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WS8- debt finance - Coggle Diagram

- - - - court tends to allow register to be rectified if it does not prejudice other charges created between date of creation of the unreg charge and the date of eventual registration- Barclays Bank plc v Stuart Landon Ltd
- - - - equity- shareholders receive dividends if company is making profit, shareholders can also have capital growrth
      - debt- interest
    - - equiry- on winding up will receive their investment plus surplus capital (though a lot of the time companies wind up when insolvent), sale of shares, company buy back of shares
      - debt- as per loan agreement, or on the sale of the debt to another investor
    - - equity- shareholders may have voting rights and voting power may depend on number of shares
      - debt- lenders often require undertakings from the borrower, security may give lender control over assets subject to fixed/floating charges
- - - - Types:
        
        Fixed charge (preferred by creditors) prevents borrower from dealing with (disposing of (Ashborder BV v Green Gas Power Ltd) or taking further charges over) asset subject to the charge (without consent of the lender). Likely not appropriate for stock/raw materials which borrower needs to use on a daily basis to generate income. Fixed assets generally taken over assets such as plant and machinery. If charge becomes enforceable, lender has ability to appoint receiver and exercise power of sale over the asset.
        
        charges over book debts(unpaid sums due to the company, i.e. invoice for service):
        
        Re Brightlife Ltd- company's bank balance is not a book debt
        
        current position: National Westminster Bank plc v Spectrum Plus Limited and others- in this case the charge was claimed to be a fixed charge. The company collected it's book debts, but them into an account and drew on the account as it fished. Court ruled it was a floating charge due to the chargor being left free to use the charged asser and to remove it from the security. Following this case, it is only possible to have a fixed charge over book debts if they are paid into a blocked account which gives the lender the degree of control required
        
        Floating charge- charge floats over a class of assets which fluctuates (e.g. stock, raw material). Whatever assets in that class the borrower owns at any point in time are subject to the floating charge. Does not prevent the borrower from dealing with assets unless the floating charge crystalises i.e. borrower defaults on loan repayments
        
        Re Yorkshire Woolcombers Association defined as a charge over a class of assets (present and future) and which in the ordinary course of company's business changes from time to time, and it is contemplated that until the holders of the charge take steps to enforce it, the company may carry on business in the ordinary way as far as concerns the assets charged
        
        crystallisation of floating charge
        
        What happens: when it crystallises, charge ceases to float over all assets of the charge and fixes onto the assets in the class charged at the time of crystallisation. Lender then has control of the assets and borrower unable to control them, like a fixed charge. Though they are now dealt with largely similarly, the courts still treat fixed v floating differently on winding up. If company receives more assets of the same class after crystallisation, these assets are automatically subject to the crustallised charge- NW Robbie and Co v Whitney Warehouse Co Ltd
        
        ways it can occur: at common law (winding up, appointment of a receiver or cessation of a business) or specified event as defined in the loan agreement (borrower default/lender enforces security)
      - Label of the charge does not necessarily define what it is, look at the terms of the charge itself- Agnew v IRC