Fixed Charge — Meaning, How It Works & Examples

What is a fixed charge?

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:

• Attachment to a clearly described asset (fixed location or serial number).
• Borrower restrictions on disposal, encumbrance or removal of the asset.
• Lender control or step-in rights if the borrower defaults.
• Priority ahead of unsecured creditors for that asset, subject to registration and other statutory priorities.

A fixed charge is a common tool where lenders need certainty over value and enforcement outcomes — particularly for long-lived assets.

How a fixed charge works

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:

• Identification: The asset must be described so it can be distinguished from the company's other assets (e.g., "Plant and machinery located at 12 Industrial Way, serial numbers A123–A130").
• Control and prohibition: The borrower is typically prohibited from selling, leasing, mortgaging or otherwise dealing with the asset without lender consent. Lender consent may be conditional.
• Registration: To protect priority and enforceability against third parties, the charge is registered on the relevant registers.
• Enforcement triggers: Common triggers include insolvency events, breach of covenants, failure to pay or appointment of an administrator. On enforcement, the secured party may appoint a receiver, take possession of the asset, or sell it to recover secured debt.
• Interaction with insolvency processes: If an administrator or liquidator is appointed, the fixed charge continues to attach to the asset but enforcement and recovery must comply with statutory processes under the Corporations Act and related regimes.

For more on enforcement processes, consult specialist insolvency and security guidance.

Assets typically subject to a fixed charge

Fixed charges work best where the asset is stable, identifiable and not frequently traded. Typical examples include:

• Land and buildings (often using mortgage-style documentation).
• Plant and heavy machinery with serial numbers.
• Specific vehicles (trucks, utes) or assets identified by VIN.
• Named receivables or deeds of assignment over a particular account.
• Major capital equipment and tailored installations.

Assets less suitable for a fixed charge:

• Stock/inventory that turns over regularly.
• A general pool of receivables that fluctuate daily.
• Cash at bank (often better secured by a charge that permits bank set-off).

For asset-backed lending products oriented to business equipment, lenders often combine fixed security over major items with other facilities.

Creating and registering a fixed charge

Steps to create and perfect a fixed charge typically include:

1. Documentation
   • Prepare a security agreement or deed that identifies charged assets, secured obligations, enforcement rights and covenants.
   • Include execution blocks for authorised signatories and witness/es where needed.

2. Signatures and execution
   • Ensure the company executes with valid authority (board resolution or director consent where required).
   • If a deed is used, observe formality requirements.

3. Registration and perfection
   • Register the charge where required to preserve priority:
     • Company charges often require notification to ASIC under the Corporations Act within prescribed timeframes. See ASIC guidance at https://asic.gov.au/.
     • For personal property, lodge a financing statement on the Personal Property Securities Register (PPSR). See https://www.ppsr.gov.au/ for PPSR registration steps and search capability.
   • If the security covers fixtures or land-related interests, verify local land registry or mortgage registration requirements.

4. Why register?
   • Registration gives constructive notice to third parties and preserves priority against subsequent secured or unsecured creditors.
   • Failure to register can lead to the charge being void against a liquidator or administrator and loss of priority. See Corporations Act provisions at https://www.legislation.gov.au/Series/C2004A00818.

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, enforcement and insolvency impact

Priority and enforcement are central to the value of a fixed charge.

• Priority: A validly created and registered fixed charge generally ranks ahead of unsecured creditors for proceeds from the charged asset. Competing registered security interests may outrank earlier charges depending on registration dates and priority rules under the PPSR and Corporations Act.
• Enforcement routes:
  • Appointment of a receiver or receiver and manager to collect income or sell assets.
  • Taking possession and sale of the charged asset.
  • Court-ordered remedies (injunctions, directions for sale).
• Insolvency interaction:
  • In administration or liquidation, a fixed charge holder can enforce against the secured asset but must respect statutory moratoriums and priorities. The receiver acts for the charge holder to realise value; any surplus after secured debt may form part of company property for unsecured creditors.
  • Certain statutory charges (e.g., employee entitlements, taxation) may have super-priority or special treatment under the Corporations Act.

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.

Fixed charge vs floating charge

A concise comparison to highlight the commercial and legal differences:

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.

Fixed Charge Coverage Ratio (FCCR) — what it is and a simple example

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:

• Lender variant (simple): FCCR = EBITDA / Fixed Charges
• Lender variant (tax-adjusted): FCCR = (EBITDA - Taxes) / Fixed Charges

Worked example (illustrative, AUD):

• EBITDA (last 12 months): $1,200,000
• Fixed charges (interest + principal repayment + leases): $100,000

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.

Drafting considerations and common clauses

When drafting a fixed charge, aim for clarity and enforceability. Practical checklist:

• Definitions: Clear definition of "Charged Assets" with identifying details (serial numbers, addresses, titles).
• Grant clause: Unambiguous grant of security and description of secured obligations.
• Prohibition on disposal: Express prohibition on sale, lease, charge or removal without lender consent.
• Step-in and inspection rights: Rights for lender/receiver to inspect, insure, repair and seize the asset on default.
• Enforcement mechanics: Processes for appointing a receiver, sale procedures and application of proceeds.
• Registration wording: Explicit authorisation to register on PPSR and notify ASIC where applicable.
• Priority preservation: Clauses addressing ranking against other security and dealing with subordinate securities.
• Covenants and reporting: Borrower covenants on insurance, maintenance, use and notification of material events.
• PPSR and ASIC compliance: Authority for secured party to make financing statements and amendments.
• Termination and release: Steps to discharge the charge on repayment, including evidence required.

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.

Practical examples

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.

Key risks and what to watch for

For lenders:

• "Floating" attachment risk: Poorly drafted descriptions can convert an intended fixed charge into a floating one, undermining priority.
• Late or defective registration on PPSR/ASIC: May result in loss of priority or invalidation against liquidators.
• Mixed-use assets: Assets used in trade may be hard to classify as fixed — clarify use and control rights.

For borrowers:

• Overly broad covenants that lock core operating assets or prevent normal trading.
• Unexpected encumbrances causing breach of existing security terms.

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.

FAQ

Key takeaways

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.

Further reading

• Personal Property Securities Register (PPSR): https://www.ppsr.gov.au/
• ASIC – company charges information: https://asic.gov.au/
• Corporations Act 2001 (legislation): https://www.legislation.gov.au/Series/C2004A00818
• Australian Financial Security Authority (AFSA): https://www.afsa.gov.au/

This article is general information only and is not legal, tax or financial advice.