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1
Q

What is debenture

A

An agreement where a company gives security to a lender

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2
Q

Difference between a mortgage and a charge

A

Mortgage is a transfer of legal ownership but a charge isn’t

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3
Q

What is a negative pledge

A

A clause in a loan agreement with a floating charge to prevent the company creating later charges with priority over the charge without the charge holders permission

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4
Q

Requirements for a negative charge to be valid

A

The later party seeking to register fixed charge has actual awareness of negative pledge otherwise they jump to top of list

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5
Q

What is equity finance

A

When shares are issued

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6
Q

Can a company purchase its own shares

A

No S658 CA 06

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7
Q

Requirement of S542

A

Shares in a limited company must each have a fixed nominal value of allotment is void

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8
Q

Types of shares

A

Preference - participating, convertible, cumulative, uncumulative

Ordinary

Redeemable

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9
Q

Redeemable shares

A

Allowed under S684 CA

Redeemed shares are treated as cancelled

Send notice to registrar within 1 month of being redeemed with amended statement of capital

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10
Q

Form to send to registrar when shares are redeemed

A

SH02

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11
Q

Rights of ordinary shares

A

Carry the primary voting rights of the company

The right to a dividend if declared

Participate in surplus on winding up

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12
Q

Participating preference share

A

Right to participate in profits or assets in addition to fixed preference right

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13
Q

Convertible preference share

A

Includes an option to convert the shares into a fixed number of common shares after predetermined date

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14
Q

Cumulative preference shares

A

Must be paid missed dividends as well as current dividends if not paid on previous occasions

This rants before payment of dividends to ordinary shares

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15
Q

Uncumulative preference shares

A

If dividends not paid one year it won’t be paid in future

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16
Q

Effect of allotment of shares

A

A new member gains voting rights

Rights of others are diluted

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17
Q

When are shares issued

A

When the shareholder is entered into the register of members

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18
Q

How many shares can a company issue

A

Post 2009, as many as they wish unless articles restrict it

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19
Q

How to allot shares

A

Must be authorised by articles or shareholders

Update register within 2 months and issue share certificate

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20
Q

What to do before shares are allotted

A

Give existing shareholders prior right to take up shares before they are given to a new person

Must offer shares to new and existing people on same terms

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21
Q

What is a floating charge

A

Floats over an asset that keeps changing

Company retains some freedom to deal with the asset in its usual course of business until the charge crystallises

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22
Q

When will a floating charge crystallise

A

Company goes into receivership or liquidation

Company ceases to trade

Event occurs which is specified in the contract between lender and company

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23
Q

What is a fixed charge

A

Lender has control of asset and company cannot dispose of it without lenders consent

If the company is in financial difficulty the lender can sell the asset and be repaid out of proceeds before any other claimant

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24
Q

Priority between charges

A

Fixed charge has priority over floating charge even if floating charge was created first

