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Should We Redistribute in Insolvency?

55 Pages Posted: 15 May 2006  

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Date Written: March 2006


The characterisation of a security interest as 'fixed' or 'floating' has generated much litigation in English courts. This is because a floating charge is subordinated by statute to other claims in the debtor's insolvency, whereas a fixed charge is not. This paper uses the example of the floating charge to argue that such statutory redistribution between claimants in corporate insolvency is generally undesirable. If particular types of voluntary transaction are subjected to statutory 'taxation', then parties may be expected to structure their affairs so as to avoid the ambit of the legislation. The paper traces the history of the floating charge, showing how both its use by business, and the litigation that has shaped its juridical 'nature', have been driven by the desire to avoid redistribution in insolvency. This has resulted in relatively little money reaching the intended beneficiaries of the statutory redistribution. It has also engendered significant costs: the direct costs of litigation and the opportunity costs of a constrained choice of financial structures.

Keywords: Corporate insolvency, law and finance, history of floating charge, bankruptcy priorities, secured credit

JEL Classification: G32, G33, H23, K22, N43

Suggested Citation

Armour, John, Should We Redistribute in Insolvency? (March 2006). Available at SSRN: or

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels


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