Your bank has sent over a debenture for signature. Somewhere in the first few pages it says the company charges its property “by way of first fixed charge” and its remaining assets “by way of first floating charge”. Most directors sign without asking what the difference is. That is a mistake, because the difference decides what the company can do with its assets while the loan is outstanding, how much the lender actually recovers if things go wrong, and whose claims are paid first in a liquidation.
This guide explains how Singapore law tells a fixed charge from a floating charge, why the label in the document does not settle the question, what each type lets your company do day to day, and how either charge is lodged with ACRA. It is the first article in our series on company charges. The other articles cover when a floating charge crystallises, what happens to an unregistered charge when the company fails, what a floating charge holder really recovers in a liquidation and which kinds of security must be registered at all.
Fixed and floating charges at a glance
| Question | Fixed charge | Floating charge |
|---|---|---|
| What does it attach to? | Specific, identified assets from the moment it is created | A class of assets that changes over time, such as stock, receivables or “all other assets” |
| Can the company deal with the assets freely? | No. Selling or disposing of the asset needs the lender’s consent or a release | Yes, in the ordinary course of business, until the charge crystallises |
| Typical assets | Land, buildings, major equipment, shares in subsidiaries, intellectual property, goodwill | Inventory, raw materials, receivables the company collects and spends, cash in operating accounts |
| Rank against preferential creditors in a liquidation | Paid from the charged asset ahead of preferential creditors | Preferential debts such as employees’ wages and CPF are paid first out of the charged assets if the free assets are not enough (IRDA s 203(6)) |
| Vulnerable to the floating charge avoidance rule? | No | Yes. A floating charge created shortly before insolvency may be invalid except for new value (IRDA s 229) |
| Must it be registered with ACRA? | Yes, if it falls within a category in s 131(3) of the Companies Act, which covers most valuable assets | Always. Every floating charge on the company’s undertaking or property is registrable (s 131(3)(g)) |
What a fixed charge is
A fixed charge is security over a specific, identifiable asset. From the moment the charge is created, the lender’s security attaches to that asset. The company still owns it and can usually keep using it, but it cannot sell it, give it away or grant someone else a competing interest in it without the lender’s agreement. If the company wants to sell a charged property or a charged piece of machinery, it must first obtain a release, which in practice means the lender is repaid, or agrees to be repaid, from the proceeds.
That restriction is exactly what gives a fixed charge its value. Because the asset cannot leave the security without the lender’s consent, the lender knows what it is lending against. A legal mortgage over a factory, a charge over the shares of a subsidiary or a charge over a registered trade mark are all classic fixed security.
What a floating charge is
A floating charge covers a class of assets that will change as the business trades. The textbook description, from the English case Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, identifies three features: the charge is over a class of present and future assets, that class changes from time to time in the ordinary course of business, and until some future step is taken the company may carry on business in the ordinary way with those assets.
The Singapore Court of Appeal described a floating charge in Malayan Banking Bhd v Bakri Navigation Co Ltd [2020] SGCA 41 as security for the lender coupled with a “business dealing licence” for the company. The company can buy and sell stock, collect its receivables and spend the money, and the assets that leave the business drop out of the security while new assets that come in are caught by it. Nothing is fixed to a particular asset until the charge crystallises, which is the subject of our article on crystallisation.
A floating charge is the only practical way to take security over a constantly changing pool such as inventory. The price the lender pays for that flexibility is a weaker position in insolvency, which we explain below.
The label in the document does not decide which one you have
Lenders prefer fixed charges, so debentures often describe as “fixed” a charge over assets the company is in fact free to use and dispose of. Courts do not accept the parties’ description at face value. The leading Commonwealth authorities, the Privy Council decision in Agnew v Commissioner of Inland Revenue [2001] UKPC 28 and the House of Lords decision in National Westminster Bank plc v Spectrum Plus Ltd [2005] UKHL 41, take a two-stage approach that Singapore courts are likely to find persuasive:
- Construe the document. The court works out what rights and obligations the parties actually gave each other over the charged assets, in particular what the company is allowed to do with them.
