Fixed charge

A fixed charge is the English law security interest over a specific asset: land and buildings, a ship, machinery, shares or intellectual property rights. The company that granted it cannot dispose of the asset without the lender’s consent. On default, the lender is paid first out of the value of this asset. A floating charge, by contrast, covers a changing pool of assets (inventory, receivables or cash) that the company deals with freely until crystallisation. The distinction matters in insolvency. Preferential debts rank ahead of floating charge holders when the assets available for general creditors are insufficient to pay them (section 175 of the Insolvency Act 1986). The liquidator, administrator or receiver also sets aside a prescribed part of the company’s net property for unsecured creditors, taken from what the floating charge holder receives (section 176A). Both rules apply to the floating charge only. English banks take an all monies debenture that places the assets suited to it under fixed charge and everything else under floating charge. Like any charge, a fixed charge is registered at Companies House within 21 days of its creation.

The English subsidiary of an industrial group guarantees a €90m financing. It grants a fixed charge over its plant, valued at €35m, and a floating charge over its inventory and receivables. In administration, the lender is paid first out of the sale price of the plant. The proceeds of the inventory and receivables go first to the preferential debts and to the prescribed part reserved for unsecured creditors.

• Check which assets fall under the fixed charge and which disposals are permitted without the lender’s consent.
• Negotiate the release of the charge on the permitted sale of an asset.
• Check that the charge is registered at Companies House within 21 days.