Charges of the same kind have priority in order of registration

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25
How to register a charge
MR01 submit to CH within 21 days
26
What if a charge is not registered
Void against liquidators and administrators Lender is unsecured Loans is still in place
27
What is share capital
Money provided by S in return for shares (nominal value and excess consideration aka premium)
28
Can Paid up share capital be returned to S
No - maintain share capital
29
Can S liability regarding unpaid capital on shares be reduced
No - maintain share capital
30
How are available profits for dividends calculated and where are the figures found
Accumulated realised profits LESS accumulated realised losses Shown on bottom half of balance sheet under profit/ loss reserve
31
How are dividends passed
D recommends it and S passes ordinary res to approve it
32
2 ways companies get finance
Equity finance | Debt finance
33
Restrictions on S transferring their shares to another person
No restrictions | Articles cannot stop S selling them or restrict who buys them
34
When does a person become an S
When they are entered into the register
35
Can Ds refuse to register transfer of shares
Yes
36
What happens if D refuses to register transfer of shares
Buyer is beneficial owner and seller is legal owner
37
If GM held after sale but before registering then who attends
Seller but in line with buyers wishes
38
Process for transferring shares
Seller completes stock transfer form and gives to buyer with share certificate Pay stamp duty Buyer sends share certificate and stock transfer form to company
39
What company does when it receives a stock transfer form
Send new share certificate Pass board res to register (this is when share is issued) Notify registrar of companies when filing annual confirmation statement
40
How much stamp duty is paid on stocks
0.5% rounded to nearest £5 is transfer is over £1k Nothing if it is a gift Min stamp duty is £5
41
When are shares issued
When S is entered on register of S
42
Who decides price of shares and how many to issue
Board
43
Is there an upper limit on number of shares that can be issued
No Old companies may have one - remove with ordinary S res If new company have one remove with special S res
44
Who authorised share allotment
``` Private company, under CA 2006 with one class of shares - board res Private company with one class of shares but prior to CA 2006 - ordinary S res Multiple classes of shares (private or public) ordinary S res ```
45
How long does authorisation to allot shares last
5 years max Can be renewed for max 5 years If in articles expires 5 years after incorp
46
What does pre-emotion rights require
When alloting shares must offer existing S number to enable them to preserve their percentage shareholding on same or more favourable terms
47
How long does pre-emotion last
Must have at least 14 days | If longer deadline given cannot revoke offer before deadline
48
What does pre-emption apply to
Equity securities aka ordinary shares
49
Can pre-emotion rights be excluded
Yes even tho they are statutory not MA | Can be excluded in articles or set aside by special S res
50
How to initiate a special S Res to remove pre-emption rights
D must recommend special res and make a statement setting out Reasons for recommendation Amount purchaser will pay and Justification for price Circulate statement to S with notice of GM or written res
51
Offences regarding Ds special res statement
Offence to knowingly or recklessly authorise or permit false or misleading info in statement
52
Filing requirements following allotment
Send Res to CH within 15 days Company forms to be sent to CH Share certificate within 2 months
53
What happens to shares once they are bought back
They are cancelled
54
How much Ds make decisions regarding buy back of shares
Skill, care and attention
55
Two types of buy back of shares
Market purchase - buy back of shares on stock market Off market purchase - buy back of shares not on stock market
56
Process for an off market buy back
Articles must allow it Shares must be fully paid up Board meeting to draft terms and call GM Company must pay for shares at time of purchase (out of distributable profits or shares issued for this purpose) S pass ordinary res to authorise contract Contract or summary for inspection 15 days before GM and at GM or sent with written res Board meeting to enter into contract Once concluded contract or summary as well as res and minutes at office or SAIL for 10 years from date of buy back File return of purchase of own shares and notice of cancellation of shares within 28 days Cancel shares, update S reg and PSC reg
57
Which companies can use capital to buy back shares
Private companies only after exhausting distributable profits Not public companies
58
Requirements to buy back out of capital
Same as buy back out of distributable profits but with additional requirements D statement of solvency that solvent and will be for 1 year Auditors report that Ds statement is reasonable Special S res to authorise capital use Ordinary S res to authorise contract Ds statement and auditors report available to S with written res or at GM Within 7 days of special res put notice in London gazzett (and 1 other paper or notice to every creditors) - creditors have 5 weeks to object File statement and report at CH before or at same time as newspaper notices Statement and report at office for inspection from time newspaper notice published until 5 weeks after special res passed If no creditors object hold board meeting to enter into contract Payment of capital made no earlier than 5 weeks after date of special res but no later than 7 weeks