- Categorise the charge. Having identified those rights, the court decides as a matter of law whether they amount to a fixed or a floating charge. The label the parties chose is not decisive.
The decisive question at the second stage is control. If the company is free, without the lender’s consent, to deal with the charged assets and remove them from the security, the charge is floating, whatever the document calls it. If the lender genuinely controls the assets, and their proceeds where relevant, the charge can be fixed.
The book debts and bank account problem
Receivables are where this matters most. In Spectrum Plus the debenture said the charge over book debts was fixed and required the company to pay collections into its account with the bank. But the account was an ordinary operating account the company could draw on freely. The House of Lords held the charge was floating: a lender cannot have a fixed charge over receivables if the company can collect them and spend the proceeds as it likes.
To support a fixed charge over receivables, the lender normally needs collections to go into a blocked account from which the company cannot withdraw without the lender’s consent, and that restriction must be operated in practice, not just written into the deed. Most SME facilities do not work that way, which is why many charges over receivables that are described as fixed are at real risk of being treated as floating in a liquidation.
The typical all-assets debenture
A Singapore bank’s standard all-assets debenture usually combines both types in one document:
- a fixed charge, or a legal mortgage registered separately at the Singapore Land Authority, over land and buildings;
- fixed charges over specified plant and machinery, shares, intellectual property, goodwill, uncalled capital and insurance policies;
- a charge described as fixed over book debts, sometimes with a requirement to pay receipts into a designated account;
- a floating charge over the whole of the company’s undertaking and all assets not effectively caught by the fixed charges;
- a negative pledge, under which the company promises not to create other security without consent; and
- a list of events that crystallise the floating charge, including events that do so automatically.
The floating charge sweeps up everything the fixed charges miss, including any asset whose “fixed” charge is later recharacterised as floating. That is why lenders always include it, and why the whole debenture is registered with ACRA as a single charge.
What each charge lets your company do day to day
Directors should read the operating covenants alongside the charging clause. The table below shows the usual position. Your debenture may be stricter, so check it.
| Action | Asset under a fixed charge | Asset under an uncrystallised floating charge |
|---|---|---|
| Sell stock to customers | Not usually relevant: stock is rarely subject to a fixed charge | Permitted in the ordinary course of business |
| Collect receivables and spend the money | Only if the lender releases the proceeds; otherwise they go to a blocked account | Permitted |
| Sell a charged machine or property | Needs the lender’s consent and usually a partial release | Generally permitted in the ordinary course, subject to any covenant restricting disposals |
| Grant security to another lender | Any later charge ranks behind the existing fixed charge, and the debenture usually prohibits it | A later fixed charge may rank ahead of the floating charge unless a negative pledge is effective against the new lender, so debentures prohibit it |
| Lease out or license the asset | Needs consent | Usually permitted if it is part of normal trading |
Breaching a covenant does not usually make a transaction void, but it is typically an event of default allowing the lender to demand repayment, appoint a receiver or crystallise the floating charge. Our guide to a bank recalling a company loan explains what follows a default.
Why the distinction matters most in insolvency
While the company is trading, the difference is mostly about operational freedom. In a liquidation it becomes a question of money. Three rules in the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) apply only to floating charges:
- Preferential debts come first. Under IRDA s 203(6), if the company’s free assets are not enough to pay certain preferential debts, including liquidation costs, employees’ wages, retrenchment benefits, CPF contributions and vacation pay within the prescribed limits, those debts are paid out of the floating charge assets ahead of the charge holder. The rule applies to a charge which “as created” was floating, so crystallisation before the liquidation does not avoid it.
- Receivers must pay employees first. If the lender appoints a receiver under a floating charge outside liquidation, IRDA s 86 requires the receiver to pay employee-related preferential debts out of the floating charge assets before the lender’s principal and interest.
- Late floating charges can be avoided. Under IRDA s 229, a floating charge created within one year before the commencement of the winding up or judicial management (two years if the lender is connected with the company) can be invalid except to the extent of new money, goods or services provided at or after its creation.
Our article on what a floating charge holder actually recovers in a liquidation works through these rules with numbers. For disputes between competing lenders, see our guide to priority disputes between registered charges.
Lodging a fixed or floating charge with ACRA
The registration process is the same for both. Section 131(1) of the Companies Act 1967 requires a statement of the prescribed particulars to be lodged with the Registrar within 30 days after the charge is created. The steps are:
- Confirm the creation date. The clock runs from the date the charge is created, usually the date the debenture is executed, not the date of drawdown.
- Decide who will lodge. Under s 132(1), the company or “any person interested”, which includes the lender, may lodge. In practice the lender’s solicitors usually file, but the legal duty and the offence sit with the company and its officers.
- Prepare the particulars. ACRA’s Register new charge guide asks for the chargor’s UEN, the creation date and place of execution of the instrument, a description of the instrument and every asset charged (including any restrictions such as a negative pledge), the amount secured or whether it secures all monies, and the chargee’s details.
- File on Bizfile. The lodgement is made through the “Register new charge” eService, logged in through Corppass. ACRA lists the fee as $60 and the processing time as immediate.
- Keep the Registrar’s notice. Under s 134(2), ACRA’s notice of registration is conclusive evidence that the registration requirements were met.
- Update the company’s own records. Section 138 requires the company to keep a copy of the charging instrument and its own register of charges at the registered office.
Where the instrument is executed outside Singapore, s 139 adds 7 days, which is why ACRA refers to a 37-day period for overseas charges. Missing the deadline otherwise requires a court order under s 137. Our step-by-step guide to filing the particulars of a charge covers the Bizfile screens in detail. The consequences of not registering are serious and are covered in our article on an unregistered charge when the company fails.
Questions directors should ask before signing a debenture
- Which assets are under a fixed charge, and which only under the floating charge?
- Does the “fixed” charge over receivables require a blocked account? If so, can the business run without free access to its collections?
- What disposals, leases and new borrowings are prohibited without consent?
- What events crystallise the floating charge, and do any of them happen automatically?
- Does the charge secure only this facility, or “all monies” owed to the lender now and in future? Our article on all-monies charges explains why this matters when a loan is repaid.
- Who is responsible for lodging the charge with ACRA, and when will the company receive the notice of registration?
- Are the directors also being asked to give personal guarantees, and how does the security affect them?
Frequently asked questions
Is a fixed charge always better for the lender?
For the lender, yes, which is why lenders try to describe as much as possible as fixed. But a fixed charge only works over assets the business can afford to have locked up. Over stock and working capital, a floating charge is usually the only realistic option.
Can a charge be fixed over some assets and floating over others in the same document?
Yes. Most bank debentures do exactly that. The court looks at each class of asset separately to decide whether the company retained control over it.
Does a floating charge stop my company selling its stock?
No. Until it crystallises, a floating charge allows the company to deal with the charged assets in the ordinary course of business. Stock sold to customers passes to them free of the charge.
Does a floating charge need to be registered even if it is over a small amount of stock?
Yes. Section 131(3)(g) makes every floating charge on the undertaking or property of a company registrable, whatever the value.
If the court recharacterises a fixed charge as floating, is the charge lost?
No. The charge remains valid as a floating charge if it was properly registered. But the lender loses the advantages of a fixed charge: preferential creditors rank ahead of it and it becomes exposed to the s 229 avoidance rule.
Official sources: Companies Act 1967, ss 131 to 141, IRDA 2018, s 203, IRDA 2018, s 229, IRDA 2018, s 86, ACRA: registering a charge, Malayan Banking Bhd v Bakri Navigation Co Ltd [2020] SGCA 41.
Need help with a debenture or company charge?
If your company, or you as a director or shareholder, is being asked to sign a debenture, or needs a fixed or floating charge registered or reviewed, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles banking, security and corporate finance work. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
Willie Tan, Raffles Corporate Services