A person who lends to the security of a specific mortgage of a company‟s property is always entitled to repayment on his loan out of the proceeds of the sale of the mortgaged property. This is done before any other creditor receives any payment. A person who takes a floating charge is not in such a secure position. Why is the holder of a floating charge in a less favourable position?

• The value of security remain uncertain since the company continues to carry on business in the ordinary manner.
• A fixed charge created subsequent to the floating charge has priority in the satisfaction of claims.
• Other interests for example landlords distress for rent has priority in the satisfaction of claims.
• Other interests for example landlords distress for rent has priority in the satisfaction of claims.
• A floating charge created within 6 months before the commencement of winding up is deemed to be a fraudulent preference and is void.
• A floating charge created within 12 months before the commencement of winding up is invalid unless it is proved that the company was solvent immediately after its creation.