Module 16: Raising Capital and Loan Capital

Question 1

Private company limited by shares is prohibited from what?

Answer 1

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

Question 2

What is a debenture?

Answer 2

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

Question 3

Debenture secured by what?

Answer 3

fixed or floating charge over property

Question 4

Features of a debenture holder?

Answer 4

Creditor
No voting rights
Must be repaid in full on liquidation
Interest at agreed rate must be paid
Tax advantages to the company

Question 5

Features of a shareholder?

Answer 5

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

Question 6

Three main types of debenture?

Answer 6

Single debenture
Debentures issued in series and usually registered
Debenture stock subscribed to by a large number of lenders

Question 7

What is a single debenture?

Answer 7

Obtains secured loan or overdraft facility from its bank

Question 8

What are Debentures issued in series and usually registered?

Answer 8

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

Question 9

What is Debenture stock subscribed to by a large number of lenders?

Answer 9

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

Question 10

Unsecured debenture holders remedies?

Answer 10

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

Question 11

If loan is secured the holder has the same rights as an unsecured creditor, in addition may enforce how?

Answer 11

Possession of asset subject to fixed charge

Administrator in case of floating charge

Question 12

What is a fixed security/charge?

Answer 12

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

Question 13

What is a floating charge?

Answer 13

Charge on a class of assets both present and future
Does not attach to assets until it crystallises

Question 14

Causes of crystallisation?

Answer 14

Liquidation

Events provided for under terms of debenture

Question 15

Advantages of floating charge?

Answer 15

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

Question 16

Disadvantage of floating charge?

Answer 16

Cannot be certain until company fails what assets form his security

Question 17

Why is a fixed charge usually more satisfactory?

Answer 17

Confers immediate rights over identified assets

BUT may be easier to realise assets subject to floating as over current assets

Question 18

When must types fixed charges and all floating charges be registered?

Answer 18

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

Question 19

Priority of charges?

Answer 19

Fixed charge usually takes priority over subsequent fixed and any floating charge even if created before

Question 20

What if floating charge is created prior to a fixed charger and contains a negative pledge?

Answer 20

Effect of prohibiting the creation of any subsequent charge relating to same property with priority over floating charge