Essay: Floating Charge

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  • Published on: August 2, 2018
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  • Floating Charge
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To begin with it is important to look at the history of the floating charge in England and its later legal transplant into Scottish law. The majority of companies’ assets are moveable’s; it is their equipment and stock. If companies wanted to lend money a pledge was the only possible security over moveable’s, however this meant that the company had to give up their possession of their assets which they required to deal with in order for the company to run. Companies are also constantly changing, investing in new assets and selling the products they make; this would require discharge of the security or the creation of a new security every time. The question that arose was what kind of security could meet these commercial demands. The floating charge meant that the company could grant a security over their assets but still have the freedom to deal with their assets in whichever way they wanted to. This meant companies could borrow money without having to give up possession of their property.
 
The floating charge once granted does not restrict the company, it ‘floats’ above the company. During this time the company is free to buy and sell and they have full control of their assets. The floating charge only hovers over assets that are owned by the company, so once an item is sold to a third party it is out with the scope of the floating charge. Whether the buyer is in good faith is irrelevant and makes no difference because it is to do with ownership, sale discharges the security. When the company is solvent the charge remains a cloud over the company. However, insolvency of the company causes the floating charge to crystallise. The effect of this is that the floating charge ‘attaches to the property then comprised in the company’s property and undertaking’ as if ‘the charge were a fixed security’. Therefore, the effect of crystallization is that the floating charge transforms into a fixed security that attaches to all property that the company own. Therefore equipment that the company rent would not be attached to because it is not owned by the company and assets that the company used to own but sold before crystalisation also do not get attached by the floating charge. The floating charge is not able to follow assets owned by third parties, it does not have the power to step outside the scope of assets owned by the company.

A legal transplant of the floating charge floating charge into Scottish law occurred by the Companies (Floating Charges) (Scotland) Act 1961. This was because it was concluded by the Scottish law committee that the fact that English companies could grant a floating charge while Scottish companies could not put Scottish companies at a disadvantage when it came to requesting loans. The floating charge, like for English companies, provided Scottish companies the flexibility to deal with their fluctuating assets in the ordinary course of business. The floating charge can only be granted by incorporated Scottish companies but anyone can be the lender, a bank, an individual, another business. The benefit of the floating charge to the lender is that they have priority over unsecured creditors when it comes to ranking in insolvency. This provides protection to the lender, making it more likely that they will be paid back in full.

The Enterprise act 2002 brought changes to the floating charge. Before this act the insolvency act section 9(3),(3) and 10(2)(b) gave the floating charge holder the power to appoint a receiver out of court and veto the appointment of an administrator. The receiver substitutes in for the directors and becomes in charge of running the business with a main goal of ensuring repayment of the floating charge holders debts. Thus the receiver has the power to relies, not the charge holder. The charge holder only has the power to appoint the receiver. George gretton describes receivership as a company ‘possessed of a spirit’ where the ‘company opens its mouth and the voice of the receiver is heard. By a fiction, the voice is the company’s, but in reality it is the receiver’s, reading from the chargeholder’s script’. The appointment of a receiver is no longer allowed except for floating charges created before 15 September 2003. The enterprise act reformed the Insolvency Act 1986 by inserting s.72A which prohibits the appointment of a receiver. S.72A states ‘The holder of a qualifying floating charge…may not appoint an administrative receiver of the company.’

The prohibition of appointing a receiver for floating charges created after 2003 seem to have offended England more than Scotland. This loss of power even seems to strongly prompt a reform in English law. This difference in attitude can be explained by how each country perceives the purposes of the floating charge and what they expected from it. David stated that ‘This ability to impede the appointment of an administrator became the principal practical function of the floating charge in England’. However, since this has been taken away from the floating charge holder, it is argued that the floating charge is mainly now used by the lender for the purpose of covering assets of the company incase their fixed security doesnt manage to cover certain assets. Thus it is used as a blanket to cover over any holes a fixed security may have left. Gretton stated “the floating charge itself is increasingly of marginal importance south of the border”.

But what about north of the border? The power of the floating charge holder to appoint a receiver has also been taken away from Scottish companies. s.72A(2) states ‘In Scotland, the holder of a qualifying floating charge in respect of a company’s property may not appoint or apply to the court for the appointment of a receiver’. However Scotland do not seem to have reacted as drastically to England who believe that this has brought the function of the floating charge to an end. For Scotland the the fact that the charge holder could impede the appointment of a receiver was not the only important function of the floating charge. One of scotlands biggest concern was the existence of a security over corporeal and incorporeal moveables. Therefore s.72A did not decrease the value of the floating charge completely because it still provided other necessary functions. The floating charge is still viewed as an advantageous instrument by Scottish companies for several reasons.

