What is the difference between a fixed and floating charge over IP?

Full Explanation

The difference between a fixed and floating charge over intellectual property comes down to what the security attaches to and where it ranks if the company fails. A fixed charge attaches to specific, identifiable assets — for IP, that usually means naming the rights individually, such as a particular patent by its registration number. Because the charge is pinned to a defined asset, the borrower cannot dispose of it without the lender's consent, and the lender holds strong priority. A floating charge, by contrast, hovers over a shifting pool of assets — stock, receivables, and often IP that is not separately identified — allowing the business to use and replace those assets in the ordinary course until an event of default "crystallises" the charge and fixes it in place. That distinction drives insolvency priority, which is what really matters to a lender. The order of recovery runs: fixed charges first, then insolvency expenses, then preferential creditors, then floating charges, then unsecured creditors. A fixed charge over a named patent therefore recovers ahead of almost everyone; a floating charge sits well down the queue and is diluted by the prescribed part set aside for unsecured creditors. This is why lenders lending seriously against IP prefer a fixed charge, or a stronger legal mortgage, over reliance on a floating charge alone. Both types of charge must be registered at Companies House within 21 days under section 859A of the Companies Act 2006, or the security is void against a liquidator or administrator — an unforgiving deadline that catches borrowers and advisers out. For IP specifically, the charge should also be recorded at the UK Intellectual Property Office so it appears on the register a diligent buyer or subsequent lender would search. HSBC Innovation Banking, for instance, typically takes a first-ranking debenture that includes IP, combining fixed and floating elements. For a founder or adviser, the practical point is to know which of your IP assets a lender can take a fixed charge over — the registered, separately identifiable rights — because those are the assets that give the lender comfort and you leverage in negotiation. Before you approach a lender, confirm your key rights are registered, in force and free of existing charges, so a fixed charge is actually available on them.

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