Legal English – Peter’s Pills – Lesson 24 – Fixed charges vs Floating charges

Legal English for Notaries - By Federnotizie

Fixed charges vs Floating charges



Today we look at the difference between fixed charges and floating charges, but first of all we need to understand what a charge is.

When a company wants financial assistance from a lender, that lender will ask for security to be offered and the company will create a right for the lender on its assets or properties. This right is called a charge. Charges on a company’s assets are made available to the public and must be registered at Companies House or registered in some additional other way. For example, a charge on land and buildings must also be registered at the Land Registry.

There are two types of charges: fixed charges and floating charges.

Fixed charges are charges or mortgages secured on specific property, for example, real estate, a truck, a ship, machinery, shares, intellectual property such as patents, copyrights, trade marks, and so on.

Floating charges, on the other hand, are only available for companies and not for natural persons. Floating charges are (usually) on all the company’s assets both present and future, but the company is allowed to sell or rent or deal with these assets in the ordinary course of business. Very occasionally the charge is over just a certain class of the company’s assets, such as its stock or raw materials. The charge is said to float over the assets charged, rather than fixing on any of them specifically. This continues until the charge ‘crystallizes’, which occurs when the company fails to repay the loan or if the company goes into liquidation. When the charge crystallizes it fixes on the assets owned by the company at that time. Crystallization is the process by which a floating charge converts into a fixed charge.

Remember, it is the company who creates and grants the charge so the company is called the “chargor”, while the bank or other lender is the “chargee” who receives the rights granted.

Thank you very much and see you next time for more Peter’s Pills to improve your Legal English.

Lenderchi dà in prestito
Copyrightsdiritti d’autore
Trade marksmarchi
Stockmerci in magazzino

See more about law concerning the register of charges in the UK here: “Changes over time for: Cross Heading: The register of charges“.

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