Liquidation expenses and floating charges—the separate funds fallacy

摘要

In the context of the decision by the House of Lords in Buchler v. Talbot, this paper considers the nature of the charge and the mortgage, and asks what effect the creation of such security interests has on the property of the company. It argues that their Lordships appear to have displayed a serious misunderstanding of the nature of the charge, and might have created significant doctrinal confusion in the process. The paper then provides empirical evidence to suggest that floating charges are not taken in order to ensure priority, and explains their true purpose. It also examines the broader role of liquidation proceedings. It concludes that not to require the floating charge holder to pay for these proceedings allows him to take the benefits of these proceedings at the expense of other creditors.