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27th June 2022
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HomeProperty ArticlesWhat is a floating charge?

What is a floating charge?

What is a floating charge? A FLOATING CHARGE, attached to the assets of a company, is one method employed by banks in Cyprus to ‘secure’ a loan (or a group of loans). It is a charge on both the company’s fixed assets (land, buildings, equipment and machinery) and non-fixed assets (reserves, cash, and/or trade receivables).

A company may make unimpeded use of its reserves while the loan is being serviced. On the registration of a floating charge the debtor issues a debenture to the creditor. This debenture also constitutes a certain type of agreement governed by specific terms and conditions. Consolidating a security in the event a debtor company is placed in liquidation and/or under receivership is one of the most common terms of such an agreement. The receiver’s task is to ‘dispose’ off all the company’s assets (at ‘fair’ value) so as to allow repayment of the company’s debt obligations.

Note also that a company may continue to dispose of its assets until these are consolidated by the bank.

In the event a debtor fails to meet his or her debt obligations, the floating charge is converted into a fixed charge, and ownership rights may be ‘transferred’ to the bank. This conversion into a fixed charge (called ‘crystallisation‘) essentially freezes the assets against which the debtor has borrowed so that the debtor can no longer sell the assets or prevent their seizure by the bank. All assets that are not collateralised with another creditor may be incorporated into the fund securing the loan without the need to conclude any additional agreement securing the loan for the benefit of the same creditor.

During the stage prior to the consolidation of the assets, the floating charge continues to fluctuate depending on the loan.

The owner of a floating interest rate agreement cannot exercise ownership rights over the assets prior to the crystallisation of the floating charge. The conditions that can lead to the consolidation or freezing of assets are explicitly stated in the terms of the loan, and that is why all borrowers should carefully review these terms before signing. In a loan agreement, a typical clause activating the freezing of assets is that this consolidation is automatically triggered once the debtor fails to meet his or her debt obligations. Once the floating charge is thus ‘crystallised’, the loan becomes enforceable and is secured against any assets belonging to the company at that moment.

Although in theory after consolidation has occurred the debtor cannot manage his or her now-frozen assets, as long as the creditor has not appointed an official receiver/administrator the floating charge remains in place until the creditor takes concrete action.


To recap, the floating charge applies to a debtor’s current and future assets and can be converted into a fixed charge in the event one of the conditions for consolidating the assets is triggered, or once a creditor appoints a receiver/administrator. A company may operate normally and seamlessly until such time as the assets are consolidated.

Entrepreneurs therefore ought to carefully study the terms of a loan and to seek advice and clarifications from their consultants.

Dr. George Mountis
Managing Partner
Delfi Partners & Company



  1. Nigel, yes thanks for that.

    I suppose there is a legacy of problems arising from the failure of many Lawyers in Cyprus to conduct proper searches of the Land Registry on behalf of their clients. I am not aware that my own Lawyer conducted any searches on my own purchase some eight years ago.

    When the sale and purchase contract was presented for our signature it casually disclosed for the first time the existence of no less than three developer mortgages secured on the development, I queried this. My Lawyer informed me that this was quite normal in Cyprus and if we wanted to buy any new property here, then we would have to accept that there would be such charges and rely upon the protection of the mysterious ‘Specific Performance’.

    I had the impression that if I had not seen the disclosure, my attention would not have been drawn to it.

    As you say the problem is compounded by the fact that the register is still not available for public scrutiny. Eight years ago you had to prove that you had an interest in the property in the form of a registered sale and purchase contract BEFORE you get conduct an N50 search.

    Catch 22 I think.

    As far as the Companies Registration Office is concerned, I don’t know if one can get access to the filings in the way one can in the UK. I wonder if anyone out there knows?

    Good article anyway.

  2. Scruffy; I think floating charges that affect land and buildings are supposed be registered at both the Land Registry and with the Cyprus Registrar of Companies (assuming the Company is incorporated in Cyprus).

    Therefore, in theory any diligent Lawyer acting on behalf of a prospective purchaser of property should be able to discover them.

    Of course we know that, in Cyprus the Land Registry records have been concealed from prying eyes, the administration of the office may be corrupt, the Registrar of Companies Department may be systemically deficient and many charges may never have been registered.

    So there have always been plenty of excuses for the failings of the legal profession.

    • @Johnny Cyprus on 2014/11/03 at 12:45 pm – Floating charges are indeed registered as an encumbrance against the deed for a property. I’ve seen several I’ve received.

      Any half-decent lawyer can get a title search done on your behalf – or you can get one yourself (if you’re in Cyprus) by following the guide at New title search procedures in Cyprus.

      One thing that does not help is that the laws in the UK are different to those of Cyprus. For example:

      In England and Wales

      The Land Registry operates an open register which means that copies of all documents referred to on the registered title can be obtained by anyone, subject to payment of the necessary fee.

      In Cyprus

      Information or documents in the public register of Titles connected with the ownership of immovable properties and charges or encumbrances lodged against them are treated as confidential and unavailable for public inspection.

  3. Perhaps this would explain why our now bankrupt developer still claims that there are no outstanding mortgages on the land on which our property was built.

    The bank have told us that it is a floating charge that is outstanding on our project.

    Given that this may stem from a clause in the developer’s original loan agreement, it may also explain why LR searches (if done) at the time of purchases, would not reveal hidden mortgages, as the clause would have no reason to be invoked until the bank appointed an administrator.

    If this is so, then how could it ever be possible for anyone to safeguard against any potential future problem.
    The only way this would come to light would be if a lawyer was able to check the actual loan applications of a developer to see if the clause was inserted.

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