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Chapter 3.2 : Loan Capital - Coggle Diagram
Chapter 3.2 : Loan Capital
DEBENTURES
can be a document issued to lender and a self contained security entitling the holder to take action in own name
reality promises to repay the borrowed and are carried out under the company's seal
merely a promise to repay the borrowed
There is no precise legal meaning attached to the word debenture
Chitty J said in Levy v Abercorris Slate & Slab Co :
a debenture means a document which either creates a debt or acknowledges it, and any document which fulfills either of those conditions is a debenture
Section 2 (1) of Companies Act 2016:
The definition of debentures is singularly unhelpful.
Debenture includes debenture stock, bonds, sukuk, notes and any other securities of a corporation whether constituting a charge on the assets of the corporation or not
Debenture which is not secured by a charge over the property of the company is an unsecured debenture.
the holder is the unsecured creditor of company
But when the asset or property of the company is charged to the debenture holder, it is guarantee debenture
its holder is the secured creditor.
Charges
Fixed charge
A form of security attaches to a particular, identifiable property of a corporation
Property charge-land-will confer interest to charge not ownership
Variable assets-debt owing to a corporation
In order to make sure the payment of debt, the fixed charge's holder may force the sale of the property
In respect to payment of debt, he takes priority over other creditors
Floating charge
Crystallization of floating charge
Floating charges must be registered failing which the charge will fail as it cannot create a fixed charge.
The events that leads to crystallization are :
:!: The winding up of a company
:!: The appointment of a receiver
:!: The cessation of business as a going concern
:red_cross: a particular charge attached on the assets of a corporation.
:check: be created against all the characteristics of corporation, no matter present or in the future.
A floating charge is a form of security granted to creditors over general assets of corporations which may change occasionally in the normal process of business such as stock, share and etc.
The corporation can continue to use the assets in its business until an event of default happens and the charge crystallizes
The secured creditor can realize the assets to recover his debt, usually by appointing an administrative receiver, and acquire the net proceeds of sale subject to the prior claims of the preferential creditors (e.g. Customs & Excise or Inland Revenue)
Case: Re Yorkshire Woolcombers Association [1930]
REGISTRATION
Section 352 (3)
Money secured thereby still immediately become payable
Section 361
The court may sansaction registration after the expiration of the 30 days if an acceptable explanation (the grounds are to be specified) is given
Section 352 (1)
Where a charge is created it need to be registered within 30 days after the date of creation without prejudice to any contract or obligation for repayment
If not it will become void against liquidator and creditor of the company and when a charge become void
PRIORITY OF CHARGES
General rule
As a general rule, secured creditors will have priority over unsecured creditors.
Among secured creditors, the fixed chargee will have priority over the floating charge.
Among unsecured creditors, the preferential creditors listed in Section 392 of Companies Act 2016 will have priority over other unsecured creditors.
-Where the equities are equal, the first in time prevails.
Exceptions
Sometimes, a subsequent lender will include a clause in his charge to the effect that the subsequent charge will rank in pari passu with or in priority to an earlier floating charge.
A charge will lost its priority if its not registered as required under Companies Act.