May 3, 2017
Authored by: Ed Marlow
A recent decision of the European Court of Justice (“ECJ”), on a referral from the Latvian courts and which is binding on the English courts (although the UK has commenced steps to leave the EU, the UK’s formal exit is still some time away), will make it more difficult for the holder of an English floating charge to enjoy the benefit of the UK’s Financial Collateral Arrangements (No.2) Regulations 2003 (“FCARS”)
FCARS implement an EU directive whose purpose was to assist the taking of security over financial collateral, which includes securities and cash. When the FCARS apply, the collateral taker has certain advantages: a number of insolvency law provisions as well as some formalities will not apply. The FCARS can also permit the collateral taker to enforce its security by appropriating collateral without having to get a court order. Thus for a holder of security over financial collateral the applicability of the FCARS to its security can be very useful.
The English floating charge is used widely. It is a form of security whose creation in response to the needs of the emerging economic environment was endorsed by the English courts in the nineteenth century. It allows companies to grant security whilst at the same time still being able to carry on their business.