What is a fixed charge?

The charge is created by a security agreement or deed that identifies the charged asset (for example "plant and machinery at 12 Industrial Way, serial numbers A123 to A130"), states the secured obligations and sets out the lender's rights and remedies. The company signs with proper authority, usually a board resolution, and the borrower is then prohibited from selling, leasing, mortgaging or removing the asset without consent, which may be conditional.

Enforcement is triggered by an insolvency event, a breach of covenants, a missed payment or the appointment of an administrator. The lender can appoint a receiver, take possession or sell the asset and apply the proceeds to the secured debt. If an administrator or liquidator is appointed, the charge still attaches to the asset, but enforcement has to follow the statutory processes under the Corporations Act, including any moratorium.

Fixed charges work best where the asset is stable, identifiable and not traded day to day: land and buildings (usually with mortgage-style documents), heavy machinery with serial numbers, specific vehicles identified by VIN, major capital equipment and installations, and a named receivable such as one large invoice paid into an account the lender controls.

They suit poorly assets that turn over: stock and inventory, a general pool of receivables that changes daily, and cash at bank, which is usually better secured by a charge that allows bank set-off. Where an asset is used in trade, control and use need to be spelt out, because a poorly drafted description can turn an intended fixed charge into a floating one and undermine priority. Courts look at substance, meaning the lender's actual control over the asset, not the label.

For personal property the lender lodges a financing statement on the Personal Property Securities Register, and for fixtures or land it checks the land registry or mortgage registration requirements. Registration gives third parties constructive notice and preserves priority against later secured and unsecured creditors; a charge that is not registered as required can be void against a liquidator or administrator. Registration periods vary, and some financing statements need renewing.

Priority between competing registered interests depends on registration dates and the PPSR and Corporations Act rules. Employee entitlements rank ahead of circulating security (a floating charge), not fixed security. The real risks to a fixed charge holder are an earlier or purchase money security interest in the same asset, an unperfected or late-registered interest vesting on insolvency, and the liquidator's costs of realising the asset. In an administration or liquidation the receiver realises the asset for the charge holder, any surplus goes back to unsecured creditors, and on repayment the lender discharges the charge and removes the registration.