Factoring Companies Guidebook
Legal Charges
Definition
It is normal that all banks and most lenders of money will insist on security to cover their advances. This security is often taken in the form of Charges over the assets of the company. Charges can be of two main types, Fixed or Floating.
Fixed Charge - is attached to a particular asset and that asset cannot be sold or traded without the permission of the Charge holder.
Floating Charge - is different in that it 'floats' over a category of assets that changes from time to time, such as stock, or book debts. The company can change and alter these assets and the Charge only crystallises and attaches itself in the event of the failure of the business or under some other condition laid out in the Charge document.
Bill of Sale - it is not possible for a Legal Charge to be registered over the assets of a Partnership or Sole Trader, although it may be decided for security reasons to register a 'Bill of Sale' of the book debts at the Bill of Sale Registry. A Bill of Sale provides additional security over and above the formal assignment of debts and protection against any potential Liquidator claims. It should be noted that it is not possible to register a Bill of Sale in Scotland.
Alternative Terms :-
- Debenture
- Bond & Floating Charge (Scotland)
Concerns
We cannot provide a facility against the book debts unless we have priority over those particular assets.
Both Fixed and Floating Charges are similar in effect for us, where other bodies register them.
The Floating Charge, where registered by a third party, does not in theory affect the ability of the company to assign its book debts to us. However, almost every lender includes conditions within its Charge document forbidding the assignment of book debts to another party.
