What are fixed and floating charges?
Charges over assets (usually not over land) can be fixed or floating. Charges that contain both fixed and floating elements are known as fixed and floating charges. A fixed charge (or portion of a charge) is a charge over a particular identifiable asset, usually physical plant and equipment. Fixed assets continue with exactly the same identity throughout their life and will remain fixed on that particular asset. A floating charge (or portion of a charge) covers a class of assets like debtors, cash at bank, stock, etc. These assets do not maintain the exact same identity over time (e.g. stock is continually purchased and sold). A floating charge ‘floats’ over that class of asset and captures the particular assets that are held at the time when the charge is exercised. The charge is formed this way because businesses need to be able to deal with these classes of assets in the normal course of business.
