Debt Finance

Question 1

What is a pledge?

Answer 1

The borrower gives possession of the asset to the creditor until the debt is paid back. e.g. a watch/piece of jewellery.

Question 2

What is a lien?

Answer 2

The creditor retains possession of the asset until the debt is paid back e.g. a mechanic’s lien of a vehicle.

Question 3

What is a mortgage?

Answer 3

The security provider retains possession of the asset but transfers the ownership to the creditor.

e.g. a bank owns a house.

Question 4

What is a charge?

Answer 4

The security provider retains possession of the asset but the charge creates an equitable proprietary interest in favour of the creditor.

Question 5

Order of priority between charges:

Answer 5

Between validly created charges of the same type, first in time has priority.
Fixed charge vs. Floating charge - fixed charge has priority.
Floating charges - first registered has priority.

Question 6

Order of priority between creditors:

Answer 6

Creditors with fixed charges.
Preferential creditors - wages up to £800 per employee, occupational pensions, sums owed to HMRC.
Creditors with floating charges. Proportion set aside for the ‘prescribed part fund’.
Unsecured creditors, to the extent not paid off from the prescribed part fund.
Shareholders.

Question 7

What is the time period for registration of charges?

Answer 7

21 days.