ExpertMedium2 marksMultiple Choice
ACCA · Question 17 · Corporate and Business Law
Which TWO of the following events will typically cause a floating charge to crystallize into a fixed charge?
Which TWO of the following events will typically cause a floating charge to crystallize into a fixed charge?
Answer options:
A.
The company goes into liquidation.
B.
The company sells an asset covered by the floating charge in the ordinary course of business.
C.
The company ceases to carry on business.
D.
The company appoints a new managing director.
How to approach this question
Identify the events that trigger the conversion of a floating charge over a shifting pool of assets into a fixed charge over specific assets.
Full Answer
A floating charge hovers over a shifting pool of assets (like inventory). It 'crystallizes' (attaches to the specific assets held at that moment) when certain events occur, preventing the company from dealing with those assets. Common crystallizing events include liquidation, receivership, cessation of business, or an active intervention by the charge holder following a default.
Common mistakes
Believing that selling inventory (which is normal business) causes crystallization.
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