Chapter 6

Question 1

Secured Debenture

Answer 1

entitles holder right to seek repayment against an asset of the borrowing company

Question 2

Unsecured Debenture

Answer 2

same remedies as creditor (sue company and hope there is enough assets to cover the loss)

Question 3

Charge

Answer 3

security created by the company on its assets

Question 4

Fixed Charge

Answer 4

charge attached to specific asset identified at the time of charge creation on an asset that by nature will not change during the subsistence of the charge (usually fixed assets)

• legal title in asset is vested to creditor (chargee)
• company (chargor) cannot deal or part with that asset unless with chargee’s consent
• if asset is highly specialized, may be no market for it for creditor to realize it to recover his loan.

Question 5

Floating Charge

Answer 5

charge attached to a class of assets of a going concern that is constantly changing.

• specific asset is not identified until charge crystallizes
• legal title in assets remains with borrowing company

Question 6

Crystallization

Answer 6

• floating charge attaches to specific asset which company owns at that time or will acquire soon after.
• after crystallization the company cannot dispose of charge asset without consent of the creditor.

Question 7

Floating charge crystallizes when

Answer 7

• Company ceases to carry on business
• Company undergoes liquidation
• Receiver is appointed by court or secured creditor to dispose of charged asset
• Creditor exercises a power given to him
• Document creating floating charge stipulates that floating charge will crystallize on occurance of specific event

Question 8

Disadvantage of floating charge

Answer 8

• Since company is entitled to deal with asset, it might dissipate the asset completely.
• Lender with floating charge has less priority than lender with fixed charge
• Floating charge may be invalid if company enters liquidation within 6 months of the charge

Question 9

Registration of Charges

Answer 9

• Registered with ACRA within 30 days of its creation
• Purpose is to put on public record creditworthiness of the company
• Any charge not registered within 30 days of creation is voided. But underlying loan remains valid and must be payable immediately after registration period has passed.
• Either company or interested party can register charge.

Question 10

Failure to Register Charge

Answer 10

-If company fails to register, it is liable to offence - every defaulting officer will be liable to fine up to $1000.

Question 11

Extend time allowed for lodgement

Answer 11

Court will make an order if

• It satisfied that the mission to do so within prescribed period is
• ->accidental or is not in the nature to prejudice position of creditors or shareholders
• ->On other grounds that it is just and equitable to grant extension

Question 12

Priorities of duly registered charges

Answer 12

• Duly registered fixed charge always have priority over fixed or floating charge created later
• Duly registered floating charge always have priority over floating charge created later

Question 13

Dischage

Answer 13

Debt has been fully satisfied, lodge with Registrar satisfaction of charge that will be signed by reps of the company and relevant creditor.