What is the status of a floating charge created within twelve months prior to liquidation?

A floating charge created within twelve months prior to liquidation may become automatically void due to the specific provisions under insolvency law. In many jurisdictions, including under the UK's Insolvency Act, transactions that occur shortly before insolvency proceedings can be scrutinized to prevent unfair preference to certain creditors. A floating charge, which typically allows the borrower to use the assets in the ordinary course of business until a certain event triggers it to become fixed, can be seen as an attempt to secure creditors in a way that potentially jeopardizes the interests of all other creditors or favors them disproportionately.

If the floating charge was created just before the liquidation, it can be argued that it was established to the detriment of other stakeholders, raising questions of equity and fairness among creditors. Consequently, the law provides that such charges may be treated as void to ensure that the distribution of assets during liquidation is handled fairly and equitably among all creditors.

In certain contexts, especially if the charge was intended to secure existing debts that were already due and to give preference to one creditor over others, it may be disallowed entirely, reverting the position prior to its creation. This automatic voiding ensures that all creditors share the company's assets based on their entitlement in accordance with the hierarchy of claims during liquidation