A floating charge is a type of legal security, meaning it gives the lender a formal claim over certain assets if the loan isn’t repaid. It usually covers assets your business uses day to day, things like stock, cash or money customers owe you.
Unlike a fixed charge, which attaches to a specific asset, a floating charge covers a pool of assets that change as you trade.
The “floating” part matters because it means your company can carry on using those assets normally. You can sell stock, collect debts and move cash without needing the lender’s permission each time.
How do I know if my company has a floating charge?
If your company has taken out secured borrowing, the loan agreement or debenture (the formal legal document that records the security a lender holds over your company’s assets) will set out what security was granted and which assets it covers.
A floating charge will also be registered at Companies House, so you can check the charges register there if you want to confirm the details.
What does it mean when a floating charge crystallises?
Crystallisation is when the floating charge converts and attaches to the specific assets in that pool at that moment. Once that happens, the company can no longer deal with those assets freely and the lender’s position becomes significantly stronger.
Crystallisation usually happens when:
- The company enters Administration or liquidation
- A receiver is appointed over the assets (a licensed insolvency practitioner brought in by the lender to take control of and sell the secured assets)
- The company stops trading
- The lender exercises a contractual right to crystallise under the loan agreement
You can check your loan documentation to understand what triggers apply, because some agreements give lenders broader rights than others.
What assets does a floating charge cover?
A floating charge typically covers assets that move through the business as part of normal operations.
The most common examples are stock, trade debtors, work in progress and cash at bank. The exact scope depends on what’s been agreed in the loan documentation, so if you’re unsure make sure you review your debenture.
Where floating charges sit in insolvency
If your company enters a formal insolvency process, creditors are paid in a fixed legal order. Floating charge holders sit below fixed charge holders and certain other creditors, which means they may not recover everything owed if the assets don’t stretch that far.
Broadly, the order runs like this: fixed-charge creditors are paid first, then the costs of the insolvency process, then preferential creditors (which includes certain employee claims and some HMRC debts), then the prescribed part, then floating charge holders, and finally unsecured creditors.
What this means for you as a director
If your company has a floating charge registered against it and things are becoming financially difficult, there are a few things you should find out as soon as possible.
- Who holds the charge
- Which assets it covers
- What enforcement rights sit alongside it (including whether the lender can appoint an administrator itself, without going to court)
- Whether a personal guarantee exists alongside the charge
Once insolvency becomes a realistic possibility, your duties as a director shift towards protecting the interests of creditors as a whole. Understanding how a floating charge affects the distribution of assets is part of that picture.
Key takeaways
- A floating charge gives a lender a formal claim over a pool of assets your business uses day to day
- Your company can continue using those assets normally until the charge crystallises
- Crystallisation converts the floating charge into a fixed one, usually when insolvency or enforcement begins
- Floating charge holders are paid after fixed charge holders and preferential creditors in an insolvency
- A portion of floating charge realisations is ring-fenced for unsecured creditors under the prescribed part rules
- If you have secured borrowing, the details will be in your loan agreement or debenture and registered at Companies House
Get advice if a lender is applying pressure
If the lender holding a floating charge is raising concerns, issuing formal notices or talking about enforcement, now is the time to get advice, before the situation moves further.
A qualified insolvency practitioner can review what security is in place, explain what enforcement or crystallisation would mean in practice, and help you understand whether a formal process gives you a more structured and controlled outcome.
Getting clarity early usually means more options are still available and puts you in a better position to make decisions on your own terms rather than reacting to pressure from a lender.
