Fixed Charge in UK Law

Once these have been ascertained, the Court can then embark on the second stage of the process, which is one of categorisation. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it.

To constitute a charge on book debts a fixed charge, it is sufficient to prohibit the company from realising the debts itself, whether by assignment or collection. If the company seeks permission to do so in respect of a particular debt, the charge holder can refuse permission or grant permission on terms, and can thus direct the application of the proceeds.

The essence of a floating charge is that it is a charge, not on any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee.

But, as indicated in Agnew, the real question was whether the rights and obligations conferred and imposed by clause 5(c) disclosed an intention that the Company should be free to deal with the book debts and withdraw them from the security without the consent of the Bank.

When a floating charge crystallises, it becomes a fixed charge attaching to all the assets of the company which fall within its terms. Thereafter the assets subject to the floating charge form a separate fund in which the debenture holder has a proprietary interest. For the purposes of paying off the secured debt, it is his fund. The company has only an equity of redemption; the right to retransfer of the assets when the debt secured by the floating charge has been paid off.

It seems to me that it is at least arguable that a debenture which prohibits a chargor from disposing of book debts before they are collected and requires him to pay them, beneficially, to the chargee as and when they are collected properly falls within the definition of a fixed charge, regardless of the extent of his contractual right to draw out sums equivalent to the amounts paid in. What he does enjoy are contractual rights to payments, whether as a lender or as a borrower, from the bank.

But there is no inconsistency between the existence of a fixed charge and a contractual right on the part of the chargor to require the chargee to release property from the charge. This must a fortiori be the case where the right to require the release (as in the present case) ceases on the security becoming enforceable and the chargee determining or becoming bound to enforce it.