59
2 types of debt finance
Loans and debt securities
60
What is a debt security
When investor gives money and company pays it back later
61
Can a partnership agreement be changed
By unanimous consent
62
Do MAs for private companies restrict borrowing
No | Check articles and partnership agreements
63
3 types of loans
Overdraft facility Term loan Revolving credit facility
64
An overdraft is an uncommitted facility. What does this mean
It is repayable on demand unless business is in financial difficulty
65
What type of interest is paid on overdraft
Compound - implied into contract unless it says otherwise
66
What is a term loan
Business borrows a fixed amount for a specific period and must pay it all back by deadline Can be Bilateral, syndicate, secured and/ or unsecured
67
Other names for term loan
Loan agreement Credit agreement Facility agreement
68
When is a term loan repaid
Determined by terms of agreement
69
What is a revolving credit facility aka facility agreement
Amount is made available and can borrow and pay back and re borrow it within this time Can be bilateral, syndicate, secured or unsecured
70
2 ways interest can be calculated on revolving credit facility
Interest rate can be fixed for the period of the loan or variable Or Floating rate - rate is altered at specific intervals
71
Effect of taking out a resolving credit agreement
There will be restrictions on the business eg may be required to pay all debts as they fall due
72
How are unsecured debts goverened
By pari passu. This means unsecured debts are all reduced to pro rata if there are insufficient funds to pay all business debts
73
What are debentures
A loan agreement in writing registered at CH | Gives lender security over borrowers assets
74
What kind of businesses can enter into debentures
LLPs and companies | Not sole traders or general partners
75
What assets owned by a company can be used as securities
All of them
76
Do you need separate fixed or floating charges over each asset
Fixed- need separate charge over each asset | Floating- secured a group
77
Can you have more than one fixed or floating charge over same asset
Yes
78
Can company deal with an asset subject to fixed or floating charge
Fixed - no | Floating - yes until it crystallises
79
When does floating charge crystallise
If company goes into receivership, liquidation or an event in a doc
80
When does a floating charge asset get sold
If company goes into recievorship or liquidation
81
Searches a lender should do before taking a charge
CH search to check for pre existing charges and of sufficient property to give security Reg of companies - to see who has charges Land register IP office Winding up search to check for Insolvancy proceedings
82
Who can’t get a floating charge
Sole trader and Partnerships
83
Effect of a liquidator or administrator having a floating charge set aside
Removed holders priority over unsecured creditors
84
What is a pledge
When asset is physically given to creditor to act as security until debt is paid
85
Can LLP grant fixed and floating charges
Yes can grant both
86
Can a creditor sell assets held as a pledge
Yes to pay debt provided sufficient notice is given
87
What is a book debt
Money owed to company or LLP by debtor | Can have floating or fixed charges over these
88
What is a lien
Gives creditor right to physical possession of debtors goods or assets until the debt is paid
89
Is there is a right to sell an asset held under a lien
No
90
What is retention of title
On sale of goods buyer doesn’t get full title until they pay the full price to the seller. If buyer defaults goods are taken by the seller
91
Order of charges provided they are all registered
Fixed charges and mortgages over floating charges of same asset even if floating charge created first If several fixed charges or mortgages of the same asset they have priority in order of creation not registration If more than one floating charges over same assets they have priority in order of creation not registration
92
Can creditors alter the order of priority
Yes creditors can enter into agreement between themselves to alter the order of their charges Called subordination agreement using deed of priority
93
What is a Negative pledge clause
Prohibits company creating later charges with priory without permission
94
Effect of a negative pledge clause
If later lender takes charge over same asset with actual knowledge of negative pledge then fixed charge is subordinate to floating charge
95
Who authorises borrowing and security
Board resolution
96
Is it compulsory to register charges
It was compulsory before 6.04.13 now it is voluntary
97
Who can register a charge
The person interested in it or company
98
How long do you have to register a charge
21 days file at CH Get certificate of registration Put particulars and docs on file for public inspection - keep at office or sail - failure is criminal offence but charge still valid
99
Effect of registering charge
Charge is valid against other creditors or administrator or liquidator Only have priority from date of registration
100
Must a charge be registered at the land registry
Only if it is over land or won’t apply to buyer even if they knew it existed
101
Effect of failing to register a charge
Void against creditors administrators or liquidators | Company is obliged to repay debt immediately but lender cannot enforce security

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