Foreword

Summary

The floating charge was introduced into Scots law in 1961 by the Companies (Floating Charges) (Scotland) Act of that year. That Act was passed largely in response to demand from the commercial world. It was thought that the introduction of the floating charge was necessary to take account of two elementary commercial facts. First, a modern company (and indeed any other commercial concern) will require to borrow money, if only to provide liquidity or working capital, and will require to grant security for its borrowings. Secondly, such a company will almost inevitably possess a large number of different types of property over which it can grant security. In this connection, it is significant that at the present day most property (in excess of 80 per cent of the total) is incorporeal or intangible: such property has no physical existence but only exists by virtue of the legal system, as in the case of debts or shares or intellectual property rights. Understandably, companies wish to grant security over intangible property and the floating charge has been seen as an easy and flexible means of achieving that result.

It is therefore hardly surprising that the floating charge has proved extremely useful in practice. This is shown by the frequency of its use. Nevertheless, the use of the floating charge has given rise to a significant number of legal problems, especially in relation to its interaction with other areas of law and legal institutions. These include contracts, property, insolvency and perhaps most notably diligence, where the notion of ‘effectually executed diligence’, first introduced by the 1961 Act, has been the subject of repeated litigation.

In large measure these legal problems originate at a conceptual rather than a strictly practical level. The floating charge is a concept derived from English equity and I think that the underlying problem is that English equity has a distinctive, flexible, conceptual structure that is not easy to translate into a system such as Scots law that is based on structures originating in Roman law. Nevertheless, while the difficulties may be said to originate at a conceptual level, they have important practical implications; that is well illustrated by the significant volume of Scottish case law on the floating charge.