A fixed charge is a type of security interest that attaches to a specific, identifiable asset of a company and restricts the borrower's ability to deal with that asset without the lender's consent. Unlike a floating charge that hovers over a class of changing assets, a fixed charge locks in control over a named asset (for example, a particular building, machine or named receivable).
Core characteristics are:
A fixed charge is a common tool where lenders need certainty over value and enforcement outcomes — particularly for long-lived assets.
A fixed charge is created by contract (a security agreement or deed) that identifies the charged asset and sets out the rights and remedies of the secured party. Key operational points:
For more on enforcement processes, consult specialist insolvency and security guidance.
Fixed charges work best where the asset is stable, identifiable and not frequently traded. Typical examples include:
Assets less suitable for a fixed charge:
For asset-backed lending products oriented to business equipment, lenders often combine fixed security over major items with other facilities.
Steps to create and perfect a fixed charge typically include:
Administrative bodies and practical resources: ASIC (https://asic.gov.au/), PPSR (https://www.ppsr.gov.au/) and AFSA (https://www.afsa.gov.au/). For questions about formality or registration timing, consult a qualified lawyer.
Priority and enforcement are central to the value of a fixed charge.
Registrar and statutory compliance matters in insolvency often involve checking PPSR registrations and ASIC company charge notices. For procedural detail see AFSA and ASIC resources.
A concise comparison to highlight the commercial and legal differences:
| Feature | Fixed charge | Floating charge |
|---|---|---|
| Asset scope | Specifically identified asset(s) | Class of assets that change over time |
| Borrower control | Strict restriction on dealing | Borrower may trade in assets until crystallisation |
| Enforcement | Lender can take possession or appoint receiver | Lender typically enforces after crystallisation |
| Registration | Register on PPSR/ASIC for perfection | Also register, but classification affects priority |
| Insolvency treatment | Generally stronger priority over the charged asset | Often subject to preferential creditor claims and potential subordination |
| Typical use | Land, plant, named receivables | Stock, book debts, cash flow based lending |
Floating and fixed structures are frequently used together in a facility: a fixed charge over core non-circulating assets and a floating charge over circulating assets. See more on floating charge.
The Fixed Charge Coverage Ratio (FCCR) is a financial covenant used by lenders to measure a borrower's ability to meet fixed financial obligations (interest, principal, lease payments) from operating cash flows.
Common variants of the formula:
Worked example (illustrative, AUD):
FCCR = 1,200,000 / 400,000 = 3.0
A lender covenant may require FCCR ≥ 1.5x. A covenant breach can trigger default, acceleration or enforcement — so FCCR is often monitored monthly or quarterly as part of covenant testing. Use FCCR alongside other metrics (leverage ratios, interest cover) in loan monitoring.
When drafting a fixed charge, aim for clarity and enforceability. Practical checklist:
A sample clause might read: "The Company grants to the Secured Party a first fixed charge over the Plant and Machinery described in Schedule A (the "Charged Assets"). The Company must not, without the prior written consent of the Secured Party, sell, dispose of, lease, encumber or permit any removal of the Charged Assets. The Secured Party is authorised to register such charge on the Personal Property Securities Register and to appoint a receiver on Event of Default."
Include an express statement authorising PPSR registration to avoid disputes about perfection. Seek legal drafting to ensure compliance with statutory formality.
Example 1 — Plant and machinery: Lender takes a fixed charge over a factory press (serial no. P-455). The borrower cannot sell or relocate the press without consent. On default, the lender appoints a receiver, sells the press and applies proceeds to the secured debt. Because the asset was registered on PPSR and noted with ASIC where relevant, the lender recovers priority and limits unsecured loss.
Example 2 — Specific receivable: Lender takes a fixed charge over a single contract debtor payment (a one-off large invoice). The debtor pays into a designated account controlled by the lender. If the borrower enters liquidation before payment, the lender enforces the charge to collect that particular receivable rather than being lumped into a floating pool.
These scenarios show why specificity and registration matter for real enforcement outcomes.
For lenders:
For borrowers:
Common disputes arise over whether a charge is fixed or floating, adequacy of asset identification, and whether the lender exercised enforcement rights lawfully. Directors should note the practical restriction a fixed charge places on asset disposal and ensure board approval and commercial awareness when granting security.
If not registered as required, the charge can be void against a liquidator and you may lose priority. Timely PPSR and ASIC registration is essential.
Courts look at the substance (control, restrictions, ability to deal). Poor drafting can lead a purported fixed charge to be characterised as floating. Conversion is a matter of legal characterisation, not a simple contractual amendment.
Registration periods vary (up to 7 years for some financing statements). Renewals or amendments may be required. Check PPSR guidance at https://www.ppsr.gov.au/.
Yes, where the security agreement expressly permits appointment on default. Appointment must comply with the agreement and statutory duties.
Often security documents include proceeds clauses; otherwise recovery of proceeds can be contested. Draft a clear proceeds/after-acquired property clause.
The liquidator recognises valid fixed charges; the secured creditor's receiver usually realises the asset. Any surplus after secured debts may vest in the liquidator for distribution.
No. Sample wording is illustrative only. Always obtain tailored legal drafting for your transaction.
Directors should assess commercial necessity, obtain appropriate approvals, ensure accurate asset descriptions and understand restrictions on disposal and ongoing trading.
A fixed charge is a powerful form of security when the asset is identifiable and stable — it gives creditors stronger enforcement rights and priority over that specific asset. It requires precise drafting and timely registration on the PPSR or ASIC to preserve those rights. Lenders should take care with asset descriptions and enforcement mechanics; borrowers should understand the practical limits on dealing with charged assets and seek appropriate approvals.
This article is general information only and is not legal, tax or financial advice.