Charge on assets and its types

 Charge over Assets

Meaning of charge according to dictionary 

• verb

for something to ask somebody to pay a particular amount of money.

• noun

the price that you must pay for goods or services.

Meaning of charge over Assets

"Charge has been defined as an interest or liens created on property or asset of a company or any of its undertakings as security and include a mortgage."

It serves as security for a loan or a debt, providing the lender with a right to recover the debt by selling the asset if the borrower defaults on the repayment of loan amounts.

Charges over assets can come in various forms, including mortgages over real estate, liens over personal property, or pledges over financial assets.

Now, what is Mortgage?

A "mortgage" is a type of loan that enables individuals or businesses to purchase real estate while spreading out the payments over an extended period. Mortgage are generally created on Fixed Assets.

The property being purchased is usually used as collateral for the loan, allowing the lender to seize and sell the property if the borrower fails to make the required mortgage payments.

Lein?

 A "lien" is a term used to describe a creditor's legal claim or interest in another person's property, usually held in exchange for payment of debt or other obligations.

Pledge?

In the world of finance, pledging anything is the act of using an asset as security for a debt or loan. When a borrower pledges anything, they give the lender the authority to seize the item in the event that the borrower defaults on the loan or doesn't follow the conditions of the arrangement.

Type of charge 

Charges are of two types: (company law)

1. Fixed Charge
2. Floating Charge 

Fixed Charge 

A fixed charge is a sort of security interest that is placed over particular business assets, giving the creditor first dibs on those assets in the case of default. This charge is typically connected to specifically identified tangible assets, such as real estate, machinery, or equipment, that are unable to be sold or otherwise disposed of without the creditor's approval.

The lender may hold the deeds or ownership documents of the assets as security during the loan period. 

Fixed charges are often used in financing arrangements to provide creditors with greater security and reassurance of repayment.

Floating Charge 

A floating charge is a type of security interest that covers a company's assets that fluctuate or change in the ordinary course of business, such as inventory, raw materials, or other movable assets. Unlike a fixed charge, a floating charge does not attach to specific assets at the time of creation but rather encompasses a changing pool of assets.

The assets may be used by the company for its regular business operations under this type of charge. 

On the other hand, the floating charge "crystallises," fixing on the assets in place at that point, if the business defaults on its debt obligations. 

In the event of insolvency, the holder of a floating charge has priority over unsecured creditors but below holders of fixed charges. 

This kind of charge gives the business flexibility while giving the creditor some measure of security.