Floating charge

A floating charge is a security interest over a fund of changing assets (e.g. stocks) of a company or other artificial person, 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 business. This conversion of the floating charge into a fixed charge (called "crystallisation") can be triggered by a number of events. In most common law jurisdictions it is an implied term in security documents creating floating charges that a cessation of the company's right to deal with the assets (including by reason of insolvency proceedings) in the ordinary course of business leads to automatic crystallisation. Additionally, security documents will usually include express terms that a default by the person granting the security will trigger crystallisation.

In most countries floating charges can only be granted by companies, LLPs or similar entities with separate legal personality. If an individual person or a partnership was to try to grant a floating charge, then in most jurisdictions which recognise floating charges this 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, so 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."

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