Floating Charge - Definition

Definition

Although the nature of a floating charge has been widely considered by the courts, historically no full definition has ever been given, and the nature of the chargee's interest in the charged assets (or fund of assets) remains doctrinally uncertain. The earliest descriptions were given by Lord Macnaghten in two cases.

In Government Stocks and Other Securities Investment Co Ltd v Manila Rly Co AC 81 at 86 he said:

"A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is the essence of such a charge that it remains dormant until the undertaking ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement. But if there is no agreement for suspension, he may exercise his right whenever he pleases after default."

Later in Illingworth v Houldsworth AC 355 at 358 he stated:

"...a floating is ambulatory and shifting in nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp."

A description was subsequently given in Re Yorkshire Woolcombers Association 2 Ch 284, and despite Romer LJ clearly stating in that case that he did not intend to give a definition of the term floating charge, his description is generally cited as the most authoritative definition of what a floating charge is:

• it is a charge over a class of assets present and future;

• that class will be changing from time to time; and

• until the charge crystallises and attaches to the assets, the chargor may carry on its business in the ordinary way.

When conducting a recent review of the authorities, in keeping with that tradition, in National Westminster bank plc v Spectrum Plus Ltd UKHL 41, the House of Lords elected instead to describe the essential characteristic of a floating charge rather than define it, and they described it thus:

"the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime the chargor is left free to use the charged asset and to remove it from the security."