Fixed and Floating Charges Explained for UK Company Directors

A fixed charge gives a lender a claim over a specific asset. A floating charge gives them a claim over a class of assets that can change.

The distinction determines who gets paid first when your company enters insolvency, and it directly affects how much is available for other creditors.

We explain this to directors because most do not understand what their bank actually holds over the company. You signed a debenture when you took out the facility. That debenture almost certainly contains both a fixed charge over specific assets (property, specific equipment) and a floating charge over everything else (stock, debtors, cash, general equipment).

The fixed charge holder ranks first in the creditor priority order. The floating charge holder ranks after preferential creditors and the prescribed part. That difference can mean the bank recovers everything while unsecured creditors get nothing.

Quick Answer: Fixed vs Floating Charges Explained

	Fixed Charge	Floating Charge
What it covers	A specific, identified asset (property, machinery, IP)	A class of assets that changes (stock, debtors, cash)
Company’s freedom	Cannot sell or dispose of the asset without consent	Can deal with the assets freely in the ordinary course
Priority in insolvency	Ranks first, paid from the specific asset before anyone else	Ranks after costs, preferential creditors, and the prescribed part
Crystallisation	Already attached to the specific asset	Floats over assets until a trigger event crystallises it
Registration	Must be registered at Companies House within 21 days	Must be registered at Companies House within 21 days

How Fixed Charges Work in Practice

A fixed charge attaches to a specific asset that the company cannot sell, transfer, or deal with without the charge holder’s consent. The most common examples are charges over commercial property and specific high-value equipment.

In insolvency, the fixed charge holder has a direct claim over the charged asset. The liquidator sells the asset and pays the fixed charge holder from the proceeds before anyone else sees a penny from that asset.

If the asset sells for more than the secured debt, the surplus goes into the general estate. If it sells for less, the shortfall becomes an unsecured claim.

We see directors who assumed their bank’s charge was floating when it was actually fixed. The distinction matters because a fixed charge holder can also appoint a receiver over the specific asset (an LPA receiver for property), bypassing the liquidator entirely.

If your bank holds a fixed charge over your commercial premises and you default, they can sell the property without waiting for the liquidation to conclude.

How Floating Charges Work in Practice

A floating charge covers a class of assets rather than specific ones. It floats over the assets, allowing the company to deal with them freely in the ordinary course of business: buying and selling stock, collecting debts, spending cash, without needing the lender’s consent for each transaction.

The charge crystallises (becomes fixed) when a trigger event occurs: the company enters insolvency, the company breaches the loan terms, or the lender serves a crystallisation notice. Once crystallised, the charge attaches to whatever assets are in the class at that moment, and the company can no longer deal with them.

In insolvency, floating charge holders rank lower than fixed charge holders. They are paid after liquidation costs, preferential creditors (employees for wages and holiday, HMRC for PAYE, VAT and employee NICs since 2020), and the prescribed part (a portion ring-fenced for unsecured creditors under section 176A). Only then does the floating charge holder receive their share.

We find that the restoration of HMRC’s preferential status in 2020 significantly reduced what floating charge holders recover. Before 2020, HMRC ranked equally with unsecured creditors, and the floating charge holder recovered more.

Now, HMRC’s preferential claims for PAYE, employee NICs, and VAT are paid before the floating charge holder. We see banks recovering 30 to 40% less from floating charges than they did before the change.

The Prescribed Part: What It Means for Floating Charge Holders

Section 176A of the Insolvency Act requires the liquidator to set aside a portion of floating charge realisations for unsecured creditors. This is the prescribed part: 50% of the first £10,000, plus 20% of anything above £10,000, capped at £800,000.

The prescribed part comes out of the floating charge recovery, not the general estate. This means the floating charge holder loses a slice of their recovery to unsecured creditors.

We mention this because it is the mechanism that occasionally produces a small dividend for unsecured creditors in cases where the floating charge would otherwise consume everything.

What a Bank Debenture Actually Contains

Most bank debentures contain both a fixed charge and a floating charge. The fixed charge typically covers freehold and leasehold property, specific plant and machinery, intellectual property, and book debts (though whether a charge over book debts is truly fixed is disputed in case law).

The floating charge typically covers stock, cash, general equipment, and any other assets not subject to the fixed charge.

We advise directors to read their debenture. Most directors signed it years ago and have never looked at it since. The debenture tells you exactly what the bank holds security over, which assets you can and cannot deal with, and what triggers crystallisation.

If you are approaching insolvency, knowing what your bank can take is essential to understanding what will be left for other creditors.

Why Fixed vs Floating Matters for Directors Personally

The distinction affects your personal position in two ways.

1. What is left for creditors determines wrongful trading exposure. If the bank’s fixed charge consumes the most valuable asset and the floating charge (after preferential creditors and the prescribed part) consumes the rest, unsecured creditors get nothing.

The liquidator will assess whether you should have recognised this earlier and stopped trading to prevent further losses to unsecured creditors.

2. A qualifying floating charge holder can appoint an administrator. Under Schedule B1 of the Insolvency Act, a lender holding a qualifying floating charge (one created after 15 September 2003 that covers substantially all of the company’s assets) can appoint an administrator directly, without a court hearing.

This means your bank can take control of the company’s affairs through administration without your consent. We have seen banks appoint administrators over directors’ objections when they lost confidence in the management.

What to Do if Your Company Has Secured Debt

1. Read your debenture. Understand what charges exist, what they cover, and what triggers crystallisation.
2. Check Companies House. All charges are registered publicly. Search your company and verify which charges are on the register.
3. Engage with your bank early. If the company is in difficulty, tell the bank before they discover it from missed loan payments. Banks that are engaged early restructure. Banks that are surprised enforce.
4. Understand the priority order. Our guide on who gets paid first in liquidation explains how fixed charges, floating charges, preferential creditors, and unsecured creditors interact.
5. Take insolvency advice. A licensed insolvency practitioner can assess how the security structure affects your options. A free, confidential consultation will clarify your position.

FAQs on Fixed and Floating Charges