Can someone please help me understand the basic difference between fixed charge and floating charge debenture? I am not able to comprehend the text from the study material well. Thanks for your help! Bijal
That also wrecked my head when reading the CT1 Notes, A fixed charge Debenture means that the company has to sign over specific assets to act as security over the loan. The company can't go selling anything that has been signed over, as soon as the company defaults, then the assets can be sold by the debenture holders. A floating charge is over all of the companys assets, so the company is free to sell things aslong as they are replaced by other assets. If the company defaults the debenture holders apply to the courts to make the floating charge become a fixed charge over specific assets which can be nominated by the company, then the asset(s) can be liquidated. (This is called crystallisation)
