Illingworth v Houldsworth case brief summary
Lord Halsbury in Illingworth v Houldsworth: ‘... the whole purport of this instrument is to enable the [debtor] ... to carry on business exactly as if this deed had not been executed at all. The book debts shall be at the command of, and for the purpose of being used by, the company.
It is a charge on a class of assets of a company present and future.
This class, in the ordinary course of business, is changing from time to time.
Until some further step is taken by or on behalf of those interested in the charge, the company may carry its business in an ordinary way with regards to that particular class of assets.
Security mechanism of floating charge
If the agreement is broken via failure to make payment or the company entering liquidation. The floating charge will ‘crystalize’, becoming a fixed charge and fix upon the asset or assets. This removes the ability of the borrower to carry on the normal course of business and thus the newly crystallized charge cannot be traded on or sold unless expressly allowed by the lender. This position was confirmed in the case of Illingworth v Houldsworth where a distinction between fixed and floating charges was laid down by the court.