Voidable floating charge

In law, a voidable floating charge refers to a floating charge entered into shortly prior to the company going into liquidation which is void or unenforceable in whole or in part under applicable insolvency legislation.

In most jurisdictions, a floating charge is only vulnerable to the extent that it does not secure new money for the company.

[4] So if a bank has a loan of £100 outstanding to a company, and it advances a further £50 but takes an "all-monies" floating charge as security, and the company goes into liquidation three months later, the floating charge will validly secure the £50 advance which was made at the time, but not the earlier £100.

Legislation relating to voidable floating charges is intended to prevent abuse of a security interest which catches literally all of the assets of the company, and could be used by person to strip out all of the assets from a company in difficulty from the unsecured creditors.

However, if the holder of the floating charge has inserted new money, then giving the holder a valid security up to the amount of the new money injected does not prejudice the position of the unsecured creditors.