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Borrowing and Charges - Coggle Diagram
Borrowing and Charges
Registration of Charges
• Section 409: particulars of every charge created by a co over any property need to be delivered to the CRO, save for charges over non-registerable assets. Certain charges are not registerable e.g. charge created over an interest in cash, bonds, shares and debt instruments.
• Priority of charges: date and time of receipt in the CRO, not the creation of the charge itself: Section 412(3). Priority: fixed charge (order of creation); preferential debts (rank equally= pari passu); floating charge (order of creation); unsecured creditors; preference shareholders; and ordinary shareholders.
• Registration Procedure: file Form C1 within 21 days of creation of the charge (if outside this time, is void) (Section 409). There is also an optional 2-stage filing procedure, whereby a notice of intention to create a charge (Form C1A), followed within 21 days by a confirmation of creation of that charge (Form C1B), can be filed. Priority here is determined by the time and date of the filing of Form C1A. Section 797: onus is on the liquidator in an insolvency to register a charge. Potential for extension of time of the 21 days: Section 417 and this is at discretion of ct. Generally, cts will allow for this order unless the company is insolvent (Telford Motors).
• Conclusive evidence: error in particulars of a charge, the actual wording in the security document takes precedent. The certificate a co receives for filing the particulars of a charge is not the full extent of the charge, it is conclusive evidence that the charge is registered in CRO (National Provincial and Union Bank of England v Charnley).
• Consequence of non-registration: non-registration of a charge does not invalidate the loan etc., it merely means that the charge cannot be enforced i.e. you lose your priority, as against the liquidator and other creditors, which is a vulnerable place to be in. A registerable charge will be void against a subsequent charge even where the creditor is not aware of the prior charge this is because the registration requirement has primacy over the doctrine of notice (Re Monolithic Building).
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Charges
• Charge: an equitable agreement between a debtor (chargor) and a creditor (chargee/debenture holder) to make an asset (property, machinery, intellectual property) available to a chargee to satisfy an underlying debt (therefore, quasi proprietary right). The charge can be fixed or floating in nature. Section 408 for the definition of a charge. Re Clare Textiles (IRL): “a contract under the terms of which certain property is available as security to meet the performance of liability, usually the payment of money”.
• Debenture: a deed (agreement under seal for consideration) acknowledging the debt of the borrower with a covenant (promise) to pay all sums due (the aggregate amount of monies owed to the lender) and which CONTAINS A CHARGE in favour of the lender (charges can also be stand-alone documents, but for the purpose of the FE1, we will assume our charges are housed in a debenture). The debenture will also be referred to as a security document.
• Fixed charge:
defined in Welch v Bowmaker (IRL) which approved the wording in Illingworth v Houldsworth (UK) as a specific charge which “[…] fastens on ascertained or definite property or property capable of being ascertained or defined”.
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• Floating charge: Illingsworth v Houldsworth: “ambulatory and shifting in nature hovering over that property until […] crystallisation”. Equitable charge which does not attach to specific assets until crystallisation. Advantageous as chargor can actually deal with the charged property whilst charged. The charge not take immediate effect upon execution of the security document but hovers/floats over the asset and remains dormant until a crystallisation event occurs causing it to become a quasi-fixed charge settling on the class of assets which it affects.
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