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CHAPTER 4 : SECURITIES FOR BANKER'S ADVANCES 5C (LAND :desert_island:,…
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:white_flower: Security is some right or interest in property given to creditor/lender/banks so that event of debtor failing to pay his debt
:white_flower: The Creditor may reimburse himself for the debt
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:white_flower: Guarantee and indemnities
:white_flower: Shares and securites
:white_flower: Debentures
:white_flower: Life insurance policy
:white_flower: Land
:white_flower: Lien
:white_flower: Pledge
:white_flower: Letter of hypothecation
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:fireworks: Certain types of documents evidencing a debt of company
:fireworks: Debenture includes debentures stock, bonds, notes and others
:fireworks: A debenture a of a company is legal document acknowledging the indebtedness of the company to the debenture holder
:warning: All thing attach to the earth or permanently fastened to anything attached to the earth whether on below the surface
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- refers to a Legal Charge of specified property (ex: land, factory building, machinery)
- once fixed charge is created the chargor is not entitled to deal with the assets
- Refers to Equitable Charge which floats over the fluctuating assets of a company until it
- The charger retains ownership of the charged assets and can deal with them in the ordinary course of business
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-One can get the absolute title and it will last definitely.Has high market value than leasehold land
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-Expires at some date and when lease expire, right of possession will revert to the freeholder. Low market value as number of lease period reduces
:fireworks: The process of converting all floating charge assets to fixed charge in the event of default of repayment of loan
:fireworks: The debenture holder or bank need only to inform the borrower by letter their intention to convert floating charge to fixed charge
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:fireworks: Allows the company to dispose of those assets not covered by the fixed assets
:fireworks: 6 months of company’s winding up may be invalid
:fireworks: Some of the assets may not belong to the company
:fireworks: Certain preferential creditors may be paid in priority to debenture holders
:fireworks: The company may create a fixed charged in favor of third party
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:arrow_right: Value tends to appreciate over time. Urban land generally has higher value than rural land
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:fireworks: To sue for payment
:fireworks: To apply for foreclosure order
:fireworks: Petition for winding up of the company
:fireworks: Appoint a receiver Main duty is to realize the assets of the company and to settle company debts
4 rights of debenture holder such as Bank in relation to default payment made by their issuer of the debenture
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- A person appointed by or for the debenture holder to enforce his security
- The duties are to realize sufficient assets to pay the debenture holder
- Leave the company in the director’s hand to reconstitute the business and to repay the debenture holder
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- A person appointed to carry out the winding up the company
- The duties are to get in and realize the property of the company
- To pay its debt and to distribute the surplus among the members
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-An accurate valuation may prove exceedingly difficult however bank will insists a professional valuer to value the land
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-To check whether any caveat or any restriction in interest that can restrain the registration later on
-If charger is accompany, a search should also be made in respect of it at Register of Companies (SSM)
divide into 2 categories
:zap: General Insurance – comprised all insurance except the life insurance business
:zap: Life insurance – all insurance business connected to life policy
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-It is a process in retain possession towards pledging a land
-A banker may accept Lien as security for an advances
-A legal charge on land is affected by registration in the appropriate land register at Land Office
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-A charge must be stamped within one month of execution by all parties concerned namely lender and borrower
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:check: Right to grant a lease, sub-lease or exempt tenancy over land, subject to consent of the chargee
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It can be divided into 2 :
a) Receive rent from tenant of the land
b) Collect profit from business conducted on the land
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:sunny: No legal transfer of ownership, lender only has right to receive payment for value of property charged
:sunny: Use Form 16A to secure payment of an annuity or other periodic sum. To be effective, must be registered with respective land authorities
:sunny: Upon default, bank can sell property with assistance of court which will hold public auction
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:sunny: To discharge, use Form 16N and have it registered with appropriate land authority
:sunny: Involve right of lender to retain property under lien until debt secured by property concerned has been discharged
:sunny: Use Form19D send to respective land authorities which will in turn send form 16A to owner of property as notification. Land Authority will enter caveat on register document
:sunny: More difficult to seek the sale of land. Must get judgment first, then only apply to court for order of sale
:sunny: Bank cannot sell or process property, only has right to receive notice of proposed dealings whereby it can lodge protest
:sunny: To discharge, bank just gives written notice to respective land authority which will then cancel caveat
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Delivery of goods can divided into:
a) Actual delivery (possession)
b)Constructive delivery (symbolical)
-A form of possessory security
-Pledge involve the actual or constructive delivery possession of good by one person to another person
-Pledgor retain the ownership of good as security for debts of other obligations
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:zap: Insurance maybe define as the equitable transfer of the risk of a potential loss from one entity to a financially stronger entity.
-A right of one party over the property of another until the later or debtor fulfill certain obligation owed to the lien holder or creditor
-Ownership of property remains with borrower while lien holder only has possession
-Lien holder merely has a right to retain the property pending discharge or settlement of debt
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- Principle of Risk Transfer
- Principle of Indemnity which is to cut down loss and not to make profit
- Principle of pooling looses which sharing financial burden
- Payment of fortuitous losses which refers to unforeseen and unexpected event
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-When bank accept good as security such as raw material or loan but unable possession of goods, bank should take from owner of good letter of hypothecation
-Disadvantage-lack of control by lender and borrower. May be able to deal with them fraudulently.
