FLOATING LIEN, or the floating charge, is a lien not on any specific asset, rather a set of assets or an asset class. In this lien, the lender and the borrower don’t specify the asset, rather agree on a set of assets that are collateral. To know more about it, click on the link given below: https://efinancemanagement.com/sources-of-finance/floating-lien-meaning-importance-and-more

1. By:-
eFinanceManagement.com
https://efinancemanagement.com/sources-of-finance/floating-lien-meaning-importance-
and-more
Floating Lien

2. 1. Introduction
2. Importance
3. Floating vs Fixed Charge
4. Crystallization of Floating Lien
5. Floating Charge and Insolvency
6. Reference
Content

3. FLOATING LIEN, or the floating charge, is a lien not on any specific asset, rather a set of assets or an asset class. In
this lien, the lender and the borrower doesn’t specify the asset, rather agree on a set of assets that are collateral. The
assets under this lien are usually those whose quantity and value may change regularly, such as inventory, accounts
receivables and more.
Introduction

4. • Advantageous to retailers
• Could use inventory or debtors to get a loan without risking fixed assets
• Borrower can continue to use the assets under the floating charge for carrying the business operations
• Borrower has full authority to sell, transfer or even dispose the assets under floating charge
Importance

5. • A fixed charge is on a specific asset. The floating charge, on the other hand, is on a category of assets whose
numbers, composition, and value would change periodically.
• In case of insolvency, the fixed charge ranks above the floating lien.
• A floating charge gives businesses more freedom and can use their current and business assets for the purpose of
floating lien.
Floating vs Fixed Charge

6. This concept comes into play when the borrower defaults.
Or if there is a dispute between the lender and borrower
The floating charge converts into a fixed charge, the lender fixes an asset that the borrower can’t use or sell.
Crystallization of Floating Lien

7. The payment order as per the Insolvency Act 1986:
1. Fees and other expenses of the liquidator.
2. Secured creditors having a fixed lien.
3. Preferential creditors.
4. Secured creditors having a floating lien.
5. Unsecured creditors.
Floating Charge and Insolvency

8. Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/floating-lien-meaning-importance-and-more