Firstly before the floating charge Scottish law did not recognize a non-possessory security for corporeal and incorporeal moveable’s. The only available security for corporeal moveables was the pledge. This required for the lender to have possession of the property, meaning the debtor was not free to use the property. Giving up possession discharged the security. It was also the case that a security over incorporeal moveables could only be created by assignation where the debtor passed over ownership to the lender who would be under a personal obligation to transfer the property back to the debtor once the debt has been paid but this will be discussed later. The focus of this section is on corporeal moveables. Therefore the floating charge benefits Scottish companies because they are able to raise finance by providing the lender a preferential claim over unsecured creditors. This may make it more likely that a bank agrees to lend.

Attempts were made to circumvent the nonexistence of a non-possessory security for moveable’s by selling the property to the creditor on the terms that they transfer the property back to the debtor once they have repaid the debt. To do this they relied on s.18(1) of Sale Of Goods Act 1979 (SOGA) which states ‘poperty in the goods passes to the buyer when the contract is made’ meaning that ownership transfers to the creditor when the contract is concluded. This meant the possibility that delivery was not required and the company could keep possession of the property. The creditor would have ownership so would be secured if it came to insolvency as the property would not fall into the company’s pot for creditors. However s.62(4) puts a holt to this activity. It states ‘The provisions of this Act about contracts of sale do not apply to a transaction in the form of a contract of sale which is intended to operate by way of…security’. Therefore, all those attempting to create a non-posessory security, which Scottish law does not recognise, cannot rely on the provisions of SOGA. This does not make the transaction void but instead the parties have to rely on the Scottish common law of property which says that in order to transfer ownership you need delivery of the property. Therefore, you cannot grant a non-possesory security over moveables at common law. To reinforce this idea Lord Trayner stated in Pattisons trustee’s ‘Now it is quite certain that an effectual security over moveables can only be effected by delivery of the subject of the security’

Another i
mplication for companies under scots law is that the only available security for incorporeal moveable’s is assignation in security. The effect of this is that the asset, such as the right to payment, is assigned to the financier. On intimate to the debtors that they are the new creditor, the financier owns the right. Therefore the company loses ownership of the incorporeal moveable and so can no longer use it. The financier is under obligation to transfer back the asset once the company repays the money owed. Giving up ownership of the asset is not ideal for the company as they lose ownership. This method is also not ideal for the financier who has to intimate to every single debtor; the company may have many debtors and so this can become an expensive and time consuming process.

The floating charge offers a better solution to raising finance as these assets fall within its scope that the company would not otherwise be able to grant a security over. Using the floating charge to cover incorporeal moveable’s means that the creditor does not need to intimate to the companies debtors. This means the company can stay more private, a company will not have to disclose that it needs to raise finances which may concern debtors who are clients or consumers of the company. It may put them off doing future business with company. It also saves costs and time as each debtor must be individually intimated to for assignation to be effective. The floating charge attaches as if it were a fixed security of that type of property but without the need to fulfil the requirements of that security such as the process of intimating. If the floating charge was reformed or abolished there would be a need for serious consideration into a new method for security to be granted over incorporeal moveable’s.

There is no issue with creating a contract to transfer future incorporeal rights. This is because of freedom to contract; parties are free to create a contract over anything they want. However, when it comes to the actual transfer it is not possible. This is because assignation requires the intimation to a debtor, and if the right to payment does not exist yet then an identifiable debtor does not exist yet; therefore there is no one to intimate. Intimation is necessary for assignation. Therefore a seucirty over a future incorporeal right is not possible. Bank of Scotland Cashflow Finance v Heritage International Transport Ltd held that assignation had not occurred because the right did not exist yet to be transferred and that if the debtor does not exist yet then intimation could not be validly made. The floating charge gives companies the ability to grant a security over future and contingent rights to payment. This is because of the flexibility of the floating charge, assets move in and out of the scope of the floating charge and so even if the company does not own certain incorporeal movables at the date of the creation on the floating charge, If later on they obtain them they fall under the floating charge. Companies are constantly fluctuating and obtaining new assets and also selling and getting rid of property in which the floating charge contently floats over without needing to grant new securities everytime a new asset is obtained.

