INS1205 - Administrative receivership

Types of debenture

There are three types of debenture. They are secured by a fixed charge, a floating charge or a fixed and floating charge.

Fixed charge

A fixed charge attaches to specific assets of a company. For example

• its business premises
• a particular item of machinery. Normally this will be an expensive item with a lifespan which exceeds the term of a loan.

The company cannot dispose of the assets without the express permission of the chargeholder, and this will usually be on the proviso that they are paid in full.

Floating charge

A floating charge is a ‘blanket charge’ on particular classes or groups of assets such as ‘motor vehicles’ or ‘plant and machinery’. It covers both existing assets and any subsequent additions up to the date that the administrative receivership takes effect and crystallises at that point, when created before 15 September 2003 and still in existence. A floating charge does not crystallise when an administrator is appointed.

For example

When created before 15 September 2003 and still in existence a floating charge on motor vehicles owned by a company will on appointment of an administrative receiver attach to all of the company owned vehicles at the date of the appointment even those acquired after the debenture was registered.

Fixed and floating charge

A fixed and floating charge is a combination of both the other types of charge. It is the most common type.