Companies Act Section 332 — Effect of floating charge

CHAPTER XX WINDING UP

Commercial / Corporate

Summary

When a company is being wound up, a floating charge created over the company's assets within the twelve months before the winding up began is invalid, unless the company can prove it was solvent immediately after the charge was created. This means the charge will not hold up in the winding-up process if the company was already insolvent at that time.

However, the charge remains valid to the extent of any cash actually paid to the company at the time the charge was created, or paid later, as consideration for the charge. That cash amount, plus interest on it at five percent per year (or at any other rate the Central Government may notify), is protected and will not be treated as invalid.

Official Text

Where a company is being wound up, a floating charge on the undertaking or property of the company created within the twelve months immediately preceding the commencement of the winding up, shall, unless it is proved that the company immediately after the creation of the charge was solvent, be invalid, except for the amount of any cash paid to the company at the time of, or subsequent to the creation of, and in consideration for, the charge, together with interest on that amount at the rate of five per cent. per annum or such other rate as may be notified by the Central Government in this behalf.