What is a floating charge?

Definition of floating charge

A floating charge is security that a creditor takes on all of a business's assets, in respect of a particular debt.

Unlike a fixed charge, which is attached to one or more specific assets, a floating charge only comes into play when a business goes into liquidation, administration or receivership.

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Once the fixed charge holders have been paid from the sales of the specific assets that the fixed charges relate to, the holders of floating charges may then take what they are due from the sale of the rest of the business's assets.

Floating charge holders will be paid before 'unsecured creditors', that is creditors who have neither fixed nor floating charges over a business's assets. HMRC is an unsecured creditor.

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FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.