However, the floating charge although offers many benefits, it is still not an ideal instrument. George Gretton argues that the difficulties of the floating charge can be traced to two causes, These are ‘the sheer foreigness of the floating charge and…the extreme defectiveness of the statutory devices’. looking further into detail of grettons argument and whether the issues caused by the floating charge can fall so easily into these two categories will aid my argument in reaching the conclusion that the floating charge should be abolished. Gretton argues that the fact the floating charge is so foreign to Scotland is because it is based on the concept of equity, which is a familiar idea in England which the law of Scotland does not recognise. Therefore he concludes that ‘that the problem of the floating charge in Scotland is a problem of genetic incompatibility’. To gretton this seems to more important argument of the two, as had the floating charge been so incompatible with scots law the ‘poor drafting of the legislation’ would not have caused anymore issues than new legislation normally does. Thus this leads to the logic that even if the drafting of the floating charge had been better there would still be a problem due the floating charge being so underlying incompatible that reform of the statute might not be enough to fix the issues caused, what this calls for is for it to be genetically reprogrammed. It is the floating charges conflicts with commercial law and property law that makes it almost incapable of them coexisting. But what is it that makes the floating charge so incompatible? This will now be discussed.

Sheer foreignness

Gretton is not the only academic who is able to appreciate that the floating charge is incongruous to scots law. Lord Fraser stated”[t]he theoretical basis of the floating charge is unfamiliar…to the general law of Scotland’. Similarly Lord president Hope described the floating charge as “a concept which is alien to Scots law”. To understand if the floating charge will eventually adapt to its scots law habitat, it is important to look in detail at the issues it causes that makes it such a foreign concept.

Firstly the floating charge goes against the publicity principle of Scottish property law. This states that where third party’s rights are effected there must be an external act. Thus there must be an overt act for real rights in security to be effective. In order to create a standard security over immoveable property this must be registered in the Land register. This is so that anyone interested in the property can discover that the property is burdened with a security as this could affect their right to possession of the property. Another example is the security pledge, here the public act is that the creditor is in possession of the property. Granting a floating charge over immoveable heritable property does not require registering it in the land register. Granting a floating charge over moevables does not require the creditor to be in possession of the property. The floating charge ‘floats’ above the company and so it can go unseen by third parties. There is however a requirement that in order for the floating charge to be effective it must be registered within twenty-one days. This was decided in AIB Finance v Bank of Scotland. However this is not enough to satisfy the publicity principle as third parties are exposed to this 21 day period where they cannot see that a floating charge exists but when registered the floating charge will have existed since day one of this period. Therefore, a lender may request a fixed security but is not aware that a floating charge with a negative pledge clause had been granted by the same debtor before this. However, the floating charge is invisible due to this twenty one day non register period. If insolvency occurred this is when the third party would discover that a floating charge takes priority over their fixed security.

Another principle that the floating charge goes against is the Specificity principle. This states that the security must be specific about what the security property is. The floating charge does not satisfy this as what falls within the floating charge is unknown because it is constantly changing depending on how the company do business. New assets are likely to come into the scope of the floating charge that did not exist as company’s property at the time the floating charge was created. Contrast to this China have complied more strictly to this principle. Blah blah stated ‘Chinese law adheres to the specificity principle by stipulating that the mortgage is void if…it is not specific about the mortgaged property’. The fact that the as
sets are not determined when the floating charge is created is a risk to the charge holder as the company may deplete its total asset by the time of crystallisation.

Another concept that the floating charge goes against is that Scottish property law states that the transfer of property is instantaneous. There is no half way point where the buyer and seller both own a share in the property during the contract of sale. In sharp v Thomson the house of lords suggested the idea that the buyer before acquiring the right of ownership gains a ‘beneficial interest’ of the property. This case involved a couple who contracted with the company to transfer ownership of a flat to them. They had paid the company and the disposition had been delivered. However it was never registered and so ownership was still with the company. When the company became insolvent the issue arising was whether the floating charge that the company granted covered the property bought by Mr and Mrs Thomson. The company still owned the flat. The court of session held that an intermediate right in between the concluding missives stage and registration of the disposition stage did not exist and so the flat fell within the asset that the floating charge attached to. This meant that property law principles were not sacrificed as an expense to the floating charge. However later the house of lords held that at some point during the sale Mr and Mrs Thomson developed ‘beneficial interest’ which protected them against the property falling within the scope of the floating charge as the flat could not be classed as property and undertakings when the company had the proceeds of sale. This ratio only applied to cases of floating charges. This inconsistency with property would not have arisen had it not been for the introduction of the floating charge.

