Chap 6

Question 0

Unsecured debenture holder :

Answer 0

Same remedies as unsecured creditor ( eg : sue the company and hope that there are enough assets to cover the total of all the company’s unsecured loans )

Question 1

Secured debenture :

Answer 1

Entitles its holder to seek it’s right of repayment against an asset of the borrowing company

Question 2

Charge :

Answer 2

A security created by the company on it’s assets

Created on tangible and intangible assets eg: land , book debts ( receivables ) , shares , company’s undertaking , property , intellectual property rights ( trademarks , patented inventions ) and business goodwill

Question 3

Fixed charge :

Answer 3

A legal charge which attaches to a specific asset which is identified at the time of the creation of the charge and which by nature will not change during the subsistence of the charge.

Question 4

For fixed charges :

The legal title in the asset is vested with the _________ , and the company cannot deal with or part with possession of that asset without first obtaining the _________’s consent.

Answer 4

Creditor

Question 5

Disadvantage of fixed charge

Answer 5

If the asset is highly specialised , there may be no market for it for the creditor to obtain an advantageous realisation of it to recover his loan. Further , since the company cannot deal with the charged asset , the asset may depreciate in value overtime.

Question 6

Floating charge

Answer 6

An equitable charge on a class of assets is a going concern which is constantly changing eg: stock-in-trade , other current assets ( marketable securities ) or ‘ the whole of company’s undertaking ‘ and the specific asset is not identified until the floating charge ‘crystallises’ .

Question 7

Crystallisation

Answer 7

The floating charge attached to the specific asset which the company owns at that time or which it acquires thereafter

Question 8

During the subsistence of the floating charge , the legal title I. The asset remains with the __________

Answer 8

Borrowing company

The borrowing company may continue to deal with the asset I. The usual course of it’s business until the floating charge ‘crystallises’

Question 9

A floating charge crystallises when

Answer 9

The company ceases to carry on business

The company undergoes liquidation

A receiver is appointed by the court or a secured creditor to dispose of a charged asset

The creditor exercises a power given to him ( under the document creating the charge ) to crystallise the floating charge

The document creating the floating charge stipulates that the floating charge will crystallise on the occurrence of a specified event(s) ( eg: if the company fails to pay one of the loan repayment instalments on time ) , and such an event happens

Question 10

Once a floating charge crystallises , the consent can no longer :

Answer 10

Dispose of the charged assets without the consent of the creditor.

Question 11

The priority of repayment of the secured creditor is determined based on

Answer 11

The nature of the charge as at the time of it’s creation . Hence , if a charge was a floating charge at the time of it’s creation , the rights of it’s benefits will be determined on the basis of it being a floating charge , notwithstanding crystallisation.

Question 12

Disadvantage associated with a floating charge for the lender :

Answer 12

Since the company is entitled to deal with the charged asset, it may dissipate the asset altogether . Consequently , the lender would be prejudiced.

A lender with a floating charge has significantly less priority than a lender with a fixed charge. However , a floating charge over current assets a better than no security at all

A floating charge may be invalid despite registration under S330 if the company enters into liquidation within 6 months of the creation of the charge

Question 13

Must refer to pg 3 table

Answer 13

Must

Question 14

Section 131

Answer 14

All charges within the section must be registered with the Registrar of ACRA within 30 days after it’s creation in the prescribed manner

Question 15

Purpose of registering a charge

Answer 15

To put on public record the credit worthiness of the company which created the charge .
The registration is conclusive proof that registration has been completed.

Question 16

Any charge which is not lodged got registration within the first 30 days after it’s creation , void against the liquidator and creditors.

However , the underlying loan remains valid , & in fact becomes immediately payable once the period for registration had passed - regardless of the date of repayment stated on the loan document

Answer 16

IMPORTANT !

Question 17

Who can register the charge ?

Answer 17

Either the company or the interested party

Question 18

If the company fails to register the charge , the company is guilty of an offence . Every defaulting officer will be liable to a fine not exceeding $1000 or a default penalty

Answer 18

Need to know

Question 19

Effect of non-registration

Answer 19

The charge is void against the liquidator and other creditors.

Question 20

An application may be made to the Court for an order go extend the time allowed for lodgement.

The Court would make such an order if it is satisfied :

Answer 20

That the omission to do so within the prescribed period

• was accidental , or due to inadvertence , or some other sufficient cause or
• is not of a nature to prejudice the position if the creditors or shareholders

That on other grounds it is ‘just and equitable ‘ to grant the extension.

Question 21

Sometimes the same asset may be part if the security of 2 different charges to 2 different creditors.

This may happen with the full knowledge of both lenders , or as a result of fraud by the company’s directors

Answer 21

Know this

Question 22

Priorities is charges

Answer 22

• a ‘ duly registered ‘ fixed charge always has priority over another fixed it floating charge created later ( unless the first fixed charged consents to the second charger ranking equally )
• a ‘ duly registered ‘ floating charge always has priority over a floating charge created later .

Question 23

Priorities of charges do not depend on the date of registration but the date of creation .

Answer 23

Know

Question 24

Discharge of charges

Answer 24

Where the debt for the which the charge was created has been paid or satisfied in whole of in part , company may lodge with the Registrar a satisfaction of the charge . Form is to be signed by the representatives of the company and the relevant creditor.

Question 25

Advised to update the company’s records with ACRA

Answer 25

So that the true creditworthiness of the company is reflected to creditors including potential lenders in future