What is a fixed charge?

What is a fixed charge?

• A. A charge on a class of assets of the company, present and future which class is in the ordinary course of the company's business, changing from time to time, and until the holders enforce the charge the company may carry on business and deal with the assets charged. It ranks after other charges.
• B. A charge that ranks after fixed charges in liquidation.
• C. A fixed charge is a protection given to a secured creditor relating to a specific asset of the company. It attaches to the asset as soon as the charge is created. Suited to fixed assets the company will retain for a long period of time. It ranks first in liquidation.
• D. A lien over cash in bank.

Answer: (C)

A fixed charge is a security interest over a specific asset (or a clearly identified class of assets) of the company that attaches to that asset as soon as the charge is created. Because it attaches to a particular asset, the company can continue to use and deal with the asset in ordinary operations, but the chargee has control over the asset and the company cannot dispose of it without the chargee’s consent. In liquidation, fixed charges generally rank ahead of other claims, including floating charges, giving the secured creditor priority over that asset. The other descriptions point to different concepts. A charge over a class of assets in the ordinary course of business that can change from time to time is characteristic of a floating charge, which does not attach to a single asset and typically allows the company to deal with the assets until enforcement. Describing a charge as ranking after fixed charges aligns with floating charges rather than defining a fixed charge. A lien over cash in a bank describes a different security arrangement and is not the typical fixed-charge structure on specific assets.

A fixed charge is a security interest over a specific asset (or a clearly identified class of assets) of the company that attaches to that asset as soon as the charge is created. Because it attaches to a particular asset, the company can continue to use and deal with the asset in ordinary operations, but the chargee has control over the asset and the company cannot dispose of it without the chargee’s consent. In liquidation, fixed charges generally rank ahead of other claims, including floating charges, giving the secured creditor priority over that asset.

The other descriptions point to different concepts. A charge over a class of assets in the ordinary course of business that can change from time to time is characteristic of a floating charge, which does not attach to a single asset and typically allows the company to deal with the assets until enforcement. Describing a charge as ranking after fixed charges aligns with floating charges rather than defining a fixed charge. A lien over cash in a bank describes a different security arrangement and is not the typical fixed-charge structure on specific assets.