Charges — Fixed and Floating — Company Law Notes

Charges — Fixed and Floating

Imagine trying to pledge your shop’s stock to a bank — but you still need to sell that stock every day to run the business. A fixed charge would freeze it. The genius of the floating charge is that it hovers over the ever-changing pool of assets, letting the business trade freely, and only clamps down (crystallises) when trouble strikes.

What is a charge?

A charge (s.2(16)) is a security interest created over a company’s assets to secure a loan — it gives the lender a right to be paid out of those assets on default. Charges must be registered with the Registrar within 30 days (s.77); an unregistered charge is void against the liquidator and other creditors.

Fixed vs floating charge

Fixed charge — attaches to specific, identified assets (land, machinery). The company cannot dispose of them freely without the lender’s consent.

Floating charge — a charge on a class of assets, present and future, that keeps changing in the ordinary course of business (stock-in-trade, book debts). Three features (Re Yorkshire Woolcombers):

• it is a charge on a class of assets;
• that class is changing from time to time;
• the company may deal with those assets in the ordinary course of business until the charge crystallises.

Crystallisation

The floating charge crystallises — settles down and fixes onto the assets then existing — on:

• the company going into winding up;
• the company ceasing to carry on business;
• a default triggering the lender’s intervention (appointment of a receiver);
• the happening of any event specified in the charge deed.

On crystallisation it becomes a fixed charge on the assets in that class at that moment, and the company can no longer deal with them freely.

Section 77(1): every company creating a charge “shall register the particulars of the charge… with the Registrar within thirty days of its creation.” An unregistered charge is void against the liquidator (s.77(3)).

In Simple Terms: A charge is security given to a lender over the company’s assets, and it must be registered within 30 days. A fixed charge pins down specific assets; a floating charge hovers over a shifting pool (like stock) letting business go on, then crystallises into a fixed charge on winding up, cessation of business or default.

flowchart TD
    ROOT["Charge (s.2(16)) - register in 30 days (s.77)"]:::root
    ROOT --> F["Fixed: specific assets, frozen"]:::mid
    ROOT --> FL["Floating: shifting class, trade freely"]:::mid2
    FL --> C["Crystallises on:"]:::leaf
    C --> C1["Winding up"]:::leaf
    C --> C2["Ceasing business"]:::leaf
    C --> C3["Default / receiver"]:::leaf
    C --> D["Becomes FIXED charge"]:::mid
    classDef root fill:#FFF8DC,stroke:#000,color:#000;
    classDef mid fill:#FDE8D0,stroke:#92400E,color:#000;
    classDef mid2 fill:#DCFCE7,stroke:#166534,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

🧩 WORKED EXAMPLE — security over all present and future assets

Facts. A film company borrows money on the security of all its assets, present and future (machinery etc. now lying and to be acquired) until repayment.

Rule. A charge on a shifting class of present and future assets, with the company free to deal with them until default, is a floating charge (Re Yorkshire Woolcombers).

Apply. The security covers a changing pool of assets and leaves the company free to use them in business.

Conclusion. The company has created a floating charge; it will crystallise into a fixed charge on winding up, cessation of business, or default.

Case Laws

• Re Yorkshire Woolcombers Association (1903) — the three features of a floating charge.
• Governments Stock Co. v Manila Rly Co. (1897) — floating charge stays dormant until crystallisation.

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