Nirja is a newly appointed company secretarial staff in the office of the Company Secretary of a listed company. She has suggested that an existing floating charge on the fixed assets of the company can be converted into

The essence of floating charge is that the security remains dormant until it is fixed or crystallizes. The company has a right to carry on its business with the help of assets over which a floating charge has been created till the happening of some event which determines this right. A floating charge crystallises and the security becomes fixed in the following cases: when the company goes into liquidation; when the company ceases to carry on its business; when the creditors or the debenture holders take steps to enforce their security; on the happening of the event specified in the deed. In Government Stock Investment Co. Ltd. v/s. Manila Railway Co. Ltd., (1897) A.C. 81 , the debentures were secured by a floating charge. Three months' interest became due but the debenture holders took no steps and so the charge did not crystallize but remained floating. The company then made a mortgage of a specific part of its property. Held, the mortgagee had priority. The security for the debentures remained merely a floating security as the debenture holders had taken no steps to enforce their security. Accordingly, floating charge cannot be automatically converted into fixed charge unless any one or more of the conditions mentioned above are met/satisfied by the company. Also, the lender of the company needs to take action for crystallizing the property subject to floating charge. Hence, the assessment of Nirja is not correct.