Contributed By Winston & Strawn London LLP
A floating charge granted over the assets and undertakings of a chargor is one of the most common forms of security taken by lenders in the UK. A floating charge can be created without restricting the chargor's right to deal with the charged assets without the prior consent of the lender until crystallisation (usually, upon the occurrence of an event of default), at which point the charge attaches specifically to each individual asset. Only a company or an LLP, but not individuals, can create a floating charge.
An important distinction between a fixed and a floating charge is that a floating charge is subject to various preferred claims and the prescribed part, as discussed below, while a priority fixed charge has priority over all other creditors and survives the insolvency of the borrower. Following crystallisation, a floating charge will have the characteristics of a fixed charge, but it will not have the priority enjoyed by a fixed charge. In effect, crystallisation does not itself affect priorities.