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InvestEd :: Wealth Education for Australian Investors


Fixed and Floating Charge


A fixed and floating charge is a form of security interest usually taken by a lender from a company to secure repayment of a loan.

The company granting the charge is usually referred to as the "Chargor" and the person in whose favour the charge is granted is typically called the "Chargee".

This form of security is called "fixed and floating" because the chargee has:
  • an equitable charge over all the non-trading assets of the chargor, eg real property, plant and equipment, intellectual property rights, book debts, insurance contracts and other contracts; and
  • a floating charge over cash and stock-in-trade.
The true ingenuity of the fixed and floating charge is that it permits the chargor to deal with and sell their stock etc in the ordinary course of business without requiring consent from the chargor.

When there is a default in the secured obligation, the charge is said to "crystallise" i.e. it converts to a fixed charge over all the chargor's assets and prohibits any dealing in those assets.

There are historical and technical differences between a mortgage and a charge, but these differences are of interest only to lawyers.

The fixed and floating charge will confer rights to appoint a receiver to the property of the chargor following default and the receiver will have power to sell the charged property (ie usually all the assets of the chargor company).

To secure the priority of the charge over the assets of the chargor, the chargee will invariably register the charge with ASIC in the register of charges maintained under the Corporations Act 2001. You will sometimes see banks referring to the requirement to provide a charge as the need to provide a "registered mortgage debenture".

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