COMPANY FINANCE – PREP TASK ANSWERS
Legal mortgage/fixed charge:
1.
(a) Is there a particular asset that the bank is keen to have such a high ranking form
of security over?
(b) Where is this set out?
This is the highest form of security. Lender would seek to take a mortgage over high-quality
assets owned by the borrowing company such as land, building, machinery, aircraft and
ships, and even shares it owns in other companies.
The rights of the mortgage arise under the LPA 1925.
2.
Floating charge: A floating charge is a lower ranking form of security and is often used as a
sweep up provision.
(a) What sort of assets may be subject to a floating charge?
(b) Can a company deal with assets subject to a floating charge?
Re Yorkshire Woolcombers Association Ltd; Holdsworth v Yorkshire Woolcombers
Association Ltd
- An equitable charge over the whole or a class of the company’s assets, e.g. stock;
- The assets subject to the charge are constantly changing; and
- The company retains the freedom to deal with the assets in the ordinary course of
business until the charge crystallises.
- Generally identifies as ‘stock’ or ‘the undertaking’.
- A floating charge allows a company to deal with secured assets and allows the
company to maximise the amount it is able to borrow (and it may be taken over the
whole of a company’s business). It allows company flexibility and freedom to deal
with assets in its business until such point as the charge crystallises. Once the charge
crystallises the floating charge defaults to becoming fixed.
- A floating charge crystallises when the company becomes insolvent or, in any event
specified in the charge document.
Legal mortgage/fixed charge:
1.
(a) Is there a particular asset that the bank is keen to have such a high ranking form
of security over?
(b) Where is this set out?
This is the highest form of security. Lender would seek to take a mortgage over high-quality
assets owned by the borrowing company such as land, building, machinery, aircraft and
ships, and even shares it owns in other companies.
The rights of the mortgage arise under the LPA 1925.
2.
Floating charge: A floating charge is a lower ranking form of security and is often used as a
sweep up provision.
(a) What sort of assets may be subject to a floating charge?
(b) Can a company deal with assets subject to a floating charge?
Re Yorkshire Woolcombers Association Ltd; Holdsworth v Yorkshire Woolcombers
Association Ltd
- An equitable charge over the whole or a class of the company’s assets, e.g. stock;
- The assets subject to the charge are constantly changing; and
- The company retains the freedom to deal with the assets in the ordinary course of
business until the charge crystallises.
- Generally identifies as ‘stock’ or ‘the undertaking’.
- A floating charge allows a company to deal with secured assets and allows the
company to maximise the amount it is able to borrow (and it may be taken over the
whole of a company’s business). It allows company flexibility and freedom to deal
with assets in its business until such point as the charge crystallises. Once the charge
crystallises the floating charge defaults to becoming fixed.
- A floating charge crystallises when the company becomes insolvent or, in any event
specified in the charge document.
