Security Flashcards
(8 cards)
What is a fixed charge?
A. A right to sell any asset of the company at will
B. A type of loan with fixed interest
C. A tax-related lien over assets
D. A security interest where the borrower is restricted from disposing of the asset without consent
D. A security interest where the borrower is restricted from disposing of the asset without consent
This is correct because a fixed charge is a form of security where the borrower retains possession but must not dispose of or further charge the asset without the lender’s consent.
A bank takes security over a company’s vehicles and restricts the company from selling them without consent. What type of charge is this?
A. Fixed charge
B. Floating charge
C. Mortgage
D. Lien
A. Fixed charge
This is correct because a fixed charge gives the lender control by restricting the company from disposing of assets without consent, as in this case.
Which of the following is true about a floating charge?
A. It requires registration only when crystallised
B. It allows the borrower to deal with the asset until crystallisation occurs
C. It automatically ranks above fixed charges
D. It converts to equity upon default
B. It allows the borrower to deal with the asset until crystallisation occurs
This is correct because a floating charge gives the borrower flexibility to use and dispose of the asset until a trigger event causes the charge to crystallise.
Which is a correct statement about a floating charge’s position in insolvency?
A. It always has priority over fixed charges
B. It is exempt from registration under the Companies Act
C. It entitles the lender to take possession immediately
D. It ranks below fixed charges and preferential creditors in a winding-up
D. It ranks below fixed charges and preferential creditors in a winding-up
This is correct because, in insolvency, a floating charge ranks below fixed charges and certain preferential creditors like HMRC or employee wages.
What happens if a company fails to register a charge within 21 days?
A. The company director is personally liable for the loan
B. The company becomes exempt from repaying the loan
C. The charge is void against a liquidator and the debt becomes immediately payable
D. The loan is automatically converted into share capital
C. The charge is void against a liquidator and the debt becomes immediately payable
This is correct because failure to register a charge under s 859H CA 2006 makes it unenforceable against a liquidator, and the secured loan becomes repayable immediately.
Which of the following best describes a personal guarantee?
A. A guarantee where an individual promises to pay the company’s debt if the company defaults
B. A type of charge over intellectual property
C. A lien created by statute
D. A floating charge backed by a debenture
A. A guarantee where an individual promises to pay the company’s debt if the company defaults
This is correct because a personal guarantee involves an individual, often a director or shareholder, agreeing to be liable if the company fails to repay a loan.
Which of the following describes a debenture in its most common commercial context?
A. A fixed term loan of money secured over shares
B. A security document setting out the details of security granted over assets
C. A convertible bond issued to the public
D. A general term for equity financing
B. A security document setting out the details of security granted over assets
This is correct because in commercial lending, a debenture typically refers to the legal document that outlines the terms of security over a borrower’s assets.
What is the purpose of a negative pledge clause in a floating charge?
A. To convert the floating charge into a fixed charge
B. To enable the company to avoid insolvency procedures
C. To prevent the borrower from creating later fixed charges without consent
D. To prohibit shareholder distributions
C. To prevent the borrower from creating later fixed charges without consent
This is correct because a negative pledge clause protects the floating charge holder by preventing the borrower from granting fixed charges over the same assets unless agreed.
