Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    1
    ReputationRep:
    Ok I'm having a few issues deciding the correct order of priorities...and any help would be amazing and i would be v.grateful!

    Basically does an earlier registered FIXED charge take priority over a later registered "EQUITABLE" mortgage?


    Also, what are the main ways in which you can distinguish a genuine sale and lease back with an option to redeem/buy back the property from a mortgage?


    Help on either of these would be great. Thanks alot x
    Offline

    18
    ReputationRep:
    Fixed charge ALWAYS takes priority over a floating charge. May be an exception where the fixed chargeholder is on notice of the floating charge and charges subject to the fixed charge.

    Its important to appreciate that a floating charge doesn't do anything until it crystallises. A floating charge by itself doesn't do anything. When it crystallises, it becomes a fixed charge - and any subsequent fixed charges will be second ranking because the floating charge isn't floating anymore, its fixed.

    Health warning: the above is based on general knowledge and may be wrong. The situation is also slightly different with the statutory order of priority on Insolvency particular companies (i.e. floating charges are treated slightly differently from fixed charges where Insolvency is the crystallising event because parliament didn't feel it fair that a floating charge holder can trump all other non-fixhed-charge-holding creditors)
    • Thread Starter
    Offline

    1
    ReputationRep:
    (Original post by jacketpotato)
    Fixed charge ALWAYS takes priority over a floating charge. May be an exception where the fixed chargeholder is on notice of the floating charge and charges subject to the fixed charge.

    Its important to appreciate that a floating charge doesn't do anything until it crystallises. A floating charge by itself doesn't do anything. When it crystallises, it becomes a fixed charge - and any subsequent fixed charges will be second ranking because the floating charge isn't floating anymore, its fixed.

    Health warning: the above is based on general knowledge and may be wrong. The situation is also slightly different with the statutory order of priority on Insolvency particular companies (i.e. floating charges are treated slightly differently from fixed charges where Insolvency is the crystallising event because parliament didn't feel it fair that a floating charge holder can trump all other non-fixhed-charge-holding creditors)
    Thanks a lot for the quick reply! I've hit a brick wall and in desperate need of advice..

    I realise that fixed always takes priority over floating.. but is an equitable mortgage floating? A mortgage would be fixed right? Thanks
    Offline

    18
    ReputationRep:
    (Original post by Serenity)
    Thanks a lot for the quick reply! I've hit a brick wall and in desperate need of advice..

    I realise that fixed always takes priority over floating.. but is an equitable mortgage floating? A mortgage would be fixed right? Thanks
    No they are not the same thing

    A mortgage is a transfer of ownership.

    In more detail, the debtor conveys ownership of the asset to the creditor on the condition that the asset shall be reconveyed to the debtor once the secured sum is repaid. For a legal mortgage the debtor will need to have title to the assets: e.g. you only have a legal mortgage over shares once the creditor is literally on the shareholders' register of a company and has the share certificates.

    An equitable mortgage is exactly the same, but will apply 1) where the type of property isn't recognised by common law (e.g. future property) or 2) where the creditor is equitable owner but not legal owner of the asset. As an equitable mortgage is equitable it is subject to the bona fide purchaser for value and without notice exception. e.g. in the case of shares, you aren't legal owner until you are actually on the shareholders' register of the company, but banks will normally take an equitable mortgage by asking that the debtor signs stock transfer forms and gives them to the bank - the bank will then present the signed stock transfer forms to the company if the debtor defaults and will become legal owner of the shares at that point.

    A charge does not involve a conveyance. It is just a right of the creditor to have the charged asset sold if the debtor defaults. Because it is only a right and does not involve the transfer of ownership (like a mortgage) or possession (like a pledge), charges can only ever be equitable or statutory because common law does not recognise anything other than ownership and possession.

    Under a fixed charge, the debtor can't do anything with the assets. The charge has already taken effect.

    Under a floating charge, the charge doesn't take effect until something causes it to crystallise. So until the "floating" charge crystallises, the creditor can deal with the assets as he wishes. It may help you to think of floating charges as a right to a charge in the future rather than existing security.

    To answer your question, yes a mortgage will always be fixed. The mortgage has already taken effect because the creditor has become owner of the asset. A debtor is not allowed to deal with mortgaged property because he does not own it.
    Offline

    0
    ReputationRep:
    Hi would anyone be able to help me with a similar problem?

    A fixed charge is registered on the 20th

    A legal mortgage on the 25th.

    Will the legal mortgage jump ahead in terms of priority?

    Also does anyone know any case authority for assets being sold to another buyer when they have a registered fixed charge on them from another creditor?

    Thanks xxx
    Offline

    18
    ReputationRep:
    (Original post by 3Hannah1234)
    Hi would anyone be able to help me with a similar problem?

    A fixed charge is registered on the 20th

    A legal mortgage on the 25th.

    Will the legal mortgage jump ahead in terms of priority?

    Also does anyone know any case authority for assets being sold to another buyer when they have a registered fixed charge on them from another creditor?

    Thanks xxx
    I'm a bit rusty on this, but I believe you can't pass good title to property that is subject to a fixed charge. Its a little like selling stolen property. Remember that in legal terms a mortgage is just a conveyance (with terms to the effect that the property will be reconveyed if the debt is repaid). You may need to think about the exceptions to the nemo dat rule - Factors Act, seller in possession etc. etc.... there will be specific and additional rules relating to registration, if the mortgage was granted before the fixed charge was granted I have a gut feeling that the mortgage wins... obviously if the charge was registered before the mortgage was granted the charge wins
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    Would you like to hibernate through the winter months?
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Quick reply
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.