fixed charge

A fixed charge is a form of security interest (a legal charge) over specific and identifiable property. A holder of a fixed charge may force the sale of the property in order to secure payment of a debt in the event that the debt is not paid, and takes priority over other creditors in respect to payment of debts, by having recourse to the assets secured. Fixed charges are acquired as means for creditors to have recourse to assets in default of repayment of a loan or other advance in the event of insolvency. Fixed charges take priority over floating charges.

Such charges must adequately specify the property over which the security interest is intended to apply. Fixed charges may be taken over real property, intellectual property (registered and unregistered) and other assets of a business. 

Fixed or Floating?

Whether or not a charge is fixed or floating will depend upon whether the person taking the security interest retains control over the assets in a practical sense. When the charge is granted, the lender should ensure that it is granted, inter alia, the right to sell the property, the right to the proceeds of the property in priority to other creditors of the borrower, and to restrict dealings with the property.

A holder of a fixed charge takes priority over a holder of a floating charge in insolvency. Ideally, a fixed charge will include an irrevocable power of attorney and right to sell the assets which are subject to the charge in the event of a default.

Priority of Fixed Charges

Fixed charges take priority over floating charges, because fixed charges are legal charges, whereas floating charges are equitable charges; accordingly, to minimise disputes and obtain better security in advance of potential business disputes. fixed charges are preamble to floating charges.