In commercial practice the term "debenture" typically refers to the document that evidences a secured debt, although in law the definition may also cover unsecured debts (like any "IOU").[46] The legal definition is relevant for certain tax statutes, so for instance in British India Steam Navigation Co v IRC[47] Lindley J held that a simple "acknowledgement of indebtedness" was a debenture, which meant that a paper on which directors promised to pay the holder £100 in 1882 and 5% interest each half year was enough, and as a result subject to pay duty under the Stamp Act 1870. The definition depends on the purpose of the statutory provision for which it is used. It matters because debenture holders have the right to company accounts and the director's report,[48] because debenture holders must be recorded on a company register which other debenture holders may inspect,[49] and when issued by a company, debentures are not subject to the rule against "clogs on the equity of redemption". This old equitable rule was a form of common law consumer protection, which held that if a person contracted for a mortgage, they must always have the right to pay off the debt and get full title to their property back. The mortgage agreement could not be turned into a sale to the lender,[50] and one could not contract for a perpetual period for interest repayments. However, because the rule limited on contractual freedom to protect borrowers with weaker bargaining power, it was thought to be inappropriate for companies. In Kreglinger v New Patagonia Meat and Cold Storage Co Ltd[51] the House of Lords held that an agreement by New Patagonia to sell sheepskins exclusively to Kreglinger in return for a £10,000 loan secured by a floating charge would persist for five years even after the principal sum was repaid. The contract to keep buying exclusively was construed to not be a clog on redeeming autonomy from the loan because the rule's purpose was to preclude unconscionable bargains. Subsequently, the clog on the equity of redemption rule as a whole was abolished by what is now section 739 of the Companies Act 2006. In Knightsbridge Estates Trust Ltd v Byrne[52] the House of Lords applied this so that when Knightsbridge took a secured loan of £310,000 from Mr Byrne and contracted to repay interest over 40 years, Knightsbridge could not then argue that the contract should be void. The deal created a debenture under the Act, and so this rule of equity was not applied.
Registration
See also: Companies House
In London the main office of Companies House, where all charges against a company need to be registered, is on Bloomsbury Street, just near the British Museum.
While all records of all a company's debentures need to be kept by the company, debentures secured by a "charge" must additionally be registered under the Companies Act 2006 section 860 with Companies House,[53] along with any charge on land, negotiable instruments, uncalled shares, book debts and floating charges, among other things. The purpose of registration is chiefly to publicise which creditors take priority, so that creditors can assess a company's risk profile when making lending decisions. The sanction for failure to register is that the charge becomes void, and unenforceable. This does not extinguish the debt itself, but any advantage from priority is lost and the lender will be an unsecured creditor. In National Provincial Bank v Charnley[54] there had been a dispute about which creditor should have priority after Mr Charnley's assets had been seized, with the Bank claiming its charge was first and properly registered. Giving judgment for the bank Atkin LJ held that a charge, which will confer priority, simply arises through a contract, "where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge". This means a charge simply arises by virtue of contractual freedom. Legal and equitable charges are two of four kinds of security created through consent recognised in English law.[55] A legal charge, more usually called a mortgage, is a transfer of legal title to property on condition that when a debt is repaid title will be reconveyed.[56] An equitable charge used to be distinct in that it would not be protected against bona fide purchasers without notice of the interest, but now registration has removed this distinction. In addition the law recognises a pledge, where a person hands over some property in return for a loan,[57] and a possessory lien, where a lender retains property already in their possession for some other reason until a debt is discharged,[58] but these do not require registration.
Fixed and floating charges
Main articles: Fixed charge and Floating charge
Registration
See also: Companies House
In London the main office of Companies House, where all charges against a company need to be registered, is on Bloomsbury Street, just near the British Museum.
While all records of all a company's debentures need to be kept by the company, debentures secured by a "charge" must additionally be registered under the Companies Act 2006 section 860 with Companies House,[53] along with any charge on land, negotiable instruments, uncalled shares, book debts and floating charges, among other things. The purpose of registration is chiefly to publicise which creditors take priority, so that creditors can assess a company's risk profile when making lending decisions. The sanction for failure to register is that the charge becomes void, and unenforceable. This does not extinguish the debt itself, but any advantage from priority is lost and the lender will be an unsecured creditor. In National Provincial Bank v Charnley[54] there had been a dispute about which creditor should have priority after Mr Charnley's assets had been seized, with the Bank claiming its charge was first and properly registered. Giving judgment for the bank Atkin LJ held that a charge, which will confer priority, simply arises through a contract, "where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge". This means a charge simply arises by virtue of contractual freedom. Legal and equitable charges are two of four kinds of security created through consent recognised in English law.[55] A legal charge, more usually called a mortgage, is a transfer of legal title to property on condition that when a debt is repaid title will be reconveyed.[56] An equitable charge used to be distinct in that it would not be protected against bona fide purchasers without notice of the interest, but now registration has removed this distinction. In addition the law recognises a pledge, where a person hands over some property in return for a loan,[57] and a possessory lien, where a lender retains property already in their possession for some other reason until a debt is discharged,[58] but these do not require registration.
Fixed and floating charges
Main articles: Fixed charge and Floating charge
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