Question Tag: Naked Debentures

i) Floating Charge:

• A floating charge is an equitable charge over the whole or a specified part of the company’s undertaking and assets, both present and future. This type of charge does not preclude the company from dealing with such assets until the security becomes enforceable. The charge crystallizes into a fixed equitable charge on the company’s assets upon certain events, such as the appointment of a receiver or manager, the company going into liquidation, or a court order.

  (4 marks)

ii) Naked Debentures:

• Naked Debentures are unsecured debentures having no charge, either fixed or floating. This means that the debenture holders do not have any claim over specific assets of the company as security for the loan.

  (4 marks)

iii) Income Surplus:

• Income Surplus is defined by Section 70 of the Companies Act, 1963 (Act 179) as the net assets of the company, which is the total value of the assets less liabilities and stated capital. It excludes any unrealized appreciation in the value of the company’s assets and any credit balance on the share deals account immediately before the ascertainment of the income surplus.

  (4 marks)