Notesale: Turn your study into money

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Raising Capital
Debentures
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A debenture is the document which sets out the terms of a loan to the
company
If the company is granted a loan, the lender may become a debenture-holder
CA 2006 s738 – ‘debenture’ includes stock, bonds and any other securities of
a company, whether or not constituting a charge on the assets of the
company
Levy v Abercorris and Slab Co
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It is a charge on a class of assets of a company, present and future
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Until some future step is taken by or on behalf of those interested in the
charge, the company may deal with the assets in the usual way
Re Panama (1870) – a floating charge was created by the company over its
‘undertaking and all sums of money arising therefrom, and all the estate, right,
title and interest of the company therein’
The court held that ‘under these debentures, creditors have a charge upon all
the property of the company, past and future, by the term ‘undertaking’ and
that they stand in a position superior to that of the general creditors who can
touch nothing until they are paid’
The fact that the parties describe a charge as either fixed or floating is not
conclusive, as demonstrated in Re Spectrum…
Re Spectrum Plus Ltd [2005] – The company obtained an overdraft facility
from the bank, secured by a debenture
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When the company went into voluntary liquidation the bank applied
for a declaration that the debenture had created a fixed charge over the
company’s book debts
Held – although the debenture was expressed to grant the bank a fixed
charge, in law it granted only a floating charge – the company was free to
draw on the account which to do so is inconsistent with the charge being a
fixed charge
Lord Nicholls – ‘one must look, not at the declared intention of the parties
alone, but to the effect of the instruments whereby they purported to carry out
that intention’

Crystallisation
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The floating charge hangs over the class of assets – a charge attaches itself
to assets (or crystallises) and falls on the assets which are present at the time
Crystallisation of a charge will occur in the following circumstances –
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On liquidation of the company;
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On the occurrence of some event specified in the document creating the
charge (e
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default on the loan)

Registration of Charges
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Prior to 2013, registration was limited to certain categories of charges
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