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Shortly After The 1897 Act The Seminal Definition Of A Floating Charge Was ...

Shortly after the 1897 act the seminal definition of a floating charge was given in the ubiquitously quoted judgement of Romer LJ In re Yorkshire Woolcombers Association Limited. Houldsworth v. Yorkshire Woolcombers Association Limited:
‘If a charge has the three characteristics that I am about to mention it is a floating charge. (1.) If it is a charge on a class of assets of a company present and future; (2.) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3.) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with'
Whilst these subjective easily ascertainable aspects became the hallmarks of a floating charge in the early twentieth century the theory and complication of other aspects created its own uncertainties. In particular Pennington draws attention to the difficulties in the license jurisprudence. Stemming from a passage of Jessel M.R. in Re Florence that implied that a floating charge holder gave an implied license to the corporation to use and dispose of it's assets as it saw fit certain courts took this as the position of a floating charge. Whereas others subscribed to a crystallisation-event thesis which meant the charge didn't attach until that event had occurred. The problem was with the latter the floating charge-holder is not protected from ultra vires acts or attempts to destroy the investment of the security-holder.. There are drawbacks to both positions however because with a licence there would be problems were a company is wound-up for purposes of merging because in effect that would be revocation of the licence.
However, interestingly by the early-twentieth century what had in effect occurred was the judicial creation of what was in effect a Roman hypotheca, except rather than a contractual right that the hypotheca conferred it was a real right for the security holder. However, again commercial pressures began to exert their effect on the law as they had done in the nineteenth century. Statutory Intervention had altered the playing field so that preferential creditors could defeat the holders of floating charges and commercial pressures were thus looking to thread the needle and return to the debenture-holder's hegemony. An obvious way of doing this was to draw securities that were specific charges but that still allowed flexibility for the borrower to carry on without much encumbrance, as a specific charge would have priority to preferential creditors.

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