Floating charges—advantages and disadvantages


Published by a ³ÉÈËÓ°Òô Banking & Finance expert
Practice notes

Floating charges—advantages and disadvantages


Published by a ³ÉÈËÓ°Òô Banking & Finance expert

Practice notes
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This Practice Note discusses the advantages and disadvantages of taking a floating as opposed to a fixed charge, predominantly from the perspective of the chargee.

Why is it important to understand the advantages and disadvantages of floating charges?

In practice, it is common for lenders on secured lending transactions to take fixed charges over non-fluctuating assets of a company and a floating charge over any remaining assets. This approach enables a lender to maximise the key advantages conferred by both types of charge. Fixed charges (where available) provide better recovery on enforcement, while taking a ‘qualifying floating charge’ provides a lender with the ability to appoint an administrator out of court and enables it to take security over a wider pool of assets.

However, the precise security package over a company’s assets is frequently subject to negotiation with the borrower. In particular, the borrower may resist granting the kinds of controls over its assets which are necessary for a fixed charge to be created. It is therefore important for lenders to be aware of the disadvantages of

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Chargee definition
What does Chargee mean?

The person who has the benefit of a charge, usually a financier.

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