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
Famous quotes containing the words floating and/or charge:
“It is only for a little while, only occasionally, methinks, that we want a garden. Surely a good man need not be at the labor to level a hill for the sake of a prospect, or raise fruits and flowers, and construct floating islands, for the sake of a paradise. He enjoys better prospects than lie behind any hill. Where an angel travels it will be paradise all the way, but where Satan travels it will be burning marl and cinders.”
—Henry David Thoreau (1817–1862)
“One can only call that youth healthful which refuses to be reconciled old ways and which, foolishly or shrewdly, combats the old. This is nature’s charge and all progress hinges upon it.”
—Anton Pavlovich Chekhov (1860–1904)