Module 2 · Chapter 3

Fixed and Floating

A debenture puts a fixed charge on what a company keeps and a floating charge on what it trades. This chapter shows where that line falls, when it moves and why it matters.

≈ 11 min read 8-question test

In this chapter

  • How clause 3 sorts the Company's assets into fixed and floating
  • When a floating charge fixes, and what fixing does not allow
  • Why the Bank prefers fixed, and why a label cannot make a charge fixed

3.1Fixed and floating in brief

Clause 3 of the Debenture creates two kinds of charge. A fixed charge sits on a named asset, and the Company may not sell it without the Bank's consent. A floating charge sits over a pool of assets that changes every day, such as stock.

The Company may sell those in its ordinary trade without asking. New stock joins the pool and sold stock leaves it. The floating charge attaches to particular assets only when it fixes, which lawyers call crystallisation.

Key point

Control decides the kind of charge, not its name. If the Company is free to deal with an asset without asking, the charge over it is floating, whatever the document calls it.

Also in this chapter

  1. Where clause 3 draws the line
  2. When a floating charge fixes
  3. The sentence that lets the Bank choose an administrator
  4. Why the Bank prefers fixed: the order of payment
  5. Why a label is not control
  6. Your job

Preview

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