ICAP_Long_QA_Flashcards.csv 123

Question 1

Explain the borrowing powers of a company under the Companies Act 2017. What are the key features of these powers?

Answer 1

• Borrowing powers allow a company to obtain funds for operations.
• Powers are implied in the memorandum and articles of association.
• Key features include:
  
  • Ability to obtain loans, advances, or credit.
  • Issuance of non-interest-based securities.
  • Raising money from scheduled banks, financial institutions, and the public.
• Restrictions:
  
  • Public companies must register documents before borrowing.
  • Articles of association may set borrowing limits.

Question 2

Describe the different forms of borrowing available to companies.

Answer 2

• Issuing Debentures:
  
  • Debentures are securities issued to raise capital.
  • Can be secured (backed by assets) or unsecured.
  • Issued publicly or privately.
• Borrowing from Credit Institutions:
  
  • Includes commercial banks, investment banks, non-banking finance companies, and modarabas.
  • Loans are usually secured by company assets.
  • Repaid with interest or profit-sharing terms.
• Borrowing from Sponsors/Shareholders:
  
  • Loans from controlling shareholders are usually unsecured.
  • May also be secured by company assets.

Question 3

What are the types of security a company can offer when borrowing money?

Answer 3

• Pledge:
  
  • Movable property physically handed over as security.
• Mortgage:
  
  • Immovable property used as security; title documents are transferred.
• Charge:
  
  • Lien created on assets without transferring physical possession.
• Fixed Charge:
  
  • Specific assets like land or machinery.
• Floating Charge:
  
  • Covers changing assets like stock-in-trade or receivables.

Question 4

Why is registration of charges important, and what is the process?

Answer 4

• Importance of Registration:
  
  • Protects lender’s rights.
  • Ensures charge is valid against creditors and liquidators.
• Process:
  
  • Filing by the company or lender.
  • Submission of particulars and instrument creating the charge.
  • Filing must occur within 30 days of the charge’s creation.
  • Registrar issues a certificate of registration.
• Consequences of Non-Registration:
  
  • Charge is void against creditors or liquidators.
  • Debt becomes unsecured.

Question 5

What are the requirements for the modification, satisfaction, or rectification of charges?

Answer 5

• Modification:
  
  • Changes to registered charge terms must be filed within 30 days.
  • Registrar updates the registration.
• Satisfaction of Charges:
  
  • Notification of loan repayment to the registrar.
  • Satisfaction particulars must be filed within 30 days.
  • Registrar updates the register after lender approval.
• Rectification:
  
  • Application to the Commission for omissions or misstatements.
  • Relief granted if omission was accidental or just and equitable.
  • Registrar updates the record based on Commission’s order.

Question 6

What are the rights and responsibilities of debenture holders?

Answer 6

Right to receive interest on debentures as per the agreement. | Right to repayment of principal amount upon maturity. | Right to enforce security in case of default by the company. | Right to participate in meetings of debenture holders, if convened. | Responsibility to comply with terms of the debenture agreement. | Responsibility to provide updated contact details for communication.

Question 7

Explain the concept of floating charges and their crystallization.

Answer 7

Floating charge covers assets that change over time (e.g., inventory, receivables). | Allows the company to use the assets in normal business operations. | Crystallization occurs when the company defaults or goes into liquidation. | Upon crystallization, the floating charge converts into a fixed charge on available assets. | Provides flexibility to the company while offering security to the lender.

Question 8

Discuss the legal remedies available to creditors in case of non-registration of charges.

Answer 8

Charge becomes void against liquidators and other creditors. | Creditor may lose priority over unsecured creditors. | Loan remains payable but without security rights. | Creditor can initiate legal proceedings for repayment as an unsecured debt. | May negotiate with the company for alternate security arrangements.

Question 9

What are the key differences between mortgages and pledges?

Answer 9

• Mortgage involves immovable property, while pledge involves movable property.
• In a mortgage, possession of the property usually remains with the borrower.
• In a pledge, possession is transferred to the lender until repayment.
• Mortgages require registration under the Companies Act, while pledges do not.
• Mortgages provide long-term security, while pledges are typically for short-term loans.

Question 10

Describe the process of rectification of errors in the registration of charges.

Answer 10

• Application for rectification can be made by the company or an interested party.
• Provide evidence of omission, misstatement, or accidental errors in registration.
• Commission assesses whether the omission was unintentional or due to sufficient cause.
• Rectification is allowed if it does not prejudice creditors or shareholders.
• Registrar updates the register upon receiving the Commission’s certified order.

Question 11

What are the consequences of not satisfying charges with the Registrar?

Answer 11

• Registrar’s records continue to show the charge as outstanding.
• Can lead to disputes with lenders or prospective creditors.
• Impacts the company’s creditworthiness and borrowing capacity.
• May result in legal action by lenders for failure to notify satisfaction.
• Registrar may investigate discrepancies if brought to their attention.