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More Study Company Finance Flashcards

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
Q

How to register a charge

A

MR01 submit to CH within 21 days

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26
Q

What if a charge is not registered

A

Void against liquidators and administrators

Lender is unsecured

Loans is still in place

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27
Q

What is share capital

A

Money provided by S in return for shares (nominal value and excess consideration aka premium)

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28
Q

Can Paid up share capital be returned to S

A

No - maintain share capital

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29
Q

Can S liability regarding unpaid capital on shares be reduced

A

No - maintain share capital

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30
Q

How are available profits for dividends calculated and where are the figures found

A

Accumulated realised profits LESS accumulated realised losses

Shown on bottom half of balance sheet under profit/ loss reserve

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31
Q

How are dividends passed

A

D recommends it and S passes ordinary res to approve it

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32
Q

2 ways companies get finance

A

Equity finance

Debt finance

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33
Q

Restrictions on S transferring their shares to another person

A

No restrictions

Articles cannot stop S selling them or restrict who buys them

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34
Q

When does a person become an S

A

When they are entered into the register

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35
Q

Can Ds refuse to register transfer of shares

A

Yes

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36
Q

What happens if D refuses to register transfer of shares

A

Buyer is beneficial owner and seller is legal owner

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37
Q

If GM held after sale but before registering then who attends

A

Seller but in line with buyers wishes

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38
Q

Process for transferring shares

A

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

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39
Q

What company does when it receives a stock transfer form

A

Send new share certificate
Pass board res to register (this is when share is issued)
Notify registrar of companies when filing annual confirmation statement

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40
Q

How much stamp duty is paid on stocks

A

0.5% rounded to nearest £5 is transfer is over £1k
Nothing if it is a gift
Min stamp duty is £5

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41
Q

When are shares issued

A

When S is entered on register of S

42
Q

Who decides price of shares and how many to issue

A

Board

43
Q

Is there an upper limit on number of shares that can be issued

A

No
Old companies may have one - remove with ordinary S res
If new company have one remove with special S res

44
Q

Who authorised share allotment

A 
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
Q

How long does authorisation to allot shares last

A

5 years max
Can be renewed for max 5 years
If in articles expires 5 years after incorp

46
Q

What does pre-emotion rights require

A

When alloting shares must offer existing S number to enable them to preserve their percentage shareholding on same or more favourable terms

47
Q

How long does pre-emotion last

A

Must have at least 14 days

If longer deadline given cannot revoke offer before deadline

48
Q

What does pre-emption apply to

A

Equity securities aka ordinary shares

49
Q

Can pre-emotion rights be excluded

A

Yes even tho they are statutory not MA

Can be excluded in articles or set aside by special S res

50
Q

How to initiate a special S Res to remove pre-emption rights

A

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
Q

Offences regarding Ds special res statement

A

Offence to knowingly or recklessly authorise or permit false or misleading info in statement

52
Q

Filing requirements following allotment

A

Send Res to CH within 15 days
Company forms to be sent to CH
Share certificate within 2 months

53
Q

What happens to shares once they are bought back

A

They are cancelled

54
Q

How much Ds make decisions regarding buy back of shares

A

Skill, care and attention

55
Q

Two types of buy back of shares

A

Market purchase - buy back of shares on stock market

Off market purchase - buy back of shares not on stock market

56
Q

Process for an off market buy back

A

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
Q

Which companies can use capital to buy back shares

A

Private companies only after exhausting distributable profits
Not public companies

58
Q

Requirements to buy back out of capital

A

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
Q

2 types of debt finance

A

Loans and debt securities

60
Q

What is a debt security

A

When investor gives money and company pays it back later

61
Q

Can a partnership agreement be changed

A

By unanimous consent

62
Q

Do MAs for private companies restrict borrowing

A

No

Check articles and partnership agreements

63
Q

3 types of loans

A

Overdraft facility
Term loan
Revolving credit facility

64
Q

An overdraft is an uncommitted facility. What does this mean

A

It is repayable on demand unless business is in financial difficulty

65
Q

What type of interest is paid on overdraft

A

Compound - implied into contract unless it says otherwise

66
Q

What is a term loan

A

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
Q

Other names for term loan

A

Loan agreement
Credit agreement
Facility agreement

68
Q

When is a term loan repaid

A

Determined by terms of agreement

69
Q

What is a revolving credit facility aka facility agreement

A

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
Q

2 ways interest can be calculated on revolving credit facility

A

Interest rate can be fixed for the period of the loan or variable
Or
Floating rate - rate is altered at specific intervals

71
Q

Effect of taking out a resolving credit agreement

A

There will be restrictions on the business eg may be required to pay all debts as they fall due

72
Q

How are unsecured debts goverened

A

By pari passu. This means unsecured debts are all reduced to pro rata if there are insufficient funds to pay all business debts

73
Q

What are debentures

A

A loan agreement in writing registered at CH

Gives lender security over borrowers assets

74
Q

What kind of businesses can enter into debentures

A

LLPs and companies

Not sole traders or general partners

75
Q

What assets owned by a company can be used as securities

A

All of them

76
Q

Do you need separate fixed or floating charges over each asset

A

Fixed- need separate charge over each asset

Floating- secured a group

77
Q

Can you have more than one fixed or floating charge over same asset

A

Yes

78
Q

Can company deal with an asset subject to fixed or floating charge

A

Fixed - no

Floating - yes until it crystallises

79
Q

When does floating charge crystallise

A

If company goes into receivership, liquidation or an event in a doc

80
Q

When does a floating charge asset get sold

A

If company goes into recievorship or liquidation

81
Q

Searches a lender should do before taking a charge

A

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
Q

Who can’t get a floating charge

A

Sole trader and Partnerships

83
Q

Effect of a liquidator or administrator having a floating charge set aside

A

Removed holders priority over unsecured creditors

84
Q

What is a pledge

A

When asset is physically given to creditor to act as security until debt is paid

85
Q

Can LLP grant fixed and floating charges

A

Yes can grant both

86
Q

Can a creditor sell assets held as a pledge

A

Yes to pay debt provided sufficient notice is given

87
Q

What is a book debt

A

Money owed to company or LLP by debtor

Can have floating or fixed charges over these

88
Q

What is a lien

A

Gives creditor right to physical possession of debtors goods or assets until the debt is paid

89
Q

Is there is a right to sell an asset held under a lien

A

No

90
Q

What is retention of title

A

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
Q

Order of charges provided they are all registered

A

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
Q

Can creditors alter the order of priority

A

Yes creditors can enter into agreement between themselves to alter the order of their charges
Called subordination agreement using deed of priority

93
Q

What is a Negative pledge clause

A

Prohibits company creating later charges with priory without permission

94
Q

Effect of a negative pledge clause

A

If later lender takes charge over same asset with actual knowledge of negative pledge then fixed charge is subordinate to floating charge

95
Q

Who authorises borrowing and security

A

Board resolution

96
Q

Is it compulsory to register charges

A

It was compulsory before 6.04.13 now it is voluntary

97
Q

Who can register a charge

A

The person interested in it or company

98
Q

How long do you have to register a charge

A

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
Q

Effect of registering charge

A

Charge is valid against other creditors or administrator or liquidator

Only have priority from date of registration

100
Q

Must a charge be registered at the land registry

A

Only if it is over land or won’t apply to buyer even if they knew it existed

101
Q

Effect of failing to register a charge

A

Void against creditors administrators or liquidators

Company is obliged to repay debt immediately but lender cannot enforce security

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