Set 1: Securities Flashcards
(50 cards)
What is a fixed charge?
A security interest over a specific asset where the lender retains control, and the borrower cannot deal with it without consent.
What is a floating charge?
A charge over a changing class of assets (e.g., stock), allowing the borrower to use the assets until crystallisation.
What triggers the crystallisation of a floating charge?
Default, insolvency, or events specified in the charge agreement.
What is a mortgage in banking law?
A legal agreement by which real property is used as security for a loan, with the lender gaining enforcement rights.
Define a pledge.
A possessory security where the lender holds the asset (e.g., jewellery) and can sell it if repayment fails.
What is a lien?
The right to retain possession of property until a debt related to that property is paid.
What is equity of redemption?
The borrower’s right to recover property upon repayment of the secured debt.
What does a floating charge allow that a fixed charge does not?
Flexibility for the debtor to use or sell assets in the ordinary course of business.
How does crystallisation affect creditor rights?
It elevates a floating charge to a fixed charge, affecting its priority in insolvency.
Why are floating charges considered riskier in insolvency?
They rank below preferential creditors and can be invalidated under certain conditions.
What is the significance of Companies Act 2006, s.859A?
Requires registration of charges within 21 days to ensure transparency and priority.
What happens if a charge isn’t registered under s.859H CA 2006?
It is void against a liquidator or creditor.
What does s.245 Insolvency Act 1986 address?
It voids floating charges made shortly before insolvency unless new value is given.
What is the time limit for s.245 IA 1986 to apply?
2 years before insolvency (12 months for unconnected persons).
What does s.238 Insolvency Act 1986 allow?
Reversal of undervalue transactions made to defraud creditors.
What is Regulation 3 of the Financial Collateral Arrangements 2003 about?
Permits enforcement of collateral (e.g. shares) without court involvement.
Why is registration of charges important?
It gives constructive notice to third parties and preserves priority.
What is the effect of non-registration of a floating charge?
It may be invalid against creditors, rendering the lender unsecured.
Why was the Financial Collateral Regs 2003 introduced?
To simplify and expedite enforcement for financial institutions.
What kind of collateral does Regulation 3 usually apply to?
Cash, shares, and other financial instruments.
What did Re Yorkshire Woolcombers (1903) establish?
Defined floating charges as covering assets used in the ordinary business course.
When does a floating charge crystallise according to Re Yorkshire Woolcombers?
Upon insolvency or cessation of business.
What was at issue in NatWest v Spectrum Plus (2005)?
Whether a charge over book debts was fixed or floating.
What did the court hold in Spectrum Plus?
The charge was floating because the debtor retained control over proceeds.