When there are competing rights the rule that scots law applies is prior tempore potior jure. This is a maxims which means ‘prior in time stronger by right’. The general rule for fixed securities is that a security that was constituted first gets priority. So for a standard security this would be the date of registration in the land register. For a pledge this would be the date that the moevable is delivered to the creditor. For assignation this would be the date of intimation to the debtor. By inserting a negative pledge clause into the floating charge this makes the date that the floating charge get priority over subsequent securities the date that the floating charge is created, not when it becomes a real right. The floating charge is thus not cohering to this established rule. Again the floating charge could become more compatible with the general law of securities in Scotland by the floating charge only being effective from the date of registration.

Gretton suggests the principle of the equity is being violated by the floating charge. This is occurring because of the abandoning of the ‘traditional idea that the general run of creditors ought to share the misery equally’. This in enshrined in the maxim of parri passu which rules that all unsecured creditors should rank equally. Fixed securities are an exception to this rule because their security ensures that they are paid from a specific asset before any other unsecured creditor. However the floating charge is more offensive than this because it is capable of covering the whole property of the company, as Gretton describes it ‘, down to the last paper clip and the carpet on the floor’. The cork report stated ‘the floating charge has serious disadvantages, and is capable of working great injustice’ This report recognised the unequality of the the floating charge capable of being repayed for their debt from the majority of the companies assets while the unsecured creditors would be powerless to get a share. This ‘injustice’ is heightened by the forth & clyde construction co v trinity timber and plywood co Ruling ‘The principles relating to catholic and secondary securities have no application’ to the ranking of the floating charge and that ‘those principles are superseded by the provisions of the 1972 Act.’ The doctrine of catholic and secondary securities governs fairness by stating that where a creditor has securities over two assets and another creditor has a postponed security over one of these assets the catholic creditor should enforce their security in a way least prejudice to the second creditor. So for example the first creditor has a security over a ship and a house. The second creditor has a security over just the house. The first creditor has a duty to enforce their security over the ship first before the house because this is least prejudice to the second creditor. However the floating charge is not exposed to this equitable control and so is much more free to prejudice other creditors.

The enterprise act 2002 introduced the ‘prescribed part. S.252 inserts s.176A into the Insolvency Act 1986 s.176A(2)(a) states ‘The liquidator, administrator or receiver shall make a prescribed part of the company’s net property available for the satisfaction of unsecured debts’. S.176A(2)(b) prohibits this part being distributed to the floating charge holder except where ‘it exceeds the amount required for the satisfaction of unsecured debts.’ Therefore this creates the prescribed part, a proportion of the company’s assets ring-fenced from the floating charge for the benefit of the unsecured creditors. The floating charge holder is unable to claim as a unsecured creditor for any amount still left owed to them. The funds for the prescribed part come from the assets covered by the floating charge.

A security is supposed to ensure that the security holder obtains priority over other unsecured creditors and subsequent securities. However here this is not the case as s.176A is an exception to the rule that secured creditors rank ahead of unsecured creditors. Those with fixed securities are not affected by the prescribed part, so in this way a fixed security may provide more chance to be repaid back in full. This reduces the value of the floating charge to creditors as the assets they have security over to repay their debt are also subject to other unsecured creditors, reducing the net value of assets. With a fixed security unsecured creditors do not get a view of the asset that the security is over. Thus the floating charge goes against the scots property law concept of the floating charge.

Could fit this into the heading of it being foreign to Scotland- how the floating charge doesn’t really fall easily into the catergory of securities because does it actually ensure the creditor gets paid back.

In Scotland there are two types of rights; a real right is a right good against the world and is in a thing. A personal right is against a person and only good against that one person. Which catergory the floating charge falls into before crystalisation is still a mystery. however crystallisation only occurs upon insolvency, thus insolvency may never occur and the creditor may be fully repaid for the debt incurred by them. This idea of a conditional right, that the floating charge only seems to become a real right on the condition that it crystalises, is not recognised by scots law. questionable whether to include this- little bit of plagerism possibly

Equity is a language that Scotland does not speak- add this somewhere as it sounds good.

