chapter 16 Loan Capital Flashcards
Loan capital of a company comprises of:
All amounts which it borrow for the long terms
Do companies have implied power to borrow for purpose incidental to their trade or business?
Yes,under Companies Act 2006 they have implied power
Loan principal is
payable to lender or not when it is for an ultra vires purpose and is known to him?
Yes,if the contract is within the capacity of the company
What is requesting a personal guarantee?
Where lenders requires directors/members to agree to repay a loan out of their personal wealth if the company defaults on their debts
What is a debenture?
A document stating the terms on which a company has borrowed money
Is it necessary to create a debenture stock using a trust deed?
Yes
Can debentures be offered at discount?
Yes
What is the return policy on debentures?
Repayment is mandatory
What is crystallization?
Conversion of floating charge in to fixed charge
What is the benefit to creditor of charge over an asset?
Gives the creditor prior claim over other creditors to payment of their debt out of those assets
What is a floating charge?
Which is created on assets that are of changing nature i.e. inventory
What is a fixed charge?
Which is created on specific assets i.e. property
Can a company use those assets which have fixed charge on them?
No, until the company repays the loan against which the charge has been created it can’t use those assets
How we can identify a floating charge?
When a company is still able to use the charged asset without reference to the chargee it means it has floating charge on it
When do a charge on receivables will be treated as fixed charge?
When the money collected must be paid to the chargee, e.g. in reduction of an overdraft
When do assets subject to floating charge be identified?
When the charge crystallizes
What is the advantage of floating charge?
Being applicable on current assets which may be easier to realise than long term assets
Among fixed and floating charge which one is generally preferred in case of liquidation?
Fixed charge
When do floating charge created before fixed charge will take priority?
When the fixed chargee is notified that there is already floating charge in priority
What will be the order of priority when there are 2 fixed charges?
These will be ranked according to the order of creation (the charge created earlier wiIl take priority)
What is a negative pledge clause?
A prohibition clause against the company creating a fixed charge over an asset which already has a floating charge
Do floating charge remains with an asset on its sale?
Yes only when the third party had notice of it at acquisition date
Who may register charges with the registrar?
The company or the person interested in it(chargee)
Within how many days charges should be registered with the registrar?
Within 21 days
Who is responsible for the non delivery of charge particulars?
The company, and the company and its officers will be liable to a fine
When do court makes order of rectification of registered particulars?
When the error or omission was accidental or just to do so
When do a charge can be registered late?
When it does not prejudice the creditors or shareholders of the company
Do registration of charges affect their order of repayment?
Yes, a correctly registered fixed charge has priority over a fixed charge created earlier but registered after it
