9 - The Ranking of Floating Charges
Published online by Cambridge University Press: 18 November 2022
Summary
A. INTRODUCTION
B. GENERAL RANKING RULES
C. DEFAULT RANKING RULES FOR FLOATING CHARGES
(1) Against voluntary fixed securities
(2) Against fixed securities arising by operation of law
(3) Against other floating charges
(4) Against diligences
(5) Against other security rights
D. NEGATIVE PLEDGES
E. RANKING AGREEMENTS
F. ATTACHMENT, RANKING AND ENFORCEMENT
(1) Attachment and ranking
(2) Appointing and enforcing
G. RANKING AND DISTRIBUTION
(1) Liquidation
(2) Receivership
(3) Administration
(4) Enforcement by fixed security holder
H. FURTHER RANKING ISSUES
(1) Circles of priority
(2) Catholic and secondary security
(3) Offside goals rule
I. CONCLUSION
A. INTRODUCTION
A floating charge and the debt it secures do not exist in isolation. They need to interact with other obligations due by the granter and other claims on the granter's property. In common parlance it is said to be necessary to establish how security ‘ranks’. Ranking denotes a comparison between two things: whether X is preferred to Y. In a legal context, ranking often focuses on respective priorities as far as an asset is concerned: how X ranks against Y in respect of asset Z. However, the term ranking in its wider sense actually aggregates two key concepts together. First, the freedom enjoyed by the granter in respect of the assets over which security is granted prior to its enforcement: is the granter free to dispose of the asset (and, if so, what happens to any proceeds), and are there any other restrictions on what can be done with the relevant asset? This can be seen as a form of ranking between a secured creditor and the granter as to control over the use of the asset in question. Secondly, the respective priorities of creditors’ claims in competitions involving assets, which is particularly relevant in the context of insolvency. The most thorough and systematic categorisation of commercial law principles in Scotland comes from George Joseph Bell, who himself had a considerable underlying interest in insolvency law. Indeed, Bell discussed ranking issues at length in the context of the division of a bankrupt's estate and codified certain court decisions dealing with competitions between secured creditors (including diligence creditors) in his ‘canons of ranking’.
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- Information
- Floating Charges in ScotlandNew Perspectives and Current Issues, pp. 345 - 399Publisher: Edinburgh University PressPrint publication year: 2022