What happens to a fixed charge created within six months before a company becomes insolvent?

When a company becomes insolvent, any fixed charge created within six months prior to the onset of insolvency may be subject to scrutiny under insolvency law. The charge may be viewed as potentially invalid, reflecting the concern that it might have been established with the knowledge of the company's impending financial distress. This is particularly relevant because creditors often seek to take priority over others in situations where the company is struggling, which can lead to unfair advantage.

The law generally aims to protect the interests of all creditors and prevent any preferential treatment that might result from fixed charges being put in place right before insolvency. Therefore, while such a charge does not automatically become void, its validity may be challenged in a court of law. The insolvency administrator can investigate whether the timing of the charge was intended to disadvantage other creditors, and if so, it may ultimately be deemed invalid or set aside.

Understanding this principle aids in grasping how insolvency laws function to maintain fairness among creditors and establish equitable treatment during the liquidation or restructuring of a distressed company.