Floating Charge: Definition, How It Works & PPSA Guide

Updated 12 Mar 2026Content was accurate at the time of publication

What is a floating charge?

A floating charge is a form of security interest that a company grants over a shifting pool of assets — typically circulating assets such as stock, work-in-progress and receivables — without preventing the company from dealing with those assets in the ordinary course of business. Unlike a fixed charge, which attaches to specific assets, a floating charge "floats" until an event causes it to crystallise (become fixed) over the assets in the charged class.

Key characteristics:

Security over a changing class of property (inventory, receivables, future property).
Company retains ability to use, sell or replace assets until crystallisation.
Chargee's security converts from floating to fixed on crystallisation, enforcement or insolvency.
Regulated by the Personal Property Securities Act 2009 (PPSA) and recorded on the PPS Register (PPSR).

Plain-English summary: a floating charge lets you take security over a company's business assets without stopping the business from trading — but that flexibility comes with priority and enforcement risks to manage.

How a floating charge works in practice

Day-to-day operation focuses on three practical stages: attachment, the charged business-as-usual period, and crystallisation.

Attachment

Attachment occurs when the company signs the security document and value is given (for example, a loan is advanced). Under PPSA concepts, attachment gives the secured party rights in the collateral subject to perfection. The security document should clearly describe the class of assets (such as stock, accounts receivable, plant specified or excluded).

Business as usual

Until crystallisation, the chargor can deal with assets — sell inventory, collect debts. The floating charge does not create day-to-day control. Typical charged classes include trading stock, raw materials, book debts, goodwill, and plant not specified as fixed assets.

Examples

Stock financing: you take a floating charge over all trading stock. The borrower continues to buy and sell inventory; the security covers whichever stock exists at crystallisation.

Receivables: a floating charge over present and future receivables allows the company to collect debts until enforcement.

Control and practical monitoring

Lenders often supplement floating charges with covenants, reporting requirements, negative pledges and, where possible, fixed charges over key non-circulating assets (for example, land, major plant). Where you need tighter control, consider product structures such as asset finance or trade receivable facilities. Some lenders combine floating charge security with service-specific documentation.

Floating vs fixed charge — key differences

The label a document gives a charge is not decisive: courts examine substance over form. Practical distinctions:

Control

Fixed charge: Lender exercises control over the specific asset; the debtor cannot dispose of it without consent.

Floating charge: Debtor free to deal with the asset class until crystallisation.

Priority and enforcement

Fixed charges generally rank ahead of floating charges in insolvency and have stronger enforcement remedies over the specific asset. Floating charges rank behind many preferential claims and may be subordinate to earlier registered security interests on the PPSR.

Typical assets

Fixed: land, title-registered assets, major plant, specific vehicles.

Floating: stock, receivables, future property, general intangibles.

Label vs substance

Courts will recharacterise a purported fixed charge as floating if the chargor retains the practical ability to deal with the asset (for example, continue to sell inventory or collect proceeds). When drafting, ensure your fixed/floating distinction reflects real control.

When to prefer each

Use a fixed charge when you need certainty over a specific asset and priority. Use a floating charge to take broad security over a trading business with minimal interference in operations.

Creation, perfection and registration under PPSA/PPSR

Creating effective security means more than signing a document. You must understand attachment and perfection, and register appropriately on the PPSR.

Steps to create and perfect

Agreement and attachment

Secure a signed security agreement that describes the collateral sufficiently. Attachment occurs when value is given and the debtor has rights in the collateral.

Perfection by registration or possession/control

Most floating charges are perfected by registering a financing statement on the PPS Register. Some security interests are perfected by possession (for example, physical collateral) or by control (for example, certain securities or deposit accounts).

Registration timing

Priority generally depends on the time of registration (first to register wins) subject to statutory exceptions (for example, PMSI or purchase money security interests). Late registration can be fatal to priority — an unregistered interest may be subordinated to other creditors and liquidators.

Consequences of non-registration

An unregistered perfected security (where registration was required) risks losing priority and may be void against a liquidator or external administrator. For floating charges, ensure early PPSR registration to preserve ranking.

Practical note: Always include a clear collateral description: "all present and after-acquired personal property excluding land" is common but ensure you specify excluded assets and any fixed charge components to avoid recharacterisation.

Priority and ranking on insolvency

Priority rules determine who gets paid first when the company becomes insolvent. Floating charges face several priority pitfalls.

General ranking order (simplified)

Court-appointed receivers or liquidators' statutory costs and certain preferential creditors (employee entitlements, some tax claims).
Fixed charge holders with registered or perfected interests.
Purchase Money Security Interests (PMSIs) with special priority if perfected correctly.
Earlier PMSI or registered security interests on the PPSR.
Floating charge holders (often lower ranking).
Unsecured creditors and shareholders.

Interaction with Corporations Act remedies

An external administrator (liquidator) or secured party with a fixed charge may appoint a receiver. Under the Corporations Act, certain statutory charges and priority rules apply. Floating charge holders may appoint a receiver in some circumstances, but priority remains lower than fixed charges and certain statutory claims.

Practical consequences

If you rely on a floating charge, expect lower recovery rates in insolvency than fixed charge holders.

Crystallisation and enforcement remedies

Crystallisation

Crystallisation is the process by which a floating charge converts into a fixed charge over the assets that fall within its description at that time.

Triggers:

Automatic triggers: commencement of external administration, insolvency event.
Express triggers: default under the loan, notice by the chargee, appointment of a receiver.
Events specified in the security agreement (for example, cross-default).

Upon crystallisation, the chargor's freedom to deal with assets in the charged class is curtailed; the chargee's rights become enforceable over specific assets.

