Creditors position in the case of companys insolvency Free Essay Example, 2000 words

However, section 214 (3) stipulates that the court shall not pass any such declaration if the director has taken all possible steps to minimise potential loss to the creditors of the company. The director also includes a shadow director. This section is without prejudice to section 213 above. 5 Fixed charge and Floating charge It is a means of creating security over specified or unspecified asset or property. Fixed charge is one which is fastened on an ascertained and defined property or a property capable of being ascertained and defined. In this case, the chargor is not free to deal with the property without the consent of the chargee. A floating charge is one which fastens on assets which the chargor can freely deal with, without the consent of the chargee. Thus fixed charge is generally on fixed asset, long-term asset or immovable property whereas floating charge is on movable property such as stock in trade. However, to decide whether one is a floating charge or fixed charge, it depends on the instrument of charge which spells out the intention of the parties regarding their mutual rights and obligations over the assets charged. We will write a custom essay sample on Creditor's position in the case of company's insolvency or any topic specifically for you Only $17.96 $11.86/pageorder now Therefore mere labelling as fixed or floating will not prevent a court from treating a charge otherwise. 6 Directors’ duty towards creditors Director’s duty is to act in good faith so as to promote success of the company for the benefit of its members subject to also act in the interest of its creditors under certain circumstances as may be required by any enactment. This obligation towards creditors arises when the company faces financial strain when creditors’ funds lying with the company are at risk whether or not it has become technically insolvent. Breach of this obligation can be a basis for a liquidator to make claim for wrongful trading under the Insolvency Act 1986.7 This case is immediately concerned with the rights of Cashbank and Easyloans as creditors as the company’s shareholders and directors have decided to go in for liquidation. As regards the position of Cashbank, question would arise whether it is in order for the company to have obtained increased overdraft facility when the company has started showing signs of insolvency by creating a first fixed charge over the company’s fixed assets. And whether Cashbank has been a party to defraud the existing creditors of the company though no details of existing creditors are available. It appears that section 213 would not attract as there was no apparent intent to defraud the existing creditors at the time of availing the increased overdraft facility.