Floating Charge

HMRC's guidance on enforcement against secured assets explains the defining feature of a floating charge — that it hangs over a shifting pool of assets rather than any specific item: 'The floating charge provides a charge over a class of assets that will change in the ordinary course of business.' Typical examples are stock and raw materials, which a business needs to be able to sell, replace, or use up without asking a lender's permission every time.

That freedom to deal with the assets is not permanent, however. The guidance explains that 'in order to protect the debenture holder in the event of any default, a floating charge ‘crystallises’ (effectively it becomes a fixed charge) when certain events or acts specified in the debenture occur', usually events connected with a failure to repay the debt, commonly triggering the appointment of a receiver or administrator. Once crystallised, the chargeholder's rights attach to the specific assets the company then holds, and the company loses its previous freedom to deal with them.