What is the priority order of charges when comparing a fixed and floating charge?

The priority order of charges in the context of secured lending is crucial for understanding how creditors will be repaid in the event of a borrower defaulting on their obligations. A fixed charge is a specific charge over identifiable assets, giving the creditor control over those assets. Because of this control, the fixed charge has a higher priority when it comes to repayment.

In contrast, a floating charge is more flexible and allows the borrower to use the assets in their ordinary course of business until a default occurs. Once a default happens, the floating charge "crystallizes" into a fixed charge over the remaining assets. However, until that crystallization occurs, a floating charge does not provide the same level of security as a fixed charge.

When a company goes into liquidation or is wound up, creditors with fixed charges are repaid from the proceeds of the sale of the charged assets first. Floating charge holders can only claim against the assets once fixed charge creditors have been satisfied. This means fixed charges take precedence, making the correct answer regarding the comparison between fixed and floating charges clear.