Ask The Experts > Floating & Fixed Charge
A charge is created over particular assets as security for borrowings or other indebtedness (mortgage, debenture or other security documentation).
There are essentially two types of charge - floating and fixed:
- A floating charge is appropriate to assets and material which is subject to change on a day-to-day basis, such as stock. Individual items move into and out of the charge as they are bought and sold in the ordinary course of events.
- The floating charge crystallises if there is a default or similar event. At that stage the floating charge is converted to a fixed charge over the assets which it covers at that time. A floating charge is not as effective as a fixed charge but is more flexible.