A floating charge is a security interest over a fund of changing assets of a company or a limited liability partnership (LLP), which 'floats' or 'hovers' until the point at which it is converted into a fixed charge, at which point the charge attaches to specific assets of the company or LLP. This conversion into a fixed charge (called "crystallisation") can be triggered by a number of events; inter alia, it has become an implied term (under English law) in debentures that a cessation of the company's right to deal with the assets in the ordinary course of business leads to automatic crystallisation. Additionally, according to express terms of a typical loan agreement, default by the chargor is a trigger for crystallisation. Such defaults typically include non-payment, invalidity of any of the lending or security documents or the launch of insolvency proceedings.
Floating charges can only be granted by companies or LLPs. If an individual person or a partnership was to purport to grant a floating charge, it would be void as a general assignment in bankruptcy.
Floating charges take effect in equity only, and consequently are defeated by a bona fide purchaser for value without notice of any asset covered by them. In practice, as the chargor has power to dispose of assets subject to a floating charge, this is only of consequence in relation to disposals that occur after the charge has crystallised.
The floating charge has been described as "one of equity's most brilliant creations."
Read more about Floating Charge: Definition, History, Flexibility, Remedies, Priority, Criticisms
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