Floating Charges in Liquidation: What Directors Should Understand

A floating charge gives a lender security over changing business assets such as stock, receivables and other circulating assets. If a company enters liquidation, the charge can affect how money from those assets is distributed. The floating-charge holder does not automatically receive everything available, as insolvency costs, preferential creditors and the prescribed part for unsecured creditors may take priority. Directors should understand which company assets are secured, whether charges are fixed or floating, and whether personal guarantees have also been provided. Reviewing security arrangements early can help directors understand creditor priorities and the likely financial outcome of liquidation.

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