6 Flashcards
In the event of a company being unable to pay debts, in which order can creditors claim assets?
1 - Holders of security (legal mortgage) 2 - preferential creditors (wages) 3 - bonds and floating charges 4 - unsecured creditors 5 - shareholders
What is a disadvantage of land security?
May take longer to release, complex legal process and costs higher
What is a definition of a guarantee?
A promise by a third party to repay the lender if the borrower fails to do so.
What are the three principles of good security
Simplicity, stability in value and realisability
When will banks request term assurance as security?
Sole traders where the business is very much in their hands.
Who can only have floating charges?
Limited companies
What is a floating charge known as in England?
Debentures
What are the percentages of ring fencing by administrators?
50% of first 10k
20% of floating charge maximum ring fence fund of £600k
What are advantages of floating charges?
Lender can take the charge over difficult assets I.e stock.
- straightforward
- will enable lender to appoint an administrator
If bank holds a fixed charge what do they do to ensure they have the opportunity to appoint an administrator?
Takes a floating charge also
What is retention of title?
Seller retains title to goods until paid in full. Therefore may be removed from premises if not paid.
What types of security does registration of the charges apply to?
Floating charges
Land and building
Assignation of debt
Mortgage of ship
What are disadvantages to floating charges?
- valuing assets is difficult
- certain assets may disappear
- administrators cost money
- not valid if business is insolvent when granted
What margins are applied to government and speculative securities?
- government - 85-90%
- speculative - 33-66%
How many years does it take for a life policy to acquire a surrender value?
After 2 or 3 annual payments
What are the parties to a guarantee?
Lender, guarantor and borrower
What are the advantages of guarantees?
Easy, quick and cheap
Easy to value
Security is strong
What are disadvantages of guarantees?
- May deteriorate during period
- don’t want to upset valued customer
- rarely want to pay up
- try and avoid liability
What is good attribute of good security
Capable of being completed easily and at a reasonable cost
Mock
With a floating charge, which of the undernoted is correct?
a) The security is easy to value
b) It crystallises when a company is thought to be in financial difficulties
c) Included in the charge is a fixed security over property
d) The procedure for taking the charge is straightforward
d) The procedure for taking the charge is straightforward
Mock
If the bank accepts a deposit of title deeds to a property as security it will do so on the basis that:
a) it is an informal security.
b) it is easily converted into a standard security over the land and the buildings on it.
c) it is a good security because it is simple and easily valued.
d) property values are usually stable or rising over the long term.
a) it is an informal security.
Mock
How many parties are there to a guarantee?
3
Mock
Which of the following is an advantage of stock exchange securities as a form of security?
a) Values can fluctuate quite widely
b) The security can be realised quickly and easily
c) It is registered in the Register of Charges at Companies House
d) Third party consent to sell the security is easily obtained
b) The security can be realised quickly and easily
