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please someone explain in clear words what is a “Charge” including fixed and floating charge.
Hi! A charge over a company’s assets means that someone – a lender – has accepted as security for their loan a right to take possession of the company’s assets in the event that the company breaches the loan agreement.
A fixed charge attaches to a ( substantial ) immovable property – for example, a building. A floating charge does NOT attach to any particular asset – for example, it attaches to the whole or substantially the whole of a company’s undertaking – including goodwill.
A fixed charge means that the company is now no longer free to deal with ( or dispose of ) the affected building whereas a floating charge enables the company to collect its debts, sell its inventory and carry on its business “as normal”. In the event that the company breaks the loan agreement, the charge will “crystallise” and the effect of that is that the assets ( eg debtors and inventory ) in possession of the company now become the property of the lender.
Will that do?
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