Corporate and Business Law (Global) · Loan capital

Fixed and Floating Charges: Differences and Crystallisation

Updated 11 October 2026 · Fact-checked

A charge is security a company gives a lender over its assets. A fixed charge attaches to specific assets and stops the company disposing of them freely. A floating charge covers a changing pool of assets and lets the company trade. It crystallises into a fixed charge on specified events, such as liquidation.

Understand Fixed and Floating Charges

When a company borrows, the lender often wants security: a right over company assets that it can enforce if the loan is not repaid. A charge is this kind of security. It is usually given to secure a debenture, which is the document recording the borrowing.

A fixed charge attaches to a specific, identifiable asset, such as land or a building. The company cannot sell or deal with the asset without the lender's consent. The lender has a strong claim on that asset. Fixed charges suit assets that stay in the business, like property and heavy machinery.

A floating charge covers a class of assets that changes over time, such as inventory, receivables or cash. The company can keep buying, selling and using these assets in the ordinary course of business without asking the lender. The charge "floats" over the pool until something stops it. The classic features of a floating charge are: it covers a class of present and future assets, the class changes from time to time, and the company can deal with the assets in the ordinary course of business until the charge crystallises.

A floating charge crystallises when it turns into a fixed charge over the assets then in the pool. This ends the company's freedom to deal with them. Typical crystallising events are: the company going into liquidation, a receiver or administrator being appointed, the company ceasing to carry on business, and an event stated in the debenture itself (for example, default on repayment, if the debenture says so).

The label in the document does not decide the matter. A court looks at the real nature of the rights. If the company can freely dispose of the assets in the ordinary course, the charge is floating even if called fixed. The difference matters mainly on insolvency, because a fixed charge holder usually ranks ahead of a floating charge holder for the secured assets. The rules on priority differ between jurisdictions, so in the Global exam focus on the general principles.

Key formulas to remember

Fixed charge: Specific identifiable asset + company cannot dispose without lender's consent; Typical assets: land, buildings, plant. Gives the lender the stronger security.
Floating charge: Class of present and future assets + changes over time + company deals freely in ordinary course; Typical assets: inventory, receivables, cash. Gives flexibility to the company.
Crystallisation: Floating charge → fixed charge over the assets in the pool at that moment; Occurs on events such as liquidation, appointment of a receiver or administrator, cessation of business, or an event stated in the debenture.
Substance over label: Nature of the rights given decides fixed or floating, not the name used; Freedom to dispose of assets in the ordinary course points to a floating charge.
Priority on insolvency (general principle): Fixed charge holder generally ranks ahead of floating charge holder over the secured assets; Floating charge holders are often exposed to other claims, such as preferential creditors and costs. Details vary by jurisdiction.

How to solve Fixed and Floating Charges questions

Use this method for any question on fixed and floating charges, whether it is a multiple-choice question or a short written task.

1Identify the asset or assets named in the question. Decide if they are specific and fixed (land, machinery) or a changing pool (inventory, receivables).
2Ask the key question: can the company deal with the asset in the ordinary course of business without the lender's consent? Yes points to floating. No points to fixed.
3Ignore the label used in the document. Test the real rights given to the company.
4Check whether a crystallising event has happened: liquidation, receiver or administrator appointed, business ceased, or an event named in the debenture.
5If crystallisation has occurred, treat the charge as now fixed over the assets in the pool at that time. Later dealings by the company will not override it.
6Apply the consequence asked for: priority, freedom to dispose, or the lender's remedies.
7Check the wording of the options or the task so your answer matches exactly what is asked.

Quickest way: The freedom-to-deal test

When to use it: Use this on Section A or Section B style objective questions where you must classify a charge or pick the right statement in under a minute.

Underline the asset. A changing pool means floating. A single named asset usually means fixed.
Ask: can the company sell it in the ordinary course? If yes, it is floating.
Scan for a crystallising event in the scenario. If one has happened, the charge is now fixed.
Eliminate options that say the label alone decides the type of charge.
Pick the option that matches your classification and the stage (before or after crystallisation).

