LOAN CAPITAL

 Ie: Raising capital through borrowing

 All trading companies have the implied power to borrow for the purpose of business in CA 1965

Debenture
‘A document which either creates a debt or acknowledge it, & any documents which fulfils either of
these conditions’

Levy v Abercorris Slate & Slabe co

Section 4(1) CA’65 – debenture incl. stock, bonds, notes, or any other securities which a corporation
whether constituting charge on the assets of corporation or not.

Debentures Shares
A document issued by a co. containing The interest of s/h in a co measured by a sum
acknowledgment its indebtness of money & is a bundle of rights and obligation

Creditors of co (No voting right) Members of the co. (have voting right)
Receive interest on loan Receive dividend if declare
Receive interest (either co profitable or not) Dividend is not fixed. Depend on profitable of
co & director’s recommend amount

May be issued at discount Must NOT issue at discount

Has priority with respect in payment Receive payment after creditor but can
participate in surplus assets
 COMPANY CHARGES

 What’s a charge?

Sec 4 CA’65

Including any mortgage & any agreement to give / execute a charge or mortgage whether upon demand or otherwise.

 An encumbrance upon property that gives the holder rights over that property usually as security for a debt
owed

 Security means that in the event of a company being wound up, the creditor with a secured debt will have
priority of what is owing to him out of value of the property which as subject to that charged over any unsecured
creditor
 Co’s charges may be FIXED or FLOATING

 FIXED & FLOATING CHARGE

Fixed charge

 A charge on a specific asset / assets of a co. such as attaches immediately to asset concerned & a co. may

not freely dispose asset freely thereafter

 A charger cannot dispose of an asset subject to a fixed charge unless he gets the concern of chargee

 Any disposition of such asset without the consent of the chargee will remain subject to the charge

 Land is frequently the subject of fixed charges

Floating charge

 A charge which doesn’t immediately attach to the assets concerned

 & gives the charger freedom to continue to deal with the assets in the ordinary course of business

 Has 3 characteristics ( Rome J in Re Yorkshire Woolcombers Association)

(i) It is charge on a class of assets present & future

(ii) The class of assets fluctuate in the ordinary course of business

(iii) Until such time that the lender takes steps to enforce his security, the co is free with the assets of

ordinary course of the business

  Registration of Charges

Section 108(3) CA’65

 Fixed & Floating charges must be register at Registrar of Companies

Section 108(1) CA’65

 Failure to register at registrable charge will result in the charge becoming void as security against the
liquidator and any creditor of the co.
 However, under section 108(2)
 The charge is still valid against the money borrowed becomes immediately repayable

Section 109 CA’65

 Documents & particulars required to be lodged for registration may be so lodged by the co.
Concerned or by any person interested in document.
 However, if default is made by the register a charge, the co. and every officer in default is liable fine

Section 111(2) CA’65

 Upon registration of charge, the Registrar will issue certificate, which is conclusive evidence that the
requirements as to have to be completed with

Section 114 CA’65

 Allows for an extension of time for registration, as a rectification of the register of charges
 An application would have to be made to the court

Before the court allows extension of time, it must be satisfied that the omission to register on time was

(i) Accidental or due to inadvertence or to some other cause or

(ii) Not of nature to prejudice the position of creditors members or
(iii) It is just equitable to grant in relief
  Priority among charges the same property (assume property is registered)

 Same type of charge (ie all fixed / floating charge)

 Charges take priority into accordance of date of creation
(orders may be altered if the charge is not registered within 30 days of creation – becomes unsecured debt)

 Different type of charge

 Fixed charge takes priority (since attaches to assets at time off creation) over a floating charge (as charge only attaches
upon crystallization- equitable charge) even though it was created it
 Unless, create a negative pledge clause so co. cannot create a fixed charge over the same property and make sure
subsequent charge has actual notice of such prohibition

FLOATING CHARGE

 Advantages  Disadvantages

1. Extends to all property of the co.

1. The value of security will be uncertain as the co is free to deal with
ie a wider class of assets can be charged
the assets in the ordinary course of business
2. Co. still maintains the freedom to sell the property
the ordinary course of business
2. The floating ranks lower in priority in the fixed charged over the
Ie the co. can deal freely with the assets (carry on
business as normal) same assets even if the floating charge was created before the fixed
charge, unless the floating charge restricts creation of subsequent
3. Advantageous to co. which has no stock assets but
charges ranking in priority to floating charge & subsequent fixed
has a lot of stock-in-trade (as no 2)
chargee has noticed of it

3. Assets subject to floating charge may themselves be subject to a

retention of title clause in favour of a paid for goods, the seller of
the goods may be entitled to those goods & the floating charge
would have no claim to them.

4. The assets subject to a floating charge may be lost judgement to

7. Floating charge created within 6 months
Of the commencement of a winding up will
Be invalid except to the amount cash paid to
creditors, who have been levied & competed execution on the goods
charged. Prior to crystallization the floating chargee cannot prevent
judgement creditors from so levying execution.

The co. at the time of, or subsequent to the 5. Prior to crystallization, the assets may be seized & sold by landlord
who has taken distress proceedings for overdue rent.
Creation of charge, unless the co solved

Immediately after the creation the charge

6. The assets subject to floating charge may be utilized to pay off
(sec 294 CA’65) certain preferential creditors, if the co. doesn’t have sufficient funds
to pay them. (sec 191 & 292(4) CA”65
  Characteristics

No particular working is needed to create it. If the company retains the right to deal with the charged asset
during the ordinary course of business until that charged crystallizes, then that charge is ‘floating charge’. The
nature of floating charge are as follows:

In Re Yorkshire Woolcombers Association Ltd

(i) It is a charge on a class of assets (present & future)
(ii) The class would be changing in the ordinary course of business and
(iii) The company may carry out its business until some future step is taken by the lender to
enforce its security

In Illingworth v Houldsworth

(i) Ambulatory & shifting in nature, hovering over the property

(ii) This happens until some event occurs which causes it settle & fasten on the subject of the
charge within its reach & grasp (ie crystallization)

 Crystallization

Upon crystallization, the floating charge becomes a fixed equitable charge on the assets at the time of
crystallization.

Re Griffin Hotel co Ltd Events (usually specified in the charge as crystallization will occur as follows)

(i) Liquidation
(ii) Cessation of the company’s business

*(Preferential Creditors)

- Wages & salaries (up to 4 months or RM1.5K, whichever is less)

- Retrenchments benefits (provident fund contribution payable during 12 months prior to wind up)

- Remuneration in respect of vacation leave