i) Differences between Fixed Charge and Floating Charge:

• The charge that can be easily identified with a certain asset is known as a Fixed Charge. The charge that is created on assets that change periodically is a Floating Charge.
• Fixed Charge is specific in nature, unlike Floating Charge, which is dynamic.
• Registration of movable assets is voluntary in the case of a Fixed Charge. Conversely, when there is a Floating Charge, registration is compulsory irrespective of the asset type.
• The Fixed Charge is a legal charge, while the Floating Charge is an equitable one.
• Fixed Charge is given preference over Floating Charge.
• Fixed Charge covers assets that are specific, ascertainable, and existing during the creation of the charge. On the other hand, Floating Charge covers present or future assets.
• When the asset is covered under Fixed Charge, the company cannot deal with the asset until and unless the charge holder agrees to it. However, in the case of a Floating Charge, the company can deal with the asset until the charge is converted to a Fixed Charge.

(Any 3 points @ 2 marks each = 6 marks)

ii) Circumstances for Crystallization of a Floating Charge:

• If a company fails to repay the loan or enters liquidation, the Floating Charge becomes crystallized or frozen into a Fixed Charge. With a Fixed Charge, the assets become fixed by the lender, so the company cannot use the assets or sell them.
• Crystallization can also happen if a company ends operations or if the borrower and lender go to court, and the court appoints a receiver. Once crystallized, the now-fixed-rate security cannot be sold, and the lender may take possession of it.

(2 points @ 2 marks each = 4 marks)