5 Replies
Ashwin Kumar
(1234 Points)
Replied 04 September 2017
Floating cost is a general charge on all the assets...
Sudhir Todkar
(CS Professional)
(1021 Points)
Replied 05 September 2017
Floating charge means a charge which is not fixed in nature. It is a charge on movable assets like stock goods and company can to trade of such assets without permission of the charge holder. He may convert such charge into fixed.
Ashwin Kumar
(1234 Points)
Replied 05 September 2017
Remember floating cost can be charged only on fixed assets
Sudhir Todkar
(CS Professional)
(1021 Points)
Replied 05 September 2017
The floating charge is useful for many companies, allowing them to borrow even though they have no specific assets, such as freehold premises, which they can use as security. A floating charge allows all the company's assets, such as stock in trade, plant and machinery, vehicles, etc., to be charged.
The special nature of the floating charge is that the company can continue to use the assets and can buy and sell them in the ordinary course of business. It can thus trade with its stock and sell and replace plant and machinery, etc. without needing fresh consent from the mortgagee. The charge is said to float over the assets charged, rather than fixing on any of them specifically. This continues until the charge 'crystallizes', which occurs when the debenture specifies. This will include any failure to meet the terms of the loan (non-payment, etc.), or if the company goes into liquidation, ceases to trade, etc.
The special nature of the floating charge is that the company can continue to use the assets and can buy and sell them in the ordinary course of business. It can thus trade with its stock and sell and replace plant and machinery, etc. without needing fresh consent from the mortgagee. The charge is said to float over the assets charged, rather than fixing on any of them specifically. This continues until the charge 'crystallizes', which occurs when the debenture specifies. This will include any failure to meet the terms of the loan (non-payment, etc.), or if the company goes into liquidation, ceases to trade, etc.
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