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charge


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1 A legal or equitable interest in land, securing the payment of money. It gives the creditor in whose favour the charge is created (the chargee) the right to payment from the income or proceeds of sale of the land charged, in priority to claims against the debtor by unsecured creditors.

2 An interest in company property created in favour of a creditor (e.g. as a debenture holder) to secure the amount owing. Most charges must be registered by the Registrar of Companies (see also register of charges). A fixed charge is attached to specific fixed assets (e.g. premises, plant and machinery) and while in force prevents the company from dealing freely in those assets without the consent of the lender. A floating charge is not immediately attached to any specific asset but ‘floats’ over all the company's assets, to which it will not attach until crystallization, i.e. until some event (typically winding-up) causes it to become fixed. Before crystallization, the company may deal freely with such assets; this type of charge is suitable for current assets, whose values must necessarily fluctuate. If the company goes into liquidation, fixed-charge holders are paid before preferential creditors, who are paid before floating-charge holders.

A charge can also be created upon shares. For example, the articles of association usually give the company a lien in respect of unpaid calls, and company members may, in order to secure a debt owed to a third party, charge their shares, either by a full transfer of shares coupled with an agreement to retransfer upon repayment of the debt or by a deposit of the share certificate.

Subjects: Financial Institutions and Services — Accounting.


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