Chapter 7 (Mortgages and Charges)

Question 1

What is required for a public company to borrow funds?

Answer 1

1. A public company must obtain a certificate of commencement of business.
2. Directors can borrow and create charges on property, but members can restrict this authority.

Question 2

What are the forms of borrowing?

Answer 2

1. Issuing debentures to the public.
2. Loan from financial institutions (e.g., banks).
3. Loan from other sources (e.g., shareholders/directors).
4. Borrowings can be secured (via pledge, mortgage, or charge) or unsecured.

Question 3

What are the types of securities for borrowings?

Answer 3

1. Pledge
2. Mortgage
3. Charge

Question 4

What is pledge as security?

Answer 4

Pledge:
1. On movable property.
2. Goods physically transferred to the bank/lender as security.

Question 5

What is Mortgage as security?

Answer 5

Mortgage:
1. On immovable property.
2. Title documents transferred to the bank/lender.
3. Bank takes possession on default.

Question 6

What is Charge as security?

Answer 6

Charge:
1. On movable and immovable property.
2. No transfer of title documents or possession.

Question 7

Which types of charges/ security require registration?

Answer 7

1. On movable property.
2. On immovable property.
3. On intangible property (e.g., goodwill).
4. On book debts.
5. On stock-in-trade.
6. On ships or aircraft.
7. For issuance of debentures/redeemable capital.
8. On conditional sale agreements.

Question 8

What is the procedure for registering charges?

Answer 8

1. Duty of Company:
   a. Apply to the Registrar within 30 days.
   b. Submit the loan agreement and other required information.
   c. Registrar issues a certificate upon registration.
2. Right of Lender:
   a. The lender can also apply to the Registrar.
   b. Charges incurred are borne by the company.

Question 9

What are the consequences of non-registration of charges?

Answer 9

1. The charge is void.
2. The company remains liable to pay the debt.

Question 10

What are the rules for charges on properties outside Pakistan?

Answer 10

1. Charge in Pakistan on property outside Pakistan:
   a. Instruments must be filed with the Registrar.
   b. Registration is also required in the foreign country.
2. Charge outside Pakistan on property outside Pakistan:
   a. Register within 30 days.
   b. The period starts when the documents are expected to reach Pakistan.

Question 11

Do previous rights of charge holders get affected by new registrations?

Answer 11

No, previous rights of charge holders remain unaffected.

Question 12

What are the types of charges?

Answer 12

1. Fixed Charge
2. Floating Charge

Question 13

Define Fixed Charge

Answer 13

Fixed Charge:
1. On specific identifiable present assets.
2. Property cannot be disposed of without bank approval.
3. On default, the holder has a priority right.

Question 14

Define Floating Charge

Answer 14

Floating Charge:
1. On an entire class of assets (present or future) which changes over time.
2. Property can be disposed of without bank approval.
On default, the holder has a subordinate right.

Question 15

What is the procedure for modification of charges?

Answer 15

1. Modification in charges must be registered.
2. The same procedure as the registration of the original charge applies.

Question 16

What is the procedure for rectification of errors or omissions in charges?

Answer 16

1. Apply to the Commission.
2. The Commission may allow relief if the error/omission was:
   a. Accidental.
   b. Did not harm creditors.
   c. Considered just.
3. The Commission issues an order for correction or extension of time.
4. A copy of the order must be filed with the Registrar within 7 days.

Question 17

What is the procedure for registering payment or satisfaction of charges?

Answer 17

1. Duty of Company:
   a. Inform the Registrar within 30 days of payment.
   b. Submit particulars.
   c. Penalty applies for delay.
2. Duty of Registrar:
   a. Notify the lender.
   b. Allow 14 days to file an objection.
   c. If no objection is filed, the Registrar registers the satisfaction without notification.
   d. If satisfactory evidence is given (e.g., debt is paid, property is released), registration can proceed without intimation from the company.