A floating charge is corporate security over a changing class of assets that generally remains available for ordinary business use until crystallization.
A floating charge is a form of corporate security over a changing class of assets, such as inventory, receivables, or work in progress. Before the charge crystallizes, the company can generally use and replace assets in the ordinary course of business; after crystallization, the charge attaches to the assets then within its scope and the company’s freedom to deal with them is restricted.
Floating-charge law is jurisdiction-specific. The term is especially associated with U.K. and other common-law corporate finance systems and should not be treated as a universal synonym for a U.S. Article 9 security interest.
The charge instrument identifies a class of present and future assets. Covered assets can enter and leave that class as the company trades. Newly acquired inventory may become subject to the charge, while inventory sold in the ordinary course generally leaves it.
This flexibility allows the company to operate without requesting lender consent for every routine sale or collection. In exchange, the chargeholder accepts greater control and priority risk than it might have under a valid fixed charge over a specific asset.
A wholesaler grants a floating charge over inventory. At the start of a month, covered inventory has a book value of $500,000. During the month, the company purchases $300,000 of new inventory and sells inventory with a $400,000 book value.
| Movement | Inventory book value |
|---|---|
| Opening inventory | $500,000 |
| Purchases entering the pool | +$300,000 |
| Inventory sold in ordinary business | -$400,000 |
| Closing inventory | $400,000 |
The charge floats over the changing class rather than following every sold item. If a crystallization event then occurs, the charge generally attaches to the $400,000 of inventory then within scope, plus any other covered property.
Book value is not expected recovery. If liquidation produces only $240,000 after discounts and costs, priority rules and statutory claims can reduce the amount available to the chargeholder further.
Crystallization changes the charge from floating over a class into security attached to assets then covered. The company can no longer deal freely with those assets without the chargeholder’s consent or the authority of the relevant insolvency process.
Potential crystallization events depend on governing law and the instrument. They can include:
The exact timing matters because the asset pool changes continuously. It can also affect competing claims, transaction validity, and available remedies.
| Feature | Floating charge | Fixed charge |
|---|---|---|
| Asset scope | Changing class of assets | Specific asset or tightly controlled proceeds |
| Ordinary dealing before enforcement | Generally permitted | Usually restricted without consent |
| Typical assets | Inventory, work in progress, changing receivables | Land, major equipment, blocked accounts, specific rights |
| Attachment to current assets | Occurs upon crystallization within the legal framework | Exists over identified asset from creation, subject to validity |
| Insolvency position | Often subject to additional statutory deductions or priorities | Often stronger against its specific collateral, subject to law |
The document’s label is not conclusive. U.K. official-receiver guidance emphasizes the degree of control over receivables and their proceeds when distinguishing a fixed charge from a floating one. If the company can collect and freely recycle proceeds, that points toward floating rather than fixed security.
For a company registered in the U.K., Companies House guidance describes a charge as security given for a loan and generally requires charge particulars and a certified copy of the instrument to be delivered within 21 days beginning the day after creation. Late or defective registration can impair recovery in insolvency and may require a court order to correct.
The public register does not answer every priority or validity question. Analysts should review the filed instrument, creation date, persons entitled to the charge, asset scope, negative pledge, satisfaction filings, and later charges.
Rules differ in Scotland, Northern Ireland, other countries, and for non-company entities. Current official guidance and qualified legal advice are necessary for a live transaction.
A floating charge does not necessarily give the chargeholder first access to every covered dollar. Depending on the regime, proceeds may be affected by:
This is why gross asset value should never be presented as floating-charge recovery.
A U.S. security agreement can cover inventory, receivables, proceeds, and after-acquired property, producing an economic effect similar to an all-assets floating charge. The legal vocabulary and mechanics are different, however. U.S. analysis usually focuses on Article 9 attachment, perfection, priority, proceeds, and disposition rather than crystallization of a floating charge.
Cross-border documents should not substitute one label for the other without a governing-law analysis.
For the lender, covered assets can shrink, deteriorate, be disputed, or be sold before crystallization. For the company, crystallization and enforcement can disrupt access to inventory, receivables, and working capital. Insolvency law may redirect part of realizations away from the floating-charge holder.
This page is educational and is not legal, insolvency, lending, or personalized financial advice. Current law and the executed instrument control.