“Negative Pledge clause?”

Hi Sourav,

Fixed charges are usually granted over specific assets e.g. Freehold Property and Intellectual Property.

Floating charges are usually granted over general assets e.g. Raw Material and Stock.

A negative pledge clause (NPC) in a floating charge does indeed have an impact on subsequent fixed charges in that they rank (get paid before) the fixed charge. You state that we know fixed charges wont accept assets under a floating charge with an NPC but that is not really relevant as a fixed charge is usually created over different type of specific assets like Freehold property. So the significant point for an NPC is that it changes the order of priority of payment on liquidation so that the Floating Charge with NPC gets paid before the Fixed Charge lender. You are right in that this may cause the Fixed charge lender to rethink whether they lend tot the company but this is all subject to commercial negotiation and it may be that the Fixed Charge lender increases the interest rate to compensate themselves for losing the priority.

I hope that helps.

Kind regards,

Vijay

Hi Sourav,

Yes some assets are more suited to being subject to a fixed charge and others to a floating charge.

Not all Floating charges are subject to NPC. This will be dependent on commercial negotiation between the bank and the borrowing company.

I hope that helps,

Vijay