Abstract
Nowadays, it is common for the loans to be aggregated as a lump sum, which is then advanced to the company by the trustees. In this situation, the lenders subscribe for debenture stock, sometimes called loan stock, out of the fund. As with shares, such stock forms part of the company’s securities, which can be traded in the Stock Exchange. The lenders might require security for their loans. In this situation, a company will charge its property to secure the loan. In light of the Companies Act 2006 of the United Kingdom, this paper will analyze the various mechanisms whereby public companies raise money through debentures and the regulatory consequences of doing so. The companies legislation requires certain particulars of the charge to be registered. Therefore, this paper aims to reflect on: (a) how public companies borrow its capital through debentures or debenture stock; (b) what types of charge the public companies could issue to lenders as security; (c) how to differentiate between fixed and floating charges. This paper will also examine the question of priority among competing creditors and inconsistent decisions of the court regarding fixed and floating charges. The objectives of this paper are to: describe the meaning of ‘debenture', discuss the dispute relating granting a fixed charge over book debts, sketch the priority of charges and the statutory listing system, describe the meaning of book debts, explain the character of and the differences between floating and fixed charges. This paper will provide recommendations that could be taken into consideration for future amendments of the Companies Act 2006.
Highlights
Mohammad Belayet Hossain same time and on the same terms
The rights of such lenders are written under a trust deed, and trustees represent the interests of the investors
In Knightsbridge Estates Trust Ltd v Byrne, Mr Byrne’s insurance company granted a loan to Knightsbridge Estates and as per contract, the loan should be returned within forty years but if the principal amount of loan is returned before that period, the total amount of interest would be lessened
Summary
In addition to raising money by issuing shares, companies may raise capital by borrowing. It is difficult to see any real unfairness in a normal commercial agreement between a company and (for example) an insurance society for a loan to the former on the security of its real estate for a very prolonged term of years Both parties may be desirous that the mortgage may have the quality of permanence. Fixed and Floating Charges Fixed charges When any company grants a fixed charge over a certain asset to a creditor (for example, storehouse), automatically, the creditor’s (chargee) right is attached to the asset like mortgage and in such a case; the company’s (chargor’s) authority is limited to deal with the property. Everybody knows that when there are a winding-up debenture-holders generally step in and sweep off everything, and a great scandal it is.” Commercial assets, such as plants, stock in trade, book debts (receivables) could be considered for a floating charge. In case of any default on repayment, winding-up of the company or any other crystallizing incident, a floating charge will convert into a fixed charge over the property in question.
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