Chapter 7: Mortgage and Charges Flashcards
Inherent borrowing powers [3]
- MOA shall be deemed to contain the powers to borrow (loan, advances, credit, without interest,) from scheduled banks or financial institutions.
- Such company can also pledge or mortgage its property or create charge on its assets as security.
- Cannot exercise any borrowing power before obtaining certificate of commencement of business
Ultra-Vires borrowings [3]
- AOA may restrict powers to borrow
- Co. can mention a specified borrowing limit should be exceeded only after prior approval of members.
- If directors exceed their authority in such case and borrow in excess, it would be called Ulta-vires borrowing.
Forms of Borrowings [3]
- Debentures: Any security of debt(secured/unsecured) issued by public co. to general public or private persons
- Credit Institutions: commerical banks, investment banks, modaraba, non-banking finance companies, other organisation providing facilities for loan against interest/partifipation in profits
- Other sources: Sponsors or controlling shareholders. Could be secured against co.’s assets or could be unsecured.
Pledge definition
‘bailment’ of goods as security for the repayment of a debt or performance of a promise.
Mortgage definition
‘an interest or lien’ created on the property or assets of a company or any of its undertakings or both as security.
Charge definition
Security for payment of a debt or other obligation that does not pass ‘title of property’ or any right to its possession to the person to whom the charge is given.
Fixed charge definition
The charge which is created on identified assets like specific land and building, specific plant and machinery, etc.
Floating charge definition
The charge is created over class of assets which changes over time like debtors, stock, etc. or the entire undertaking of the company.
Types of mortgage & charge liable for registration [9]
- immovable property wherever situated or any interest therein
- For the purposes of securing any issue of debentures
- book debts of the company
- undertaking or property of the company, including stock-in-trade
- ship or aircraft, or any share in a ship or aircraft
- goodwill or on any intellectual property
- any movable property of the company
- Based on agreement for the issue of any instrument in the nature of redeemable capital, or any other interest therein
- Based on conditional sale agreement, namely, lease financing, hire-purchase, sale and lease back, and retention of title, for acquisition of machinery, equipment or other goods:
not a charge/mortgage if negotiable instrument
Procedure for registration of mortgage or charge [4]
- duty of company: particulars of charge registered with registrar W30D of creation
- Registrar shall issue certificate of registration with his signatures or authenticated by his official seal in specified manner.
- The above provisions relating to registration shall apply to a company acquiring any property subject to a mortgage or charge.
- Any interested person (e.g. lender) can also register mortgage or charge with registrar W30D of creation
- He shall be reimbursed by company for costs properly incurred in getting mortgage or charge registered.
Every person buying any property of company shall be deemed to have a constructive notice of the fact that asset is subject to mortgage or charge
Mortgage/charge created outside Pakistan on property outside Pak
Period of 30 days shall start from the day when the documents should reach Pakistan if sent
with due care from that other country
Mortgage/charge created in Pakistan on property outside Pakistan
Registration of charge with the authorities of that other country shall also be required for completion of registration of mortgage or charge.
Consequences of non-registration of mortgage or charge [2]
- Mortgage or charge would become void and shall not be accepted as such by liquidator or any creditor.
- This shall not affect any contract or obligation for repayment of money thereby secured.
Modification in the particulars of mortgage or charge [3]
- Modification means the change in terms or conditions or operation of any instrument.
- Company shall send to registrar the particulars of such modification with a copy of the instrument evidencing such modification verified in the specified manner.
- Provisions of registration of mortgage or charge shall apply to such modification as well
Payment or satisfaction of mortgage or charge [3]
- Particulars of payment/satisfaction shall be submitted to registrar W30D from the date of payment/satisfaction.
- Registrar shall register the same only after verifying from lender: (14 day period to file any objection, if no objection filed registrar shall register, is objection is filed, registrar shall communicate it to company)
-
Registrar may (even if no information is received from company) enter satisfaction of mortgage or charge if he is aware that:
* A particular mortgage or charge has been repaid
* Property no longer remains part of undertaking of company.
If company fails to file the particulars of such satisfaction within the 30 days’ period, the required particulars may be submitted with additional fee and imposing a penalty as may be specified