Common mistakes in Fixed and Floating Charges

Treating a charge as fixed because the document calls it fixed.
Students trust the label instead of reading the rights given.
Fix: Always test the real freedom the company has. If it can deal with the assets in the ordinary course, the charge is floating.
Saying a floating charge stops the company from selling inventory.
Students confuse the position before crystallisation with the position after.
Fix: Before crystallisation the company can sell and replace assets freely. Only after crystallisation is that freedom lost.
Forgetting that crystallisation turns the floating charge into a fixed charge over the assets then held.
Students think the charge simply ends or disappears.
Fix: Write that it becomes fixed over the assets in the pool at that moment.
Listing only liquidation as a crystallising event.
Liquidation is the most familiar example.
Fix: Also remember appointment of a receiver or administrator, cessation of business, and events specified in the debenture.
Assuming a floating charge always ranks equally with a fixed charge.
Students overlook how security strength differs.
Fix: State that a fixed charge generally ranks ahead over its assets, and a floating charge is weaker because other claims can come first.

Worked examples

Example 1

Zenith Ltd borrows from a bank. The bank takes a charge over Zenith's factory building and a charge over all its inventory and receivables, present and future. Zenith may sell inventory and collect receivables freely in its day-to-day trading. Classify each charge and explain.

Show the solution

The factory building is a specific, identifiable asset. Zenith cannot sell it without the bank's consent, so this is a fixed charge.
Inventory and receivables are a class of assets that change constantly as Zenith trades.
Zenith is free to deal with them in the ordinary course of business, so this is a floating charge.
Both charges are valid security for the bank, but they give different strength and flexibility.

Answer: The charge over the factory is a fixed charge. The charge over inventory and receivables is a floating charge.

Example 2

Delta Ltd gave a floating charge over its inventory to a lender. Delta is later put into liquidation. Explain what happens to the charge and why it matters to the lender.

Show the solution

Liquidation is a crystallising event.
On crystallisation the floating charge becomes a fixed charge over the assets in the pool at that moment.
Delta can no longer sell or deal with those assets in the ordinary course.
Any inventory held at that date is now held subject to the lender's fixed security. The lender can enforce it.
The lender's claim over those assets is stronger than before, though its ranking against other creditors depends on the rules of the relevant jurisdiction.

Answer: The floating charge crystallises on liquidation and becomes a fixed charge over the inventory then held. Delta loses its freedom to deal with it, and the lender can enforce its security.

Exam tips

In objective questions, look for the word that signals freedom to deal in the ordinary course. That points to a floating charge.
Always check whether a crystallising event has occurred before choosing your answer. The same assets can be treated differently before and after.
Remember that objective questions are all or nothing, so read every option fully before choosing.
In multi-task questions, expect the same scenario to ask for classification, crystallisation and consequences. Keep your reasoning consistent across all tasks.

Practice questions from Loan capital

Fixed and Floating Charges: frequently asked questions

What is the main difference between a fixed charge and a floating charge?

A fixed charge attaches to a specific asset and the company cannot dispose of it without consent. A floating charge covers a changing class of assets that the company can deal with in the ordinary course of business. The floating charge becomes fixed on crystallisation.

How does a floating charge crystallise?

It crystallises when a specified event occurs. Common events are liquidation, appointment of a receiver or administrator, the company ceasing business, and any event the debenture itself names. It then becomes a fixed charge over the assets held at that moment.

What are the advantages and disadvantages of a floating charge?

For the company, the advantage is that it can keep trading with the assets and use changing assets as security. For the lender, the disadvantage is weaker security, because the charge ranks below a fixed charge and other claims may come first. Lenders usually accept this because the company can offer a wider pool of assets.

Does the name in the debenture decide whether a charge is fixed or floating?

No. A court looks at the real rights given. If the company can freely deal with the assets in the ordinary course of business, the charge is floating even if it is called fixed.