture holders but there were other flaws such as the distinction between fixed and floating securities which were unclear. These problems have lead to a steady stream of cases challenging the concept and its full dimensions from the late nineteenth century to modern day. We shall pick out the highlights of this development, which inevitably involved a degree of mutation from the key aspects identified in the preceding cases.
The dominance of debenture holders was growing and it is clear that parliament felt that some amelioration of the power of security-holders was required and they passed the Preferential Payments in Bankruptcy Amendment Act 1897 which created a class of ‘preferential creditors' such as employees and crown creditors priority in distribution of the assets over security holders. Further statutory interventions in the Companies Act 1900 also required registration of a ‘floating charge' and for the invalidation of them if granted shortly before insolvency proceedings. There was a general reservation over the operation of the floating charge after Florence and Colonial Trusts and Lord Macnaghten among many had expressed his feeling that the law ought to be changed. The fact that parliament refused to give an authoritative definition of a floating charge, however, begged the court's to determine what is a floating charge?

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