A “floating charge” under English law is a creature of equity that allows creditors to take security over the fluctuating assets of a debtor without hindering the debtor’s capability to sell and dispose of their assets until an event of default occurs.
The Collins Dictionary of Law (2001) describes a floating charge as follows:
a security created by a company by debenture (in Scotland, a floating charge) over its whole assets and undertaking for the time being. The point of this form of security is that the company may continue to conduct its business, disposing off some assets and acquiring others without having to obtain the consent of the debenture holders for each disposal. In the event of a default, the charge crystallizes and becomes fixed and enforceable over the assets held at that time.
A floating charge is unique to common law jurisdictions. In civil law countries, lenders often take and perfect their security interest in individual assets.
The Civil Code of Cambodia (2011), drafted with the assistance of the Japan International Cooperation Agency, does not recognize floating charges on assets, however provides for a security package that may be used by lenders to take security over changing assets of a debtor (‘transfer as security’)1. The Civil Code additionally provides that real rights (including security rights) vested in movable and immovable property situated within the territory of Cambodia may not be created except as permitted under the Code or by special legislation2 (jus cogens)3. This means that agreements granting security interest in properties located in Cambodia, in a manner not in conformity with the Civil Code and other local laws, shall be considered void, even when specified as being governed by foreign law.
I will be talking more about it in my next blog post.
1 Article 888 of the Civil Code of Cambodia (2011)
2 Article 131 of the Civil Code of Cambodia (2011)
3 Roman legal literature distinguished between rules of jus cogens, which could not be derogated from by the parties, and jus dispositivum, which could be set aside by contrary agreement.