Term and Definition: Floating in Law
The term “Floating” in a legal context refers to various situations in which rights, obligations, or securities are not static, but dynamically tied to changing circumstances. Floating can occur in different areas of law, especially in business, finance, and contract law. The concept is particularly significant in the field of credit security, tax law, and employment law. The precise meaning and legal structuring always depend on the specific regulatory context.
Floating in Credit and Security Law
Floating Charge
General Description
A “Floating Charge” is a special form of security for loans in Anglo-American law, particularly in England and Wales. This security does not attach to specific, individually listed assets, but rather to a fluctuating pool of assets, such as all inventory or receivables of a company. Until the occurrence of a so-called “crystallisation event,” such as insolvency, the assets remain freely available to the company.
Distinction from Fixed Security
In contrast to a fixed security (Fixed Charge), a Floating Charge involves no immediate restriction on the disposition of the secured asset. Rights from a Floating Charge transform into a rigid security only upon the occurrence of certain events. Thus, the Floating Charge only becomes a fixed security (“crystallised”) when such events occur.
Legal Relevance and Protection
Floating Charges provide creditors with a means of securing claims against fluctuating pools of assets, without impeding regular business transactions. However, they do carry risks regarding insolvency challenges and questions of priority, as prior fixed securities or certain preferential claims may take precedence in insolvency proceedings.
Floating Lien under US Law
In US law, the term “Floating Lien” describes similar flexibility: it typically applies to inventory or fluctuating receivables whose composition is constantly changing through ongoing business transactions. The legal framework is usually Article 9 of the Uniform Commercial Code (U.C.C.), which governs security interests in movable property.
Floating in Tax Law
Tax Assessment Basis and Floating
Floating can also play a role in tax law, for example when tax assessment bases are variable or depend on economic events that are continuously changing. For instance, floating clauses are found in performance-based licensing agreements or compensation arrangements relevant to income tax.
Legal Consequences and Tax Treatment
Variable assessment bases in tax law can require ongoing adjustments, for instance during tax audits. Tax recognition of such floating arrangements depends on the clarity and traceability of the criteria used for variable assessment.
Floating in Contract and Corporate Law
Floating Clauses in Contracts
In civil contracts, floating clauses are frequently used, such as in leases, contracts for work, or supply agreements. These are provisions where performance or remuneration conditions are tied to external indices, exchange rates, or market prices.
Requirements and Limits
Floating clauses must be drafted so that their legal consequences are predictable and calculable. Unclear or abusively vague floating provisions may be deemed invalid under § 138 or § 307 BGB (abuse of positions, control of standard terms).
Floating Concepts in Corporate Law
In company law, “Floating” can refer to flexible allocation of shares or variable profit participation, as seen in investment funds or certain corporate forms with variable capital. Legally, it is always necessary to ensure transparency, equal treatment of shareholders, and proper documentation.
Floating in Labor Law
Variable Remuneration and Floating
In employment relationships, floating is particularly applied to variable remuneration arrangements. Bonuses, premiums, or performance-related pay components are linked to certain indices or company performance metrics.
Requirements for Effectiveness
For floating provisions in employment contracts, it is required that performance criteria are defined transparently, comprehensibly, and verifiably. Arbitrary or intransparent floating clauses may be invalid under § 307 (1), sentence 2 BGB. Regular review and adjustment of the criteria are essential to prevent labor disputes.
Floating in Banking Regulatory Practice
Floating Rate Notes
In the area of financial instruments, Floating Rate Notes (FRN) are particularly relevant. These debt securities provide for a variable interest rate which is linked to a reference rate (such as Euribor) and regularly adjusted. Legal requirements for prospectus disclosures and transparency are governed by the German Securities Trading Act (WpHG) and the Prospectus Regulation.
Floating under the Payment Services Supervision Act (ZAG)
The ZAG regulates payment service providers whose business models frequently rely on transaction-based fees calculated according to floating principles. It must be ensured that price adjustment clauses comply with the transparency and information obligations pursuant to Art. 248 EGBGB.
Risks and Legal Protection in Floating
Risks of Abuse and Legal Protection Mechanisms
Floating structures are always associated with specific risks. Creditors face the risk of subsequent deterioration or devaluation of their security interest. Contractual partners may be disadvantaged by vaguely worded floating clauses. Legal protection is provided by requirements of transparency, the principle of certainty of regulations, and through judicial review of security agreements and contracts.
