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Section 687 of Insolvency Act CAP 53: Circumstances in which floating charge on company's undertaking or property to be invalid

    

(1) Except as otherwise provided by this section, a floating charge on the company's undertaking or property created at a relevant time is invalid except to the extent of the aggregate of—
(a) an amount equal to the value of so much of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the company at the same time as, or after, the creation of the charge;
(b) an amount equal to the value of so much of that consideration as consists of the discharge or reduction, at the same time as, or after, the creation of the charge, of any debt of the company; and
(c) the amount of such interest (if any) as is payable on the amount referred to in paragraph (a) or (b) in accordance with an agreement under which the money was so paid, the goods or services were so supplied or the debt was so discharged or reduced.
(2) Subject to subsection (3), the time at which a floating charge is created by a company is a relevant time for the purposes of this section if the charge is created—
(a) in the case of a charge which is created in favour of a person who is connected with the company, within the two years immediately preceding the onset of insolvency;
(b) in the case of a charge that is created in favour of any other person, at a time within the twelve months ending with the onset of insolvency;
(c) in either case, at a time between the making of an administration application in respect of the company and the making of an administration order on that application; or
(d) in either case, at a time between lodging with the Court of a copy of notice of intention to appoint an administrator under section 534 or 541 and the making of an appointment under that section.
(3) If a company creates a floating charge at a time referred to in subsection (2)(b) and the person in favour of whom the charge is created is not connected with the company, that time is not a relevant time for the purposes of this section unless the company—
(a) is at that time unable to pay its debts; or
(b) becomes unable to pay its debts in consequence of the transaction under which the charge is created.
(4) For the purposes of subsection (3), the onset of insolvency is—
(a) if this section applies because an administrator of a company is appointed by an administration order, the date on which the administration application is made;
(b) if this section applies because an administrator of a company is appointed under section 534 or 541 following lodgement with the Court of a copy of notice of intention to appoint under that section, the date on which the copy of the notice is lodged;
(c) if this section applies because an administrator of a company is appointed otherwise than as referred to in paragraph (a) or (b), the date on which the appointment takes effect; and
(d) if this section applies because a liquidator has been appointed in respect of a company, the date of the commencement of the liquidation.
(5) For the purposes of subsection (1)(a), the value of any goods or services supplied as consideration for a floating charge is the amount in money that, at the time they were supplied, could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company.

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Disclaimer: This document is not to be taken as legal advise.

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