Chapter 6 Flashcards

1
Q

Secured Debenture

A

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

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2
Q

Unsecured Debenture

A

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

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3
Q

Charge

A

security created by the company on its assets

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4
Q

Fixed Charge

A

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.
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5
Q

Floating Charge

A

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
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6
Q

Crystallization

A
  • 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.
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7
Q

Floating charge crystallizes when

A
  • 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
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8
Q

Disadvantage of floating charge

A
  • 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
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9
Q

Registration of Charges

A
  • 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.
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10
Q

Failure to Register Charge

A

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

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11
Q

Extend time allowed for lodgement

A

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
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12
Q

Priorities of duly registered charges

A
  • 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
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13
Q

Dischage

A

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

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