By the end of this sub unit, you should be able to:
1. Identify the types of charges.
2. Explain the effect of fixed and floating charges.
There are two types of charges. They are fixed charge and floating charge. A fixed charge is one that is intended by the parties to attach to a specific item of property as the charge is created. Fixed charge has the priority payment on the same property than floating charge. A property that has a fixed charge over it cannot be sold without the consent of the debenture holder.
A floating charge does not attach to any specific assets until the charge crystallises, when it becomes a fixed charge. A floating charge is always postponed to a fixed charge. The company can sell property without consent of the debenture holder Fixed charge has better security than floating charge. The charge is fixed to particular asset and the property cannot be sold without the consent of debenture holder.
Both fixed charge and floating charge must be registered with the Registrar within 30 days after creation of charge as mentioned in Section 108(1) Companies Act 1965.