In the field of business, one may require financial assistance at any point of time. This assistance may be provided via different sources in different scenarios. However, give and take remains an integral part of business. Hence, in return of the monetary assistance, the grantee has to give the person providing financial assistance, something. This may be either in the form of equity or in the form of some security. Those who want to open a company in London, may have a better understanding of types of security, charges and its conditions after going through the article thoroughly. The topic discusses the different types of securities that can be given in debt financing.
Guarantee given to Creditors
The task of register your business UK requires affordable money but for the establishment and growth of the company, a good amount of finance is needed. When a company intends to get financial aid from any Lender, it has to sign an agreement with the lender. That agreement determines the extent of liberty to be given to the borrower as well as the extent of security to be given to the lender. Generally, the borrower may like to have least obligations on him. Similarly, the lender may also like to have the most secure agreement to protect his money from going wasted. Hence, taking into consideration the point of views of both the parties, the agreement should be designed in a way that is suitable to both of them. However, the parties may have to compromise on some of their demands to settle the matter on a common ground.
The lender may help the borrower to open a company in London, but he cannot trust the borrower without any written agreement. For a lender, the only guarantee is a security. This security may be given in different forms. The different forms of the security determine in what order the disbursement of assets must be made if the borrower fails to pay the debt within the deadline. Upon the bankruptcy of the borrower, the money may be most commonly returned in the form of either mortgages or charges. The charges may be either floating or fixed.
For further elaboration of the definition of security, the case of Armour is presented as follows:
Held: A lender with security is given the right of ownership over the asset of the debtor, by the debtor. Hence, at time of financial ruin in the business of the debtor, the secured lender, in comparison to other unsecured lenders, has the preference over the property that was presented to him as a security. The debtor can transfer his right over the asset to the lender. However, this right must be returned to the debtor after the debtor has paid the loan. It should be noted that a hierarchical prioritisation is depicted by this form of security.
Guarantee given in form of Charges
At the time of registering a new business UK, the company has least chances of facing any crises such as any unbearable loss. However, with the passage of time the risk factor increases. Riskier transaction result in greater loss. There may be a Bankruptcy situation. At the time of insolvency, the indebted person may pay the loan in form of charges. However, these charges are different from the charges that are defined by statutory laws. These are equitable charges. These charges do not require the possession of any belongings of the debtor. Hence, there is no transfer of entitlement of the property.
To understand the “charges” better, the Charnley case has been studied in the text that follows:
Consider a business transaction, where the debtor intends to hand over his belonging to pay the debt to the creditor in future for security. Also, a right is given at the time of transaction to the creditor to demand the availability of the property. However, he may be able to make use of this right only in future and by the order of the court. In such a transaction, security given to the creditor may be termed as charge.
The case of Carreras Rothmans, is presented as another example.
A security may be termed as an equitable charge when the property is presented as a security in future. Moreover, the ownership does not change. Hence, the debtor remains the owner the property throughout. However, the creditor has the right to ask justice from court by requesting the auction of that property. He may also ask for a receiver’s appointment. Nevertheless, he is not allowed to take the ownership of the property.
Types of Charges
A method to raise funds after registering a new business UK is Charge. The benefit of charge is that the debtor is not forced to give away his ownership of his belongings.
As mentioned above, when a debtor does not lose the ownership over his property but may have to sale the property to pay for debts at the time of bankruptcy, this is known as charge. A charge may have types. The types are discussed in the text below:
Scenarios suitable to both the charges:
Once the new comer in the field of business is done with register your business UK , the next step is to finance the company. A key technique would be that the borrower places him the position of a creditor and thinks like him before choosing any charging technique. This topic defines the points that a creditor may consider before taking a decision.
It is crucial for a creditor to decide for the type of charge to be incorporated in the agreement. However, this can be done by mere observation. The creditor has to focus on the type assets being used for the generation of earnings. If there is just a solo machinery, it is better for the creditor to opt for fixed charge. However, if there are a number machineries used in the production area of the company, Floating charge is more suitable option.
The following examples of cases provide illustration for Floating charge:
Consider the case of Re Cimex,
Take into account Re Yorkshire case,
The Berg Analysis of Yorkshire Woolcombers:
The analysis by Berg informs that the points inferred from Woolcombers do not revolve around the ability of floating charge to hover over the assets and the property of assets to change their worth with time. In fact, it rather focuses on two points that may easily be understood. They are mentioned in text that follows:
For further illustration, consider the case of Re Spectrum,
Lord Scott stated that the above mentioned