Question Tag: Secured Loans

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)