In the context of a company facing insolvency, what is a fixed charge?

A fixed charge refers to a security interest that a creditor has over specific assets of a company, particularly in the context of securing a loan or other financing. When a company faces insolvency, a fixed charge means that the creditor has a claim to certain designated assets in the event of default, allowing the creditor to recover their funds through the sale or realization of those assets.

This type of charge typically applies to tangible assets like real estate, machinery, or equipment, which are clearly identified and cannot be sold or disposed of by the borrower without the creditor's consent. Thus, the importance of a fixed charge lies in its ability to provide lenders with a prioritized right to specific collateral, enhancing their security over more general or unsecured creditors, who do not have such designated claims.

Insolvency situations highlight the roles of secured versus unsecured debts, making the concept of fixed charges particularly relevant; unlike unsecured debts, which have no collateral backing, fixed charges provide a layer of protection for creditors by tying their security to specific assets of the borrowing company.