Fixed charge

Put simply, a fixed charge says to the borrower: this particular asset is spoken for. You can keep using it, but you can’t sell it, swap it or offer it to someone else as security without the lender’s say-so. The test that separates it from other kinds of security is control.

How a fixed charge works in practice

A lender taking a fixed charge names or clearly describes the assets it covers. Typical examples in Australian business lending include:

• plant and machinery, such as a CNC router or a commercial oven
• trucks, utes and earthmoving gear
• shares in a company or units in a trust
• money held in a nominated account the lender controls, such as a term deposit

The business keeps the asset and uses it day to day. What it gives up is the right to deal with it freely. If the owner wants to sell, the lender either gets paid out from the proceeds or agrees to move its security onto a replacement item.

Land works a little differently. Real property isn’t covered by the national personal property regime, so a lender’s fixed security over a building or a block is a mortgage registered with the state land registry. See first mortgage for how that ranks.

What changed with the PPSA

Before 30 January 2012, lawyers drew a sharp line between fixed and floating charges. The Personal Property Securities Act replaced that language for personal property with the umbrella idea of a security interest, registered on the PPSR.

The old distinction didn’t vanish, though. The PPSA sorts collateral into circulating and non-circulating assets, and the Corporations Act uses that split to decide who gets paid first when a company fails. A fixed charge is now, broadly, a security interest over non-circulating assets. You’ll still hear bankers and accountants say “fixed charge” because it’s shorter.

One detail worth knowing: the label written on the document doesn’t settle the question. If the lender lets the business sell or use the assets as it likes without consent, the law may treat the security as circulating anyway. Real control is what counts.

Not sure what your current lender holds over the business? Ask us to help you work it out.

Why lenders like fixed security

The big advantage shows up in insolvency. Under the Corporations Act, certain employee entitlements in a liquidation, such as unpaid wages and leave, are paid ahead of a lender’s circulating security if the company’s free assets fall short. That priority doesn’t reach assets held under fixed, non-circulating security. A lender with a fixed charge over a $200k machine can generally look to that machine without employee claims cutting in front.

There’s another protection. A circulating security interest granted in the six months before a company enters administration or liquidation can be set aside, except to the extent new money was advanced at the time. Fixed security isn’t caught by that particular rule.

For borrowers, the upshot is practical: a lender offered strong fixed security over valuable, easy-to-sell assets may lend more, for longer, at a lower total cost.

An Australian example

A joinery business in Bendigo has a $90k equipment loan secured over its edgebander. Three years in, a newer model comes out and the owner arranges to trade the old machine in. The dealer’s PPSR search shows the lender’s security interest over the edgebander, so the dealer won’t take it without a release. The owner calls the lender, who agrees to apply the trade-in value to the loan and take security over the new machine instead. The deal goes through in a week. Had the owner sold the machine privately without telling anyone, the buyer could have ended up with an asset still subject to the lender’s interest.

Related terms

• Floating charge: security over a changing pool of trading assets.
• General security agreement: the modern document that often combines both.
• Chattel: movable property such as equipment and vehicles.
• Debenture: an older term for a company’s charge document.

Using equipment and assets as security

If your business owns machinery, vehicles or other gear with real resale value, that can open up equipment finance or a broader secured business loan. To find out what fits, send us a quick enquiry: it’s roughly a minute of your time, and your credit score is left alone when you do. We keep it in-house rather than broadcasting it to the market, and someone who understands asset-backed lending will call you. Listing your assets and existing finance accurately lets us match you properly from the start.

Tell us about your assets →