Part E Capital and the financing of companies 16: Loan capital 2493.4 Identification of charges as fixed or floating
It is not always immediately apparent whether a charge is fixed or floating. Chargees often do not wish to
identify a charge as being floating as it may get paid later than preferential debts in insolvency
proceedings.
A charge contract may declare the charge as fixed, or fixed and floating, whether it is or not. The label
attached by parties in this way is not a conclusive statement of the charge's legal nature.
The general rule is that a charge over assets will not be registered as fixed if it envisages that the
company will still be able to deal with the charged assets without reference to the chargee.R in Right of British Columbia v Federal Business Development Bank 1988
The facts: In this Canadian case the Bank had a charge over the company's entire property expressed as 'a
fixed and specific mortgage and charge'. Another term allowed the company to continue making sales
from stock in the ordinary course of business until notified in writing by the bank to stop doing so.
Decision: The charge was created as a floating, not a fixed, charge.However, the courts have found exceptions to the general rule concerning permission to deal.
(a) In Re GE Tunbridge Ltd 1995 it was held that the charge over certain fixed assets was a floating
charge even though the company was required to obtain the chargee's permission before dealing
with the assets.
(b) In Re Cimex Ltd 1994 the court decided that the charge in dispute was a fixed charge. The assets did
not in the ordinary course of business change from time to time. This was despite the company
being able to deal with the assets without the chargee's permission.3.4.1 Charges over receivables
Charges expressed to be fixed which cover present and future receivables (book debts) are particularly
tricky.
Again the general rule applies. If the company is allowed to deal with money collected from customers
without notifying the chargee, the courts have decided that the charge is floating. If the money collected
must be paid to the chargee, say in reduction of an overdraft, the courts have determined that the charge
is fixed: Siebe Gorman & Co Ltd v Barclays Bank Ltd 1979.
In 2005 the House of Lords held in Re Spectrum Plus that there can be no fixed charge over a company's
book debts.3.5 Creating a floating charge
A floating charge is often created by express words. However no special form of words is essential. If a
company gives to a chargee rights over its assets while retaining freedom to deal with them in the
ordinary course of business until the charge crystallises, that will be a charge which 'floats'. The particular
assets subject to a floating charge cannot be identified until the charge attaches by crystallisation.3.6 Crystallisation of a floating charge
Floating charges crystallise or harden (convert into a fixed charge) on the happening of certain relevant
events.Crystallisation of a floating charge occurs when it is converted into a fixed charge: that is, a fixed charge
on the assets owned by the company at the time of crystallisation.Key term
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