SQE1 sample questions

Question 2

A company created a floating charge over all its assets in favour of a trade supplier, as security for sums due from time to time.

Five years later, the same company entered into a debenture with a bank, creating a floating charge over all the assets of the company, as security for a loan from the bank.

The trade supplier’s charge was not registered at Companies House. However, before the debenture was signed, the company notified the bank that the trade supplier already held a valid floating charge over the company’s assets. The debenture was duly executed, and was immediately registered at Companies House. The company went into administration ten months after entering into the debenture, with outstanding sums due and unpaid both to the trade supplier and to the bank.

Which creditor of the company has a prior claim to the company’s assets?

A. The bank, because the trade supplier’s failure to register its charge makes the charge void against the company.

B. The trade supplier, because the bank had actual notice of the existence of the trade supplier’s charge.

C. The bank, because the trade supplier’s failure to register its charge makes the charge void against the administrator and the bank.

D. The trade supplier, because the bank’s charge was created less than 12 months before the company went into administration.

E. The trade supplier, because the priority of floating charges is determined solely according to their dates of creation.