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Floating charges


A floating charge secures a non-specific interest over the assets of a company. Typically it secures the total assets of a company or generic categories of assets such as inventory or accounts receivable. Property subject to a floating charge can be dealt with by the company without having to seek the consent of the financier. The floating charge ‘floats’ over the secured property until the happening of certain events which trigger the crystallisation of the charge and converts it into a fixed charge.

The commercial advantage of the floating charge lies in the ability of the borrower to obtain finance and deal with the property whilst the financer has security for the finance advanced.

The Personal Property Securities Act 2009 (Cth) rules about the creation and nature of security interests do not include concepts analogous to either the ‘floating’ nature of a floating charge or ‘crystallisation’. The following rules apply:

  • an agreement giving rise to a security interest is effective according to its terms[1] which the parties are free to negotiate
  • to be enforceable against the grantor[2] the security interest must have ‘attached’[3] to the collateral
  • the security interest may attach at a later time[4] agreed to by the parties, and
  • a reference to a floating charge in a security agreement is not taken to be an agreement that the security interest will attach at a later date[5].

A security interest has either ‘attached’ or has not. There is no flexibility within these statutory definitions to accommodate concepts of ‘floating’ or ‘crystallisation’. Canadian court decisions have affirmed that a security interest arising from an agreement purporting to create a floating charge is subject to the same PPS Act attachment rules as any other type of security interest.

Use of floating charge agreements and terminology

It will continue to be perfectly valid to continue using the language and boilerplate clauses that create a floating charge in security agreements. There is a risk that continued use of this language and concepts may cause confusion.

The PPS Act will continue to apply where floating charge terminology or agreements are used[6].

The PPS Act provides that a reference to a floating charge in a security agreement is taken to be a reference to a security interest in a circulating asset.

A circulating asset will typically be either an account or inventory, among other particular types of property, over which the grantor of the security interest retains control of the property. In other cases collateral would be a circulating asset where the secured party had given the grantor authority for the transfer of the collateral in the ordinary course of the business free of the security interest.

Under this definition of circulating asset is that the grantor is able to deal with and sell the circulating asset subject to the security interest in the same way a borrower under a floating charge transaction can deal with and sell with the charged property.

Significance of the circulating asset

The concept of the circulating asset has significance under the Corporations Act 2001 (Cth). The Corporations Act has been amended to incorporate PPS Act concepts and terminology. The concept of circulating asset has been incorporated into certain provisions to help ensure that a security interest in a circulating asset receives the same treatment in receivership, administration and liquidation as a floating charge currently does[7].

The most significant of these rules are:

The PPS Register

Registration of a security interest on the PPS Register has to be made against a ‘class’ of collateral as set out in the PPS Regulations. The relevant classes for security interests in circulating assets include ‘accounts’, ‘inventory’, ‘all present and after-acquired property’ and ‘all present and after-acquired property, except...’.  The latter category enables the carve out of parts of the grantor’s property from the registration by entering details of the excepted property in a free text field.


  1. Section 19(1), PPS Act
  2. A grantor is the person with rights in the collateral that has ‘granted’ to the secured party the security interest.  Typically the grantor will be the borrower and the secured party the financier.
  3. See information sheet: Personal property securities - key concepts
  4. Section 19(3), PPS Act
  5. Section 19(4), PPS Act
  6. Section 19(2), PPS Act
  7. See sections 433, 442B, 443E, 459C, 561, 588FJ and 588FK, Corporations Act. Also, see information sheet: Receivership, administration and liquidation.
  8. Sections 442B and C, Corporations Act
  9. Section 561, Corporations Act
  10. Section 588FJ, Corporations Act. Also, see information sheet: Receivership, administration and liquidation.

Please note: This information sheet provides general information about PPS reform and does not constitute legal advice. You should seek legal or other professional advice to consider the application of the PPS Act to your individual circumstances.