Corporate Borrowing Flashcards
What are the 3 main ways a company can raise money?
Issuing shares, Reinvesting profits, Borrowing money
What is the difference between secured and unsecured creditors?
Secured: Debt backed by company assets, Unsecured: No specific asset security, get paid last
What is a floating charge?
A charge over a class of changing assets that only becomes fixed upon crystallisation.
What must a PLC obtain before borrowing?
A certificate from the Registrar of Companies (s.1010 CA 2014)
What is a debenture?
A written instrument acknowledging a debt, typically with interest, security, and enforcement terms.
What are the two types of security in corporate borrowing?
Personal security (e.g., guarantees), Proprietary (real) security (e.g., mortgages, charges)
What is a legal mortgage?
Transfers legal title to the lender, subject to the borrower’s right to redeem the property.
What is an equitable mortgage?
No title transfer, just security interest in the asset; now mostly phased out for land post-2007.
What is a charge in corporate law?
A non-possessory security where the lender has an equitable right over the asset to secure debt.
What’s the difference between fixed and floating charges?
Fixed: Attached to specific, unchanging assets, Floating: Hovers over fluctuating assets (e.g., stock)
What are the key characteristics of a floating charge?
Over changing asset class, Company can use assets freely, Crystallises upon default event
What causes a floating charge to crystallise?
Appointment of receiver, Winding-up, Ceasing trade, Notice from debenture holder, Automatic clause in debenture
What does “crystallisation” mean?
Floating charge becomes fixed, preventing the company from using the secured assets.
What is a “retention of title” clause?
Clause reserving ownership of goods until the buyer pays in full—may affect floating charge value.
What’s the priority order of creditors in liquidation?
Fixed charge holders, Preferential creditors (e.g., Revenue), Floating charge holders, Unsecured creditors
How does a floating charge differ from a fixed charge in enforcement?
Floating charges can be enforced post-crystallisation; fixed charges can be enforced directly.
What is a lien?
The right to retain goods until payment is made (often implied, e.g., banker’s lien)
What is a pledge?
A possessory security where goods are handed over to the lender; they can sell on default.
What is the “de-crystallisation” of a floating charge?
Reversal of crystallisation—e.g., via examiner appointment (Re Holidair [1994])
Can a floating charge be created over future property?
Yes. A floating charge can apply to future assets acquired by the company.
