floating charge

A floating charge is a security interest over moveable property. Such charges are equitable and not legal, and 'float' over the assets that it is to secure.  Floating charges thus do not attach to any particular asset and crystallises upon an event of default. These charges a preferred security interest over assets that  change from day to day, such as inventory or stock in trade.  The debtor is entitled to use the assets as if they were not subject to the charge in the ordinary course of business provided that do not fall into breach of the terms upon which the charge was given.

Floating charges are charges that (1) apply to classes of assets of a company or individual in the present, as well as assets coming into possession of the business in the future (2) which change from time to time during the ordinary course of business, (3) continue to floating over the assets of the business until some named event takes place. Such charges are flexible security devices which may apply to the inventory of a business, intellectual property and the assets of the business generally.

Floating charges are enforced by the appointment of an administrative receiver. It is a more flexible and dynamic security than a fixed charge and is usually granted in a debenture.

Usage: The debt was secured by way of floating charge.

Related Words: charge; fixed charge; debenture; mortgage; security interest; equitable mortgage; legal mortgage; lien; equitable charge; real property; chattels.