types of security Flashcards
1
Q
what is a fixed charge/ mortgage?
A
- if a loan hasn’t been repaid in accordance with agreed terms, a fixed charge may give a lender a legal right to claim and sell secured assets in order to cover the cost
- a borrower cannot usually sell assets that are subject to fixed charges without the lenders consent and so fixed charges won’t usually be suitable for assets such as stock
2
Q
what are secured assets?
A
assets over which the borrower has granted security tote lender
e.g. when a bank lends money to the purchaser of a house, the house is typically a secured asset
3
Q
what is a floating charge?
A
- assets over which floating charges are taken can be freely sold unless the floating charge ‘crystallises’
- ‘crystallisation’ will usually occur where the borrower becomes insolvent
- floating charges more suitable for assets over which it would be commercially impractical for a borrower to relinquish control to the lender e.g. stock
4
Q
what is a liquidator?
A
- is a party often appointed when a business becomes insolvent
- a liquidator’s function usually include
1) collecting money owed to the business
2) selling its assets
3) distributing the sales proceeds/ remanning cash to creditors
5
Q
what are some benefits of security?
A
control
priority - secured vs unsecured lenders
6
Q
what is the difference between secured and unsecured creditors?
A
secured- lenders that have been granted security over a borrower’s assets
unsecured- lenders that don’t have the benefit of security over any of the borrowers assets
7
Q
what are some issues with taking security?
A
- can be an expensive process
- usually involves the drafting and negotiation of multiple documents
- certain types of security may not be recognised in certain jurisdictions
- some borrowers may be subject to restrictions
- certain types of security must be registered, e.g. fixed charges must be registered at Companies House within 21 days
