CREDIT MANAGEMENT LAW

Credit Management Law

Credit Management Law

Task 1

Referring to the scenario a debenture may be secured on part or all of a company's assets and often comprises of a fixed charge and a floating charge. The lender is referred to as the debenture holder and is a secured creditor. The liquidator will normally have a duty to ascertain whether any misconduct has been conducted by those in control of the company which has caused prejudice to the general body of creditors. In some legal systems, in appropriate cases, the liquidator may be able to bring an action against errant directors or shadow directors for either wrongful trading or fraudulent trading. Although there is no requirement that a debenture must be secured by a charge over some or all of the company's assets, most debentures will include some form of security for practical reasons.

The liquidator may also have to determine whether any payments made by the company or transactions entered into may be voidable as a transaction at an undervalue or an unfair preference.

The main purpose of a liquidation where the company is insolvent is to collect in the company's assets, determine the outstanding claims against the company, and satisfy those claims in the manner and order prescribed by law.

The liquidator must determine the company's title to property in its possession.

A fixed charge is a form of security granted over specific assets, preventing a company or individual dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim to the proceeds of sale of the assets over which the charge falls and the creditor can usually appoint a receiver to realise the assets in the event of default. A fixed charge holder will rank before preferential creditors and unsecured creditors. Floating charge is a form of security over general assets of a company which can change from time to time as part of the normal activity of a business. The company continues to use the assets until a default event occurs. If this happens, the secured creditor will usually appoint an administrative receiver to realise the assets to recover the debt. A floating charge holder will rank after preferential creditors but before unsecured creditors. (Bratton et al 2005 Pp. 13)

In Re Paramount Airways Ltd [1990] BCC 130 the right of an airport to detain an aircraft under the Civil Aviation Act 1982 was held to be security in the form of a lien or charge under s248 (b). The following description of a security submitted by counsel for the administrators was adopted: -

'Security is created where a person ('the creditor') to whom an obligation is owed by another ('the debtor') by statute or contract, in addition to the personal promise of the debtor to discharge the obligation, obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor's obligation to the ...