Insolvency Challenge and Floating Securities
In the event of insolvency, floating securities may be subject to avoidance pursuant to § 129 et seq. InsO, if there is an abusive preference of certain creditors or improper granting of security.
Summary
In law, floating refers to various dynamic mechanisms, especially used with credit securities, contracts, tax assessments, and financial instruments. Key legal requirements for such structures are transparency, certainty, and safeguarding the interests of all parties involved. Careful contractual drafting and adherence to insolvency and regulatory requirements are essential for legal effectiveness and enforceability.
Frequently Asked Questions
Is there a special disclosure obligation to the customer in floating?
In a legal context, special disclosure obligations must be observed in the use of floating arrangements. Providers of floating services must comprehensively inform their clients of all material aspects of floating in accordance with their civil law duty to ensure safety. This particularly includes informing clients about potential health risks (e.g., in the case of cardiovascular diseases, epilepsy, pregnancy, or open wounds), potential side effects such as circulatory problems or skin irritations caused by saltwater, as well as hygiene and safety measures in the floating tank. The disclosure must be timely, understandable, and traceable, for example, through a written consent form or a detailed information sheet signed by the customer before beginning use. If the provider fails to give this information, they may be held liable if the customer suffers harm due to lack of information. The exact requirements for disclosure obligations may vary by federal state and current case law.
What legal hygiene requirements apply to floating facilities?
Operating floating facilities in Germany is subject to strict statutory hygiene regulations, particularly under the Infection Protection Act (IfSG) and relevant regulations for public baths and similar establishments. Operators are required to regularly test, document, and treat the water quality in floating tanks in accordance with disinfection requirements. Proof must be provided of the use of filters and disinfectants (e.g., chlorine, UV filters), to prevent the spread of germs and pathogens. In addition, structural requirements—such as ventilation, drainage, and material properties—must also be observed. Compliance with these regulations is generally monitored by the competent health authority, which conducts random or case-based inspections. Violations can result in substantial fines or even closure of the facility.
Who is liable in case of accidents or health damages during floating?
Legally, operators of floating facilities are generally liable for damages suffered by customers during use, provided these arise from a breach of safety or disclosure obligations. Typical examples include slipping on wet floors, insufficiently cleaned facilities, or poorly maintained equipment. Operators may also be liable for health damages resulting from improper water treatment (e.g., due to germs or undeclared additives) or failure to inform about contraindications. The terms and conditions may restrict liability to some extent, but not for intent, gross negligence, or for damages to life, body, and health (§ 309 No. 7 BGB). It is highly recommended for operators to take out business liability insurance to cover potential claims for damages.
May floating facilities be operated without official approval?
Whether official approval is required to operate a floating facility in Germany depends on the federal state and the nature of the establishment. If it is a commercial, publicly accessible wellness facility, registration under trade law is generally required. In addition, building and water law permits may be necessary, particularly if structural changes are made or large volumes of water are involved. The responsible health authority must often be notified beforehand, for example to verify hygiene requirements. Without the necessary permits, regulatory consequences up to closure of the facility may ensue.
Do customers need to give written consent before using floating?
From a legal perspective, it is advisable for operators to obtain written consent from customers before use. This serves as proof that the customer has been informed of possible risks and agrees to the procedure. In cases where a contraindication exists, written confirmation additionally protects the operator from liability risks. Consent based on insufficient or misleading information, however, is invalid. Data protection aspects must also be observed if health data are collected and stored. Here, the GDPR applies, requiring explicit consent for data processing.
What requirements apply to advertising with health-related claims?
Health-related advertising statements for floating services are subject to strict requirements under the German Act on Advertising of Medicinal Products (HWG) and the Act Against Unfair Competition (UWG). It is not permissible to make general claims that floating has healing, alleviating, or diagnostic effects unless these are scientifically proven and substantiated. Claims such as “Floating heals back pain” or “Floating combats depression” can be challenged if their effectiveness is not supported by sound studies. However, statements regarding general well-being or relaxation are allowed, as long as they do not appear to be medical treatment promises.
Are floating providers subject to notification requirements for infectious diseases?
According to the Infection Protection Act (IfSG), operators of floating facilities are required to notify authorities if a notifiable infectious disease such as Legionellosis is detected in customers in connection with the use of the facility. Furthermore, the operator is obliged to immediately inform the health authority and cooperate with it in the event of disease outbreaks (e.g., increased skin or eye infections). Regular maintenance and disinfection measures should also be documented in order to be able to demonstrate compliance with the relevant hygiene requirements if necessary.
