Company's Finance - Loans
Loan Capital - Background
Capital acquired from borrowing is known as loan (or debt) capital.
Companies adopting Model Articles have an implied power to borrow but:
Public company cannot borrow until received trading certificate - CA 2006, s761(1).
Limit amount of borrowing directors can engage in, Model Articles may be amended.
Debenture
Document issued by a company acknowledging that they have been indebted to a lender/credit
Lemon v Austin Friars Investment Trust Ltd [1926] Ch 1;
Levy v Abercorris Slate and Slab Co (1887) 37 Ch D 260.
Represents a contract between company (borrower) and lender/creditor (debenture holder).
May be acquired from the company, by transfer or transmission.
Register of debenture holders (lenders/creditors) is kept by the company.
Secured vs. Unsecured
Secured - Loan agreement provides lender with claim over company's assets.
Advantages:
Company defaults on loan - Assets can be sold to satisfy debt owed.
Priority in insolvency - Secured creditors have the right to be paid before unsecured cre
Unsecured - Loan agreement does not provide lender with claim over company's assets.
Secured Lending - Charges
Most common form of corporate security.
Security interest created over an asset(s) by owner (chargor) in favour of a creditor (charge
Agreed that the property will be given over to creditor to pay off debt or some other obli
No transfer of title.
National Provincial Bank v Charnley [1924].
Loan Capital - Background
Capital acquired from borrowing is known as loan (or debt) capital.
Companies adopting Model Articles have an implied power to borrow but:
Public company cannot borrow until received trading certificate - CA 2006, s761(1).
Limit amount of borrowing directors can engage in, Model Articles may be amended.
Debenture
Document issued by a company acknowledging that they have been indebted to a lender/credit
Lemon v Austin Friars Investment Trust Ltd [1926] Ch 1;
Levy v Abercorris Slate and Slab Co (1887) 37 Ch D 260.
Represents a contract between company (borrower) and lender/creditor (debenture holder).
May be acquired from the company, by transfer or transmission.
Register of debenture holders (lenders/creditors) is kept by the company.
Secured vs. Unsecured
Secured - Loan agreement provides lender with claim over company's assets.
Advantages:
Company defaults on loan - Assets can be sold to satisfy debt owed.
Priority in insolvency - Secured creditors have the right to be paid before unsecured cre
Unsecured - Loan agreement does not provide lender with claim over company's assets.
Secured Lending - Charges
Most common form of corporate security.
Security interest created over an asset(s) by owner (chargor) in favour of a creditor (charge
Agreed that the property will be given over to creditor to pay off debt or some other obli
No transfer of title.
National Provincial Bank v Charnley [1924].
