A fixed charge is a form of security over a specific asset or assets which allows the chargeholder (usually the lender or finance provider) to exert control over dealings with that asset. Rather than transferring the legal or beneficial ownership to the chargeholder, as is the case with a mortgage, a fixed charge creates an equitable interest in the asset subject to the charge. This means that the holder of the fixed charge must consent to the sale of the asset or other dealings with it.
When purchasing an asset from a company, it is important to check the charges register at Companies House to see whether there are any fixed or floating charges registered on property of the company. If so, the company may not be able to sell the asset to the purchaser with clear title.
A fixed charge is created when the owner of the asset (usually the borrower or debtor) gives the creditor or lender a security interest in identifiable assets. The main characteristics of a fixed charge which must be met to create a fixed charge are:
- the lender must have control over the asset. Without control, the charge will be a floating charge rather than a fixed charge, and will rank behind other charges.
- the fixed charge must relate to a contract where consideration/payment has been made and not just promised. Usually this will occur naturally due to the timing of the lending process.
Does the fixed charge need to be registered at Companies House?
A lender taking a fixed charge over assets as security for the commercial lending, should require and ensure that the charge is registered at Companies House within the 21 day time limit. If the charge is not registered by the deadline, then it will be void against an administrator, liquidator or other creditor of the borrowing company. Depending on the asset subject to the fixed charge, it may also be necessary to register the charge on other asset-specific registers.
A fixed charge given by an individual over personal assets is dealt with differently, through a Bill of Sale registration.
Whether you are providing finance to a company and want to understand your security options, or entering into a commercial loan agreement and are required to provide a fixed charge or sign a debenture, contact the friendly commercial finance team at Francis Wilks & Jones for advice.