Enforcement options

Appointment of a receiver or receiver and manager (if clause permits).
Taking possession and sale of charged property (where possible).
Exercising rights of set-off or applying proceeds to loan.
Court enforcement remedies: writs, orders for sale or specific performance.

Interplay with Corporations Act

External administrators' powers (liquidator/administrator) may displace the chargee's enforcement rights in certain circumstances; statutory priorities apply. Practically, a secured creditor should act promptly to enforce and must observe notice and statutory requirements to avoid successful challenges.

Timing and practical steps on enforcement

Check the security document: does it require notice before enforcement? Are there restriction periods post-insolvency? Preserve value: appoint a receiver quickly where proper and lawful; secure access to the charged assets; avoid wrongful enforcement.

Advantages and disadvantages

For lenders

Advantages: broad coverage over circulating assets; easier to secure multiple asset types. Flexibility: borrower can continue trading, preserving business value. Lower set-up friction than obtaining multiple fixed charges.

Disadvantages: lower priority in insolvency; greater exposure to preferential claims and earlier registrants. Risk of recharacterisation if drafting is weak. Monitoring burden: needs covenants, reporting and perhaps additional security.

For borrowers

Advantages: minimal operational disruption; can continue ordinary trading. Access to working capital against a pool of assets.

Disadvantages: potentially restrictive covenants and reporting obligations. Risk that crystallisation will limit trading capacity and liquidity.

Drafting considerations and sample clauses

When drafting a floating charge, accuracy and specificity reduce risk. Essential drafting points:

Must-have clauses

Clear identification of the charged class (present and after-acquired property).
Express crystallisation events: insolvency, default, notice, cross-default.
Powers on crystallisation: appointment of receiver, sale, collection of proceeds.
Covenants: reporting, stock control, insurance, safe custody of key assets.
Negative pledge and pari passu / priority wording where applicable.
Registration obligations and timing (specify PPSR registration within X days).
Notice and cure periods for enforcement (consistent with statutory rights).

Common pitfalls to avoid

Vague collateral descriptions that invite recharacterisation.
Omitting express control mechanisms where a fixed charge is intended.
Failing to register on the PPSR promptly.
Relying solely on label ("fixed charge") without substance.

Sample crystallisation clause

"On the occurrence of any Event of Default or upon the appointment of an Administrator or Liquidator to the Chargor, the Floating Charge shall immediately crystallise and become a Fixed Charge over all Collateral then existing. The Secured Party may, following crystallisation, appoint a Receiver and exercise all rights to take possession, collect, realise and apply the proceeds of the Collateral in satisfaction of the Secured Obligations."

Lender quick-check

Item	Yes / No	Notes
Collateral description clear		Specify present & after-acquired
PPSR registration required & done		Record registration date
Crystallisation triggers defined		Include express notice option
Enforcement powers included		Receiver, sale, collection
Covenants and reporting included		Weekly stock & debtor reports
Fixed security over key assets		Real property, major plant

For more drafting templates and deeper clause drafting guidance see Drafting commercial security agreements.

Alternatives and related security interests

When a floating charge may not be appropriate, consider alternatives:

Fixed charge: priority and control.
Mortgage: over land (registered under land titles).
Retention of Title: seller retains ownership until payment.
Security interests perfected by control/possession (for example, certain deposit accounts).
Receivables finance and invoice finance: asset-specific products.
Asset finance or equipment finance facilities that use title retention or specific asset security.
Finance Lease and Novated Lease: lease-based structures.

Choose the security that best balances operational flexibility against recoverability and priority.

Illustrative examples

Scenario A — timely registration

Lender advances $1 million to a trading company secured by a floating charge over stock and receivables. Lender registers the financing statement on the PPSR the same day. Company subsequently defaults; lender gives notice and crystallises the charge, appoints a receiver, and realises stock and debtor lists. Because of early PPSR perfection, lender ranks ahead of later registrants and recovers a significant portion of the loan.

Scenario B — late registration

Same facts but the lender registers on the PPSR two months after advance. Meanwhile another financier registers a PMSI in receivables and a liquidator is appointed. Result: lender's floating charge is subordinated to the PMSI and the liquidator's preferential claims; recovery is reduced and challenges follow.

Lesson: timing of PPSR registration and correct labelling and substance of the charge are decisive.

FAQ

Does a floating charge give immediate priority?

No. Priority depends on perfection (often PPSR registration) and statutory ranking. Floating charges typically rank below fixed charges and certain preferential claims.

Can a floating charge attach to future property?

Yes. Floating charges commonly cover after-acquired property (future stock, debtor book) — ensure the security agreement and PPSR statement capture present and after-acquired assets.

How long after registration is priority effective?

Priority generally attaches from the time of registration on the PPSR, subject to PMSI and statutory exceptions.

Can courts recharacterise a purported fixed charge as floating?

Yes. Courts examine the substantive control exercised. If the chargor retains practical ability to deal with the asset, recharacterisation is possible — drafting must reflect actual control.

What are common crystallisation triggers?

External administration, insolvency events, specified defaults, and express notice by the chargee. Include both automatic and express triggers in documentation.

What happens if I forget to register a floating charge?

Failure to register may mean you lose priority and your security may be void against liquidators and other creditors. Always register promptly and verify registration details.

Key takeaways

A floating charge allows lenders to secure broad interests in a company's trading assets without stopping the business from operating. The security floats over a changing pool of assets until crystallisation converts it to a fixed charge, typically triggered by default or insolvency. Success depends on clear drafting, timely PPSR registration, and understanding that floating charges rank below fixed charges and many preferential claims in insolvency. Lenders should combine floating charges with covenants, reporting requirements and supplementary security over key assets.