Fixed and Floating Charge | Meaning | Difference | Crystallisation

Understanding Fixed and Floating charges on Property

The company, when borrows money like any other person can give security to its creditors. When a security is given, a charge is said to have created over it.

Fixed and Floating Charges - Meaning, Differences, Crystallisation

Image: Fixed and Floating Charges – Meaning, Differences, Crystallisation

The security may be either a movable property or an immovable property of the company. The charge includes a mortgage also. A charge that can be created over the assets of a company may be either a fixed charge or a floating charge.

A fixed charge is one, which is created on some definite property of the company. Example, a charge on land and buildings. When a charge is created, the company cannot deal with that property without the consent of the holder of the charge.

A floating charge, on the other hand, is created on some class of property, which is ever changing. It means the charge covers not only the present assets of the company but also covers the future assets of the company.

Differences between Fixed Charge and Floating Charge

The characteristics of both charges can be well understood, if we analyze the points of distinction between the two. They are as follows:

1. A fixed charge is created on some property capable of being defined. A floating charge, on the other hand, shall be generally created upon the whole of the company’s property, including movable and immovable and also property, which is subject to a fixed charge.

2. The company cannot deal with a property, which is subject to a fixed charge. But, it can deal with all the properties, which are subject to a floating charge.

3. A fixed charge shall not become a floating charge. A floating charge, upon the occurrence of certain events may become a fixed charge.

4. If a fixed charge is created over a property, which is subject to a floating charge, the fixed charge shall get priority, whereas if a floating charge is created over the assets, which are subject to a fixed charge, the charges shall not get any priority.

Crystallisation of a Floating Charge

A floating charge will become a fixed charge in the following circumstances:

1. If the company goes into liquidation.

2. If the company ceases to carry on its business.

3. When a receiver is appointed by the Court.

4. If the money becomes payable according to the terms of the charge and the lender takes some steps to enforce it.

Leave a Reply




Recent Posts


Related pages


process of dematerializationdifference between a bond and debenturepayment in arrears meaningwhat is inductive and deductiveasset test ratio formulabenefits of a sole traderangel financing definitionwhat is the difference between merger and amalgamationrisk and uncertainty in capital budgetingasset test ratio formuladays cogs in inventorycapex formswhat is a draweeexplain bill of ladingstandard absorption costingmerchant banking notesadvantages of a sole trader businessscattergraph methoddepartmentalization in management pptinflation in managerial economicsdefine treasury billcalculate arrtypes of losses in marine insurancecharles babbage theory of managementwhat is the difference between forward and futures contractstypes of busnessadvantages and disadvantages of horizontal communicationstrengths and weaknesses of stratified samplingimportance of middlemenfull form of sidbicalculate payback period formulabanks are financial intermediaries thatintroduction to depository institutionsrbi role in economydrawbacks of budgetingwhat are personal liabilitiesprobability sampling methods advantages and disadvantagesbenefits of probability samplingcauses of employee attritiondisadvantages of eposdefine attornmentmodes of winding up a companycalculate accounts payable turnovere-commercingexplain budget and budgetary controlsubcultures of indiarevaluation method of depreciation exampledisadvantages of capitalist economic systemsample of hire purchase agreementpayback method examplefactors influencing buying behaviouradvantages and disadvantages of cost plus pricingdoctrine of ultra vireswhat does sundries mean in accountingdescribe the difference between convenience sampling and quota samplingadvantages of perfectly competitive marketadvantages of delegation of authorityhow to calculate the average collection periodassumptions of break even analysis accountingwhat are the causes of labour turnoverdeductive method examplesfob versus cifdefine impersonalmerits of personal sellingwhat is voidable contractservicescape restaurantdisadvantages of computerized systemdisadvantages of traditional costingfeatures of insurable interestmultistage random sampling examplesadvantages and disadvantages e commercegatt agreementdisadvantages of document management systemtypes of banker customer relationshipmarginal costing for decision makingdisadvantages of retained profitscriminal law remedies