chapter 16 Loan Capital

Question 1

Loan capital of a company comprises of:

Answer 1

All amounts which it borrow for the long terms

Question 2

Do companies have implied power to borrow for purpose incidental to their trade or business?

Answer 2

Yes,under Companies Act 2006 they have implied power

Question 3

Loan principal is
payable to lender or not when it is for an ultra vires purpose and is known to him?

Answer 3

Yes,if the contract is within the capacity of the company

Question 4

What is requesting a personal guarantee?

Answer 4

Where lenders requires directors/members to agree to repay a loan out of their personal wealth if the company defaults on their debts

Question 5

What is a debenture?

Answer 5

A document stating the terms on which a company has borrowed money

Question 6

Is it necessary to create a debenture stock using a trust deed?

Answer 6

Yes

Question 7

Can debentures be offered at discount?

Answer 7

Yes

Question 8

What is the return policy on debentures?

Answer 8

Repayment is mandatory

Question 9

What is crystallization?

Answer 9

Conversion of floating charge in to fixed charge

Question 10

What is the benefit to creditor of charge over an asset?

Answer 10

Gives the creditor prior claim over other creditors to payment of their debt out of those assets

Question 11

What is a floating charge?

Answer 11

Which is created on assets that are of changing nature i.e. inventory

Question 12

What is a fixed charge?

Answer 12

Which is created on specific assets i.e. property

Question 13

Can a company use those assets which have fixed charge on them?

Answer 13

No, until the company repays the loan against which the charge has been created it can’t use those assets

Question 14

How we can identify a floating charge?

Answer 14

When a company is still able to use the charged asset without reference to the chargee it means it has floating charge on it

Question 15

When do a charge on receivables will be treated as fixed charge?

Answer 15

When the money collected must be paid to the chargee, e.g. in reduction of an overdraft

Question 16

When do assets subject to floating charge be identified?

Answer 16

When the charge crystallizes

Question 17

What is the advantage of floating charge?

Answer 17

Being applicable on current assets which may be easier to realise than long term assets

Question 18

Among fixed and floating charge which one is generally preferred in case of liquidation?

Answer 18

Fixed charge

Question 19

When do floating charge created before fixed charge will take priority?

Answer 19

When the fixed chargee is notified that there is already floating charge in priority

Question 20

What will be the order of priority when there are 2 fixed charges?

Answer 20

These will be ranked according to the order of creation (the charge created earlier wiIl take priority)

Question 21

What is a negative pledge clause?

Answer 21

A prohibition clause against the company creating a fixed charge over an asset which already has a floating charge

Question 22

Do floating charge remains with an asset on its sale?

Answer 22

Yes only when the third party had notice of it at acquisition date

Question 23

Who may register charges with the registrar?

Answer 23

The company or the person interested in it(chargee)

Question 24

Within how many days charges should be registered with the registrar?

Answer 24

Within 21 days

Question 25

Who is responsible for the non delivery of charge particulars?

Answer 25

The company, and the company and its officers will be liable to a fine

Question 26

When do court makes order of rectification of registered particulars?

Answer 26

When the error or omission was accidental or just to do so

Question 27

When do a charge can be registered late?

Answer 27

When it does not prejudice the creditors or shareholders of the company

Question 28

Do registration of charges affect their order of repayment?

Answer 28

Yes, a correctly registered fixed charge has priority over a fixed charge created earlier but registered after it