Additional Information on Security
Fixed charges, floating charges and mortgages
In the context of this i-tutorial, the term “charge” is used to mean an
agreement between a creditor and a debtor under which the debtor
agrees to give the creditor rights over certain of its assets as security for
the money it owes to the creditor. The assets remain in the possession of
the debtor, unless the creditor enforces the charge and exercises its rights
to have the assets sold and the money used towards payment of the debt.
Fixed charges
A creditor can only take a fixed charge over assets that are clearly
identifiable, such as a piece of land, or an item of equipment. Any debtor
can give a fixed charge, whether it is a company, a partnership or an
individual.
Fixed charges give the creditor control over the assets charged. The exact
rights of the creditor will be set out in the charge document and usually
include the right to prevent the debtor from disposing of the assets
without the creditor’s consent, the right to sell the assets and use the
proceeds of sale to repay what it is owed if the debtor defaults on
payment and the right to require the debtor to keep the assets in good
repair.
In the past most types of company charges had to be registered with the
Registrar of Companies. With effect from 6 April 2013, however,
registration of company charges with the Registrar of Companies is
voluntary. Under section 859A Companies Act 2006, within 21 days of the
creation of the charge the company or a person interested in the charge
may apply for the charge to be registered. Although the system is
voluntary there is a great incentive to register as an unregistered charge
is void against a liquidator, an administrator and any creditor of the
company.
Provided that all charges have been properly registered, fixed charges
over the same asset rank in priority in the order that they were created.
Usually, the holder of a fixed charge will appoint a receiver to act on its
behalf if the debtor becomes insolvent.
Floating charges
A debtor company often has assets that fluctuate from day to day.
Common examples are stock and book debts (money owed to the
company by its debtors). The company needs to be able to use these
assets on a daily basis. The level of control that a creditor would obtain
under a fixed charge over such assets would be inappropriate and
Fixed charges, floating charges and mortgages
In the context of this i-tutorial, the term “charge” is used to mean an
agreement between a creditor and a debtor under which the debtor
agrees to give the creditor rights over certain of its assets as security for
the money it owes to the creditor. The assets remain in the possession of
the debtor, unless the creditor enforces the charge and exercises its rights
to have the assets sold and the money used towards payment of the debt.
Fixed charges
A creditor can only take a fixed charge over assets that are clearly
identifiable, such as a piece of land, or an item of equipment. Any debtor
can give a fixed charge, whether it is a company, a partnership or an
individual.
Fixed charges give the creditor control over the assets charged. The exact
rights of the creditor will be set out in the charge document and usually
include the right to prevent the debtor from disposing of the assets
without the creditor’s consent, the right to sell the assets and use the
proceeds of sale to repay what it is owed if the debtor defaults on
payment and the right to require the debtor to keep the assets in good
repair.
In the past most types of company charges had to be registered with the
Registrar of Companies. With effect from 6 April 2013, however,
registration of company charges with the Registrar of Companies is
voluntary. Under section 859A Companies Act 2006, within 21 days of the
creation of the charge the company or a person interested in the charge
may apply for the charge to be registered. Although the system is
voluntary there is a great incentive to register as an unregistered charge
is void against a liquidator, an administrator and any creditor of the
company.
Provided that all charges have been properly registered, fixed charges
over the same asset rank in priority in the order that they were created.
Usually, the holder of a fixed charge will appoint a receiver to act on its
behalf if the debtor becomes insolvent.
Floating charges
A debtor company often has assets that fluctuate from day to day.
Common examples are stock and book debts (money owed to the
company by its debtors). The company needs to be able to use these
assets on a daily basis. The level of control that a creditor would obtain
under a fixed charge over such assets would be inappropriate and
