Loans & Security Flashcards
What is a charge?
A charge is the appropriation of real or personal property for the discharge of a debt or other obligation. It does not give the creditor a right in or control over the asset but ensures repayment through its sale proceeds. (Re BCCI SA (No 8) [1996])
What are the two main types of charges a company can grant?
Fixed and floating charges. Companies often grant both over their assets. (National Provincial and Union Bank of England v Charnley [1924])
What is a fixed charge?
A fixed charge is an equitable charge that attaches to a specific asset, preventing the chargor from disposing of or dealing with it without the chargee’s consent. (Illingworth v Houldsworth [1904])
What is a floating charge?
A floating charge is an equitable security that ‘floats’ over assets, allowing the company to deal with them in the ordinary course of business. It crystallises upon a specified event. (Re Yorkshire Woolcombers’ Association [1903])
When does a floating charge crystallise?
It crystallises by operation of law (e.g., winding-up, administration) or by contract (e.g., non-payment). Once crystallised, it becomes a fixed charge. (Re Brightlife Ltd [1987])
What is a debenture in company law?
A debenture is a document evidencing a loan to a company. Under s 738 CA 2006, it includes debenture stock, bonds, and securities, with or without a charge on company assets.
What is a debenture in company law?
A debenture is a document evidencing a loan to a company. Under s 738 CA 2006, it includes debenture stock, bonds, and securities, with or without a charge on company assets.
What are the registration requirements for company charges?
Must be registered at Companies House within 21 days (s 859A(4) CA 2006).
Failure to register renders the charge void against a liquidator or creditor (s 859H(3) CA 2006).
Certain charges must also be registered at HM Land Registry.
How is priority determined between charges?
Fixed charges take priority over floating charges unless a floating charge crystallises first.
Priority among floating charges is determined by the order of creation unless a negative pledge clause exists. (Re Benjamin Cope & Sons [1914])
What happens to a floating charge in insolvency?
If created in favour of a connected person, it may be invalid under s 245 IA 1986 unless value was given.
The prescribed part of the proceeds is set aside for unsecured creditors (s 176A IA 1986, as amended by the 2020 Order).
What restrictions apply to floating charges during a moratorium under CIGA 2020?
During a 21-day moratorium, floating charge holders cannot serve a crystallisation notice (A22, CIGA 2020). The company may sell charged assets with court approval while ensuring chargee’s priority (A31(1) & (5), CIGA 2020).
What powers does an administrator have regarding floating charge assets?
An administrator can sell assets subject to a floating charge without a court order, but the charge holder retains priority in the sale proceeds (Para 99 Schedule B1 IA 1986).
How do RoT clauses affect floating charges?
If a seller retains title until payment, they can reclaim goods in insolvency. Without an RoT clause, suppliers have no claim over unpaid materials.
Which key statutes govern charges and debentures?
Companies Act 2006 (ss 738, 859A-H)
Insolvency Act 1986 (ss 123, 156, 175, 176A, 245, 249, 435)
Corporate Insolvency and Governance Act 2020 (A22, A31)
