A floating charge is a form of security over assets that are constantly changing in the ordinary course of business — typically stock, trade debtors, and cash. Unlike a fixed charge, the company is free to deal with those assets day to day without seeking the lender's permission. The charge only becomes a fixed interest (a process called crystallisation) when a trigger event occurs.
What causes a floating charge to crystallise
Common crystallisation triggers include:
- The company entering administration or liquidation
- A receiver being appointed
- The company ceasing to trade
- A specific event defined in the charge document
Once crystallised, the lender's interest attaches to the specific assets in the pool at that moment, and the charge is treated similarly to a fixed charge going forward.
Priority in insolvency
Floating charge holders rank behind fixed charge holders and certain preferential creditors (including employee wage arrears up to statutory limits) in an insolvency. A portion of assets covered by a floating charge — the prescribed part — is also ring-fenced for unsecured creditors under the Insolvency Act 1986.
Practical relevance for borrowers
A debenture from a bank often contains both a fixed charge over property and a floating charge over all other assets. Understanding which assets are covered helps you plan disposals and refinancing without inadvertently breaching security covenants.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What is a fixed charge on a business asset?, What does indemnity mean in a business loan agreement?.