Question Tag: Bond

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  • 6 Marks

BCL – Nov 2020 – L1 – Q2c – Types of Capital and the Financing of Companies

Explain the concepts of a fixed charge and a bond in the context of loans taken by companies.

A loan taken by a company limited by shares may or may not be secured by a charge.

Required:
Explain the following:
i) A fixed charge (3 marks)
ii) A bond (3 marks)

i) A fixed charge:
Section 86(2) of ACT 179 provides that debentures may be secured by a fixed charge on certain of the company’s property. Once the property is subject to the fixed charge, the company cannot dispose of it without reference to the debenture holders. The asset subject to the fixed charge is bare land, a building, a vehicle, plant machinery, or equipment. Enforceability of a fixed charge allows the court to appoint a receiver (Section 87(5) of ACT 179). (3 marks)

ii) A bond:
A bond is a written instrument to pay money or do some act if certain circumstances occur or a certain time elapses. The distinguishing feature of a bond is that it is an obligation to pay a fixed sum of money at a definite time with a stated interest. (3 marks)

  • 6 Marks

BCL – Mar 2024 – L1 – Q5b – Types of Capital and the Financing of Companies

Explain the concepts of a fixed charge and a bond in the context of company financing.

A loan taken by a company limited by shares may or may not be secured by a charge.

Required:

In reference to the above statement, explain the following:

i) A fixed charge (3 marks)

ii) A bond (3 marks)

i) A Fixed Charge:

Debentures form part of a company’s loan capital. There are two types of secured debentures: debentures secured by a fixed charge and those secured by a floating charge. A debenture secured by a fixed charge is a loan to the company for which specific property of the company, such as land, buildings, vehicles, plant machinery, or equipment, is used as security to ensure repayment of the loan. In contrast, a floating charge covers general assets or undertakings of the company, allowing the company to continue dealing with those assets until the occurrence of a certain event that “crystallizes” the floating charge into a fixed charge.

A fixed charge on a property has priority over a floating charge affecting that property unless the terms of the floating charge specifically prohibit the company from granting a later charge that has priority over the floating charge, and the person in whose favor that later charge was granted had actual notice of that prohibition at the time when the charge was granted.

(3 marks)

ii) A Bond:

A bond is a written promise to pay money. It is an obligation to pay a fixed sum of money at a definite time with stated interest, and it makes no difference whether a bond is designated by that name or by some other name, as it possesses the characteristics of a bond.

(3 marks)

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