Insert the ‘floating charge is utterly repgunent quote somewhere’

Drafting issues

Lord Cameron commented about the 1961 act stating ‘it was said of the treaty of Versailles of 1919 that it ‘contained all the seeds of a just and durable war’. It could readily be said this statute that its provisions are well designed to provide a rich variety of issues for decision in delicate and prolonged litigation’. It seems th
at gretton It seems that Gretton argues that the poor drafting is exacerbating the underlying issue. The reason the legislation is of such poor quality is because there is no attempt to integrate the floating charge so that it coheres with Scottish law. Scotland is a mixed system meaning it is made up of both civil law and common law and has sources of law from English law and European courts with legal principles originating from roman law. Thus the Scottish law is diverse, with ideas influenced by many others. However some concepts absorbed into the law do not fit in as smoothly as others, the floating charge is an example of this.

The fact the floating charge was so hard to integrate because no one really had a good idea about what it was, even the country who created it. The floating charge is not defined in the act, the best definition we have is s.462 of the companies act 1985 which simply states that a Scottish company is competent to grant a floating charge over all or part of their assets in order to secure a debt. S.463 also helps us understand the floating charge but still does not give a definition, it provides that on winding up a floating charge will attach to the property of the company; but this is subject prior fixed securities or floating charges. Therefore all that legislation has achieved is making clear what the effect of the floating charge is upon crystallisation. Even judicial opinion seems incapable of giving a definition to the floating charge {insert quote of judge describing effect of floating charge}. Sarah Worthington highlighted an important issue stating ‘Floating charges have been an integral part of company financing for over 100 years, and yet their most fundamental characteristic remains the subject of debate: what interests does the floating chargee have prior to crystalisation?’. Therefore the floating charge is still a mystery, to even the courts that created it. It seems inevitable that the floating charge hasn’t grown to become a strong instrument when the foundations England have provided Scotland to build upon to are so weak. the consequences is that both countries seem as clueless as each other.

s. 464 and the Circle of priority it causes is an important example of poor legislative drafting. In an insolvency situation the floating charge has caused an excessive spread of ranking issues. Because of the nature of the floating charge, the way in which is it floats above assets, other creditors can obtain security rights in the same assets. Another floating charge can even be granted to a new creditor over the same assets. It is the companies act 1985 s.464 in which circle of priority problems arise from. The divided category of floating charges with a negative pledge clause and a floating charge without a negative pledge clause inflame the already existing issues. S.464(1)(a) states that the floating charge may contain a negative pledge clause which is ‘provisions prohibiting or restricting the creation of any fixed security or any other floating charge having priority over, or ranking pari passu with, the floating charge’. When a floating charge is granted with no negative clause prior to the granting of a fixed security the ranking is clear. S.464(4)(a) ‘a fixed security, the right to which has been constituted as a real right before a floating charge has attached to all or any part of the property of the company, has priority of ranking over the floating charge’. Therefore the fixed security would take priority over the floating charge as long as it has not attached and become a real right. However if the floating charge contains a negative pledge clause then it would rank ahead of the security.

Competition between floating charges is also clear. S.464(4)(b) states that ‘floating charges rank with one another according to the time of registration’. Therefore, it is a race to the register. If a floating charge was created and registered before a second floating charge with a negative pledge clause, the negative pledge would not confer priority onto the second floating charge because negative pledges only effect subsequently created charges and securities. S.464(1A) confirms this by stating ‘Where an instrument creating a floating charge contains any such provision as is mentioned in subsection (1)(a) that provision shall be effective to confer priority on the floating charge over any fixed security or floating charge created after the date of the instrument’.

AIB finance Ltd v Bank of Scotland held that for s.464, the relevant date for fixed securities when it comes to ranking is when it becomes a real right, so for example the relevant date for a pledge would be when the moveable was delivered to the creditor, or for a standard security it becomes a valid right when registered. It was also held that the relevant date for floating charges was the day it was created, the date that it is registered is irrelevant as long as its registered within twenty-one days. This decided date for the floating charge causes unfair outcomes, due to the twenty one days of invisibility the floating charge can have. A standard security may be granted before a floating charge with a negative pledge clause is created, however if the standard security registers in the land register after the creation of the floating charge, despite being granted first it would rank subsequent to the floating charge. This is an unjust outcome because the standard security had no way of knowing the floating charge existed until it was too late.

A circularity issue is caused when there are three competing securities. If a floating charge without a negative pledge clause is created before a floating charge with a negative pledge and then subsequently a fixed security is registered, ranking issues arise. This is because the fixed security has priority over the floating charge with no negative pledge clause but does not have priority over the floating charge with a negative pledge clause. However The floating charge with the negative pledge clause ranks behind the floating charge without the negative pledge clause. This is a circle of priority.

It is clear that it is the statute that causes the ranking issues, not the courts interpreting wrong, therefore the legislative reform is required. Firstly a distinction between floating charges with negative pledges and floating charges without negative pledges should not be made. Most creditors ensure that the floating charge instrument includes a negative pledge clause and so this should be an automatic provision of floating charges rather than something the parties agree on the existence of. S.40(2)(a) of part II of the bankruptcy and diligence etc. (Scotland) Act 2007 states that’s floating charges rank according to the date of creation. S.38(3) then claririfies that the date of creation is when a document creating the floating charge ‘is registered in the Register of Floating Charges’. Therefore the twenty one days of invisibility will disappear as the floating charge is only recognised once it is registered, and once in the floating charges register it is visible to all third parties.

However these provisions are not yet in force, despite them fixing ranking issues by deleting the distinction between floating charge the negative pledge makes and causing the floating charge to cohere to publicity principle by creating a floating charge register so that an existing floating charge will be discoverable by all third parties. It is unclear why it we would not enforce provisions that could offer practical solutions to these ranking issues, as stated by Alisdair D J MacPherson ‘it is surely preferable to seek to avoid this perfect legal storm by way of legislative reform rather than asking judges to erect a makeshift shelter with inadequate materials, were they to be confronted with such a scenario’. But maybe, like rats abandoning a sinking ship, the floating charge is also being abandoned.

In Scotland the floating charge is a creature of statute, and like many creatures, a misunderstood one. The Scottish courts do not have general law to consolidate when legislation fails to provide the rules. If the legislation fails an English court, they can turn to the law of equity. However Scottish courts can only look towards the provisions. It is not just the fact that the law that the floating charges creation based on doesn’t exist in Scotland. It is also the fact that the floating charge conflicts with scottish property and commercial law, with other securities if legislation is not clear as to the solution, courts can turn to the principles of property and commercial law to find an answer. However with the floating charge this is not the case because a solution cannot be found there. As stated by Gretton ‘in the face of a device so alien as the floating charge, the general law is dumb’.

This argument is illustrated well by Gretton who provides the idea of the floating charge being in a vaccum, isolated from the rest of the law. He states the difficulties are caused by the provisions being ‘constructed with little thought as to their relationship to the general law’ and the provisions ‘fly in the face’ of scots property law principles. The principles that the floating charge conflict with as discussed above are examples of this.

Evidence of this disconnection between the floating charge the general law coukd be Scottish courts rejecting the common law and relying solely on the provisions because maybe they too recognise that the general law provides no extra assistance. in forth & clyde construction co v trinity timber and plywood co refused to apply to the common law doctrine of equitable ranking, he stated ‘In my opinion the issue in the present case is governed and governed solely by the terms and provisions of the Companies (Floating Charges and Receivers) (Scotland) Act 1972 and not by the common law. The court argued that that the ‘well known presumption in the interpretation of statutes, that the legislature does not intend any alteration in the existing law except what it expressly declares’ thus the legislature ‘made it very clear that the provisions relating to floating charges in the 1972 Act overrule that doctrine in spite of the fact that it is not specifically stated. This is authority for the idea that the rules of the floating charge can only be discovered by provisions and cannot be found in the common law. However as discussed aboce the provisions carry many flaws.

When it comes to Scottish courts unsure as how to interpret legislation in an area of the law that is harmonised with English law, it is common practice for the Scottish court to look towards English authority. Bla la argues this is not possible because the English floating charge is different type of floating charge to the Scottish one. Rennie on the other hand argues there is such a great misunderstanding of the floating charge because Scotland because they have never attempted to understand the english’s concept of the floating charge. However this would only really be useful if Scotland wanted the English floating charge, but this does not seem the case, as this type of floating charge is too rooted in the law of equity which which does not exist in Scotland. Scotland need a floating charge that can fit with the laws that do exist to them. As stated by bla bla ‘The term floating charge is best seen as a legal homonym’. Just because both concepts are given the name does not mean they are exactly the same things. Just as the court in sharp v Thomson decided ‘property’ did not have to have a constant definition.find the authority for this. Thus this idea of ‘legal homonym’ is possible. This idea of there being two types of floating charges leads to the conclusion that English authority on the floating charge should not be consulted by Scottish courts.

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