Module 16: Raising Capital and Loan Capital Flashcards
Private company limited by shares is prohibited from what?
Borrowing money from the public in the same way as it may not offer its shares to the public
Need to re register as a public company
What is a debenture?
Any document that states the terms on which a company has borrowed money
May create a charge over the company’s assets as security for the loan
Debenture secured by what?
fixed or floating charge over property
Features of a debenture holder?
Creditor No voting rights Must be repaid in full on liquidation Interest at agreed rate must be paid Tax advantages to the company
Features of a shareholder?
Member of the company Voting rights Last to be paid on liquidation Only dividend if can be paid/chosen to Dividend paid not deducted to get to taxable profits
Three main types of debenture?
Single debenture
Debentures issued in series and usually registered
Debenture stock subscribed to by a large number of lenders
What is a single debenture?
Obtains secured loan or overdraft facility from its bank
What are Debentures issued in series and usually registered?
Different lenders provide different amounts on different dares to the company
Lenders should rank equally (pari passu) in right to repayment
If not in series rank according to date of issue or in numerical order
What is Debenture stock subscribed to by a large number of lenders?
Only a public company can use this method to offer to public
Prospectus
Right to be repaid and interest until then
Register of debenture holders
Reg 2 months after
Created using trust deed
Unsecured debenture holders remedies?
Sue for debt, court order, seize property
Wound up on inability to pay its debts- owe more than £750, 12 days to pay
Order for administrator
If loan is secured the holder has the same rights as an unsecured creditor, in addition may enforce how?
Possession of asset subject to fixed charge
Administrator in case of floating charge
What is a fixed security/charge?
Attaches to specific asset as soon as created
Best suited to assets which the company is likely to retain for long
Scotland- standard sec, England- mortgage
Repay or pass asset
Ranks first in liquidation
What is a floating charge?
Charge on a class of assets both present and future Does not attach to assets until it crystallises
Causes of crystallisation?
Liquidation
Events provided for under terms of debenture
Advantages of floating charge?
Allows company to raise loan capital on strength of all its assets
Creditor: priority over unsecured, veto admin order, Scotland wind up if in jeopardy
Disadvantage of floating charge?
Cannot be certain until company fails what assets form his security
Why is a fixed charge usually more satisfactory?
Confers immediate rights over identified assets
BUT may be easier to realise assets subject to floating as over current assets
When must types fixed charges and all floating charges be registered?
within 21 days of creation Companies House Will render void if not Validity of debt itself not affected May allow to be late Sent registrar certified copy
Priority of charges?
Fixed charge usually takes priority over subsequent fixed and any floating charge even if created before
What if floating charge is created prior to a fixed charger and contains a negative pledge?
Effect of prohibiting the creation of any subsequent charge relating to same property with priority over floating charge
