8 - The Species and Structure(s) of the Floating Charge: The English Law Perspective on the Scottish Floating Charge

Summary

A. INTRODUCTION

B. PARTIES’ FREEDOM TO CREATE AND SHAPE THE CHARGE

(1) A common forerunner: charge over an undertaking under 1845 Acts

(2) Different attitudes towards parties’ agreement

(3) Person of the chargor

(4) Charged assets

(5) Debentures

(6) Registration

(7) Crystallisation

(8) Enforcement

C. THE NATURE OF THE FLOATING CHARGE PRIOR TO CRYSTALLISATION (‘ATTACHMENT’ IN SCOTS LAW)

(1) Property right v personal right

(2) The extent to which the floating charge binds third parties

(3) Not a personal right

(4) Not a preference right

(5) Property right with a broad authority to dispose free of the charge

D. CONCLUSION

A. INTRODUCTION

The floating charge is one of the most useful developments facilitated by the English Chancery courts. It has played an important role since the mid-nineteenth century in enabling corporate businesses to raise finance. One of its practical selling points is that the charged assets are at free disposal of the chargor, so the chargor may sell or otherwise dispose of them without the chargee's consent, as if they are not charged, for as long as the disposition is within the terms of the charge, until the charge is crystallised.

The adoption of an identically-named device into Scots law was motivated by the desire to improve borrowing opportunities for Scottish companies. It was introduced by the Companies (Floating Charges) (Scotland) Act 1961, and it currently finds its basis in the Companies Act 1985. There is little doubt that the Scottish floating charge was inspired by the English floating charge but it does not follow that they are the same institution.

It is surprising how little analysis there has been of the similarities and differences between the English and the Scottish floating charges. Many accounts focus on a different question, namely the poor fit of the Scottish floating charge into Scots property law, which is Civilian and ‘based on the more rigorous conceptual structure of Roman law’. The point of comparison with English law is generally reduced to an assertion that the English floating charge is equitable while the Scottish one is not and so the two charges are very different ‘by nature’.