Floating Charge Law and Legal Definition
Floating charge is a security interest over a fund of changing assets of a company or a limited liability partnership (LLP). This security interest floats until it is converted into a fixed charge. When a floating charge is converted to a fixed charge, the charge attaches to specific assets. Floating charges can only be created by companies. An individual or partnership cannot grant a floating charge. Floating charges can be considered as equitable charges on present or future class of assets.
Floating charges are popular security devices for secured creditors because the security will cover each and every asset of the charger. In case of a charger, even if the assets are encumbered, because it is floating security, chargers are free to deal with the assets and dispose of them in the ordinary course of business. The chargers can obtain maximum credit benefit from a lender without the inconvenience of requiring the secured creditor's consent to dispose of stock in trade.