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:zap: Life insurance policy is a contract between an insurance company and its customer the insured or policy owner
:zap: The insured agrees to pay to the insurer certain sums of money known as premium at periodic intervals.
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- Provides for the payment of a Fixed Capital Sum in the event of the insured’s or policy holder’s death
- Insured has to pay premium for life until death
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- Provides for the payment of a Capital Sum on a certain maturity date or on the insured’s death
- Insured has to pay premium until maturity only
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:zap: Contract of insurance is a contract of Uberrimai Fidei
:zap: Life policy must be assigned to a name beneficiary or nominee
:zap: Value of policy and surrender value appreciates or increase as more premiums are paid
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- Policy will lapsed or not valid if payment of premium by insured is not regular
- A contract may be void due to non-disclosure of all facts by insured to insurer
- Policy might not be valid because of a breach of covenant/term by the assured
- The assured must have an insurable interest in the life policy
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- Easily and accurately valued
- Stable and rising value
- The policy can be realized immediately
- Death of the insured immediately available to next of kin or nominated person
- The cost of taking the security to customer is relatively low
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:zap: It is a concept whereby the insured must demonstrate or show proof his relationship with the life insured that he would suffer a financial loss
:zap: Intentional self- injury
:zap: Suicide
:zap: Insanity
:zap: Intoxication-drunk
:zap: Drugs related to accidents
:zap: Childbirth or pregnancy
:zap: War, invasion & terrorism
:zap: Participate in army exercises
:zap: Venereal disease
:zap:Person below certain age (ex: 18)
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:zap: Preliminary
:zap: Deed of assignment
:zap: Notice of assignment
:zap: Custody or safe keeping of the life policy by the bank in fire proof cabinet
:forbidden: MAC 2106, OCT 2016 & JAN 2018
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:star: Principal Debtor/ promiser
The person on whose behalf the guarantee is given. Also known as borrower
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:star: Specific guarantee
Relates to a single debt only where a bank accepts a guarantee to cover single loan. Eg: fixed loan or term loan
:star: Continuing guarantee
Covers a series of transaction for instance in a overdraft facility. it guaranteed not only the existing overdraft at the time but also those in the future.
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GUARANTEE
:!: The guarantor assumes Secondary Liability until the borrower's default in payment
:!: There are three parties namely Principal debtor, Creditor and Guarantor
INDEMNITY
:!: The guarantor assumes Principal Liability once loan disbursed to borrower
:!: There are only two parties namely Creditor and Guarantor only
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:small_red_triangle_down: Also known as "Utmost Good Faith". The contract in order to be valid requires the parties to it to disclose all material facts in their possession and which may affect the contractual decision.
:check:Easy to take. Guarantor need to sign form only
:check: Guarantee usually have fixed and stable value. Bank can inspect salary slip.
:check: A guarantee is a collateral security and is an advantage if the borrower become bankrupt or goes into liquidation.
:check: Useful where borrower is unable to provide security such as property.
:check: Have standard bank form for such purpose.
:check: the guarantee's value depends wholly on the financial standing of the guarantor.
:check: If guarantor refuse to pay, the bank will have to take legal action to compel payment, which is expensive and time consuming.
:check: Guarantor may escape liability because of a technical defect in the security such as undue influence or misrepresentation.
:check: Bad feeling between guarantor and banker may result if guarantor is called upon to pay the debt.
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:check: Check financial standing of guarantor such as check his salary slip and letter of appointment
:check: It is prudent to have the guarantee in writing and not in oral
:check: Necessary terms and conditions must explain to guarantor
:check: Express provision is to be contained if guarantee indeed to extend to transactions already concluded
:check: The execution must be attested or witnessed by lawyer and stamped within one month
:spiral_note_pad: It is written instruction (letter) given by customer to his banker, instructing the banker that a named third party is authorized to do certain acts for the customer
:spiral_note_pad: A mandate is revokes upon death, mental incapacity and bankruptcy of the principal/ customer.
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- A share is not a sum of money but it an interest of a shareholder in the company measured by a sum of money and made up of various rights contained in the contract
- Normally bank will accept shares of Public Listed Company which is quoted on BURSA Malaysia such as Telekom and Maybank.
Unquoted shares are not acceptable for the following reason :
:star: Not easy to ascertain the value
:star: No ready market if bank to sell the shares later
:star: Investors are reluctant to invest in it
:star: Unquoted shares difficult to transfer
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:star: Title or possession can be transferred to the bank by way of Assignment and not by mere physical delivery or actual delivery of shares certificates.
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:pencil2: Registered shares : Owner's name and addresses are entered or registered in the company's register which shows the amount of stock they hold.
:pencil2: Bearer shares : No records are maintained in the issuer or company's securities register in respect of any charge.
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:pencil2: In normal tmes, stock enjoy stability of value
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:pencil2: For unquoted shares the bank may find difficulty in selling the shares of lack of ready market for them
:pencil2: For private company, its Artices of Association normally empower the directors to refuse to register a transfer of the company's share to anymore whom they may object
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