Company Law (Steps Taken To Ensure Floating Charge is Valid & Enforcable)
This essay is an attempt at looking at the steps to be taken to ensure a floating charge will be valid and the circumstances in which a floating charge will be enforceable. This will be done in relation to advice to be given to Bank ABC Limited, regarding the K 20, 000 lent to Bwalya Limited on the security of a floating charge over the whole of its assets.
The essay will therefore, begin to look at the legal concepts related to the above facts which are debentures and floating charges, as well as, the legal authority of these concepts. It will then on sound authority proceed to advise Bank ABC as required before arriving at a conclusion.
A trading company has implied power to borrow according to General Auction Estate and Monetary Cov Smith1. The availability of credit facilities is an integral part of the commercial world in which limited companies operate. Banks and other institutions that operate credit facilities often demand security to counter the potential risk of default, and security normally takes the form of a charge on the assets of the debtor company.2
A company may raise money by borrowing by means of debentures3, or by issuing shares. In the case of borrowing by debentures, the company may create a fixed or floating charge over its property4 in order to secure the sum borrowed, and there is an undertaking to repay on an ascertainable date and to pay interest at a fixed rate. A debenture may be secured, or unsecured5. A debenture is defined by the Companies Act6 as including “a unit of a debenture stock, and bonds and any other securities of a company whether constituting a charge on the assets of the company or not”. Simply stated, a debenture holder is a person who has lent money to the company and is a secured debenture.7
A document, which purports to acknowledge a credit arrangement between a company and a creditor, is commonly referred to as a debenture. There is no precise legal definition of a debenture as stated in the judgment of Bowen LJ
The essay will therefore, begin to look at the legal concepts related to the above facts which are debentures and floating charges, as well as, the legal authority of these concepts. It will then on sound authority proceed to advise Bank ABC as required before arriving at a conclusion.
A trading company has implied power to borrow according to General Auction Estate and Monetary Cov Smith1. The availability of credit facilities is an integral part of the commercial world in which limited companies operate. Banks and other institutions that operate credit facilities often demand security to counter the potential risk of default, and security normally takes the form of a charge on the assets of the debtor company.2
A company may raise money by borrowing by means of debentures3, or by issuing shares. In the case of borrowing by debentures, the company may create a fixed or floating charge over its property4 in order to secure the sum borrowed, and there is an undertaking to repay on an ascertainable date and to pay interest at a fixed rate. A debenture may be secured, or unsecured5. A debenture is defined by the Companies Act6 as including “a unit of a debenture stock, and bonds and any other securities of a company whether constituting a charge on the assets of the company or not”. Simply stated, a debenture holder is a person who has lent money to the company and is a secured debenture.7
A document, which purports to acknowledge a credit arrangement between a company and a creditor, is commonly referred to as a debenture. There is no precise legal definition of a debenture as stated in the judgment of Bowen LJ