DEBENTURE &CHARGES

POWER TO BORROW

• S 21 – the power to carry on any business

• S 211(2) BOD’s power to manage

• 190(3) Public company is required to lodge a statutory declaration of compliance

• DEFINITION S 2 COMPANIES ACT 2016

• • debenture” includes debenture stock, bonds, sukuk, notes and any other securities of a
corporation, whether constituting a charge on the assets of the corporation or not;

• CHITY J LEVY V ABERCORRIS (1887) 37 CH D 260

• “In my opinion, a debenture means a document which either creates a debt or acknowledges it,
and any document which fulfils either of these conditions is a ‘debenture’. I cannot find any precise
legal definition of the term. It is not a strictly technical term in law or commerce or a term of art.

• JAMES FOONG J IN BENSA SDN BHD V MALAYAN BANKING BHD [1993] 1 MLJ 119

• to my mind, this nineteenth-century definition of chitty j above, where at first he cannot give any
precise legal definition, ought to be given a more liberal outlook to meet the modern-day needs
where the sphere of business has increased substantially due to modern technology and
communication. Today, a wide range of forms and instruments are introduced to meet the ever-
changing needs of modern-day commerce. The term ‘debenture’ should also include, besides ‘debt’,
any obligation, covenant, undertaking or guarantee to pay or any acknowledgement thereof.

DEBENTURE HOLDERS’ RIGHTS

• S 257 - audited financial statement

• S 346 - against oppression

• S 374(a) s 375(1) - appoint receiver/manager by instrument; or s

374(c) s 376 by court

• FIXED CHARGE

• • A charge which attaches to specific assets owned by the company

• FLOATING CHARGE • A charge on a class of assets of the company’s present and future

• The assets would be changing from time to time • The company may deal with the assets until
some future steps are taken by those interested • Per Romer LJ in Re Yorkshire Wool combers
[1903] 2 Ch 284, 295

ADVANTAGES OF FLOATING CHARGE

• Flexibility to subject stock in trade and book debts

• Assets may be dealt with until

• - Default
• - Breach of covenant

• - Decline in value

• - Proceedings by other creditors

PRIORITY OF CHARGES

Legal Charge v Equitable Charge = Legal Charge (Registered)

Floating Charge v Fixed Charge= Fixed Charge

Floating Charge v Floating Charge = 1st in time

DISADVANTAGES OF A FLOATING CHARGE

• Risk of dissipation

• Subsequent fixed charge

• Execution proceedings

• Distress proceedings

• Distribution of proceeds - s 392

NEGATIVE PLEDGE CLAUSE

• Undertaking by the charger not to create a further charge over the same assets without the
consent

• S 39 CA 2016 - not constitute a constructive notice

• Tan See King v Anata Knitting Industry [2013] 2 MLJ 284

REGISTRATION OF CHARGES

• S 352 - details of registration - when; what asset; who; what liability;

negative pledge; etc

• S 353 - assets include uncalled capital; shares in subsidiary; land;

book debts; credit balance etc

• Within 30 days - s 352(1)

• S 361 (extension of time) - accidental; inadvertence; sufficient cause;

not prejudicial

FAILURE TO REGISTER

• S 352(1) void against the liquidator, and the lender becomes unsecured

• The money becomes payable by the company

• S 352(10) an offence - company and directors

UNDUE PREFERENCE & OTHER OFFENCES

• Undue preference 528(1)

• Financial assistance S 123

• Loan to directors S 224 225