A charge means an interest or right which a lender or creditor obtains in the property of the company by way of security that the company will pay back the debt. Charges are of 2 types :-
: Such a charge is against a specific clearly identifiable and defined property. The property under charge is identified at the time of creation of charge. The nature and identity of the property does not change during the existence of the charge. The company can transfer the property charged only subject to that charge so that the charge holder or mortgage must be paid first whatever is due to him before disposing off that property. : Such a charge is available only to companies as borrower. A Floating charge does attach to any definite property but covers the property of a circulating and fluctuating nature such as stock-in-trade, debtors, etc. It attaches to the property charged in the varying conditions in which happens to be from time to time. Such a charge remains dormant until the undertaking charge ceases to be a going concern or until the person in whose favour charge created takes steps to crystallise the floating charge. A floating charge on crystallisation becomes a fixed charge.
Crystallization of floating charge :
1.Where the company ceases to carry on the business, whether the principal money has become payable or not, unless the debenture or trust deed contains the stipulation to the contrary.
2.Upon the commencement of winding up of the company.
3.If a debentureholder, having become entitled to realise the securities by the reason of the fact that the principal money has become payable, intervenes for the purpose by appointing the receiver or by making an application to the court for appointment of the receiver.