When does a floating charge become voidable?
The provision attacks late security. Where directors or connected lenders sense insolvency and grant themselves a debenture to protect historic unsecured exposure, section 245 strips the charge of effect to the extent it secures pre-existing debt. Only fresh money advanced — or goods and services supplied — at or after the grant is protected.
The mechanism is self-executing. The officeholder does not apply to court for an order; the charge is simply invalid by operation of the statute. This makes section 245 a particularly potent tool: there is no litigation discretion in play, only the question whether the conditions are met.
The statutory framework
A floating charge granted within the relevant time is invalid except to the extent of:
- ›Money paid, or goods or services supplied, to the company at the same time as or after the creation of the charge.
- ›Discharge or reduction of debts of the company at the same time as or after creation.
- ›Interest payable on amounts within the two categories above.
In substance: the charge secures only fresh consideration provided at or after grant. Charges granted to secure pre-existing debt are caught.
The relevant time windows
The lookback period depends on the relationship between chargee and company. For connected persons, insolvency at grant is irrelevant — the two-year window applies regardless of solvency status. This is the substantial trap for director-shareholders who advance funds to their company and take a debenture as security.
For unconnected chargees, the position is more forgiving: the charge is caught only where the company was unable to pay its debts at the time of grant, or became unable to pay them as a result. A solvent company that subsequently becomes insolvent for unrelated reasons does not engage section 245 against the unconnected lender.
Typical fact patterns
1. Director loans converted to secured debt
A director who has advanced money over a period of years takes a debenture as security shortly before insolvency. The charge purports to secure the accumulated director loan account. Under section 245, the charge secures only fresh consideration provided at or after grant — the historic balance is unsecured. The single most common pattern.
2. Connected lender refinancing
A connected lender (often a director-controlled vehicle) takes security for an existing loan rather than advancing new money. The charge fails to secure the pre-existing balance.
3. Trade creditor security in distress
A supplier with growing unpaid invoices secures their position via debenture without advancing fresh credit. The historic invoice balance remains unsecured; only goods supplied after the charge are protected.
What counts as 'fresh consideration'?
- ›Cash actually paid to the company at or after grant is plainly fresh consideration.
- ›Goods or services supplied at or after grant are protected, valued at market price.
- ›Rolling over an existing facility without genuine new advance is not fresh consideration.
- ›Mere forbearance from enforcement is not fresh consideration absent a binding agreement to extend credit on commercial terms.
Evidence: bank statements showing the cash advance contemporaneous with charge registration at Companies House; invoices and delivery notes for goods supplied after grant; loan documentation showing the charge was a condition of the new advance, not a retrospective layering on existing balance.
Consequences for directors and connected lenders
- ›The unsecured debt ranks pari passu with trade creditors — typically a very low recovery.
- ›Where the chargeholder enforced before insolvency, a separate s.239 preference claim may apply to recoveries received.
- ›Conduct will be reported on the director's CDDA questionnaire — late security to connected parties is a recurring disqualification theme.
- ›Where the charge formed part of a wider asset extraction strategy, misfeasance and wrongful trading exposure follows.
Where to go next
For undervalue transfers, see transactions at undervalue (s.238). For the personal-liability companion mechanism, see wrongful trading (s.214). For the DLA dimension that frequently overlaps with s.245 analysis, see director's loan account & s455.
At IQ Insolvency, every engagement is led by a licensed insolvency practitioner from the first conversation. If you have granted security to yourself or a connected party in the months before financial difficulty, or you are a creditor concerned about validity, call 020 8153 1270 for a confidential same-day conversation. No call centres. No handoffs.