Floating Charge

A floating charge is a form of security created by a company over a class of assets (such as stock, debtors, or all assets and undertaking) that is not attached to any specific asset until it crystallises. Crystallisation occurs on the appointment of an administrator or liquidator, or on a specified event in the charge document. Until crystallisation, the company can deal with the charged assets in the ordinary course of business.

In practice

Floating charges rank behind fixed charges and preferential creditors in insolvency. A floating charge created within 12 months of insolvency (two years if the chargee is connected to the company) is void under s.245 of the Insolvency Act 1986 except to the extent of new value provided. A qualifying floating charge holder has the power to appoint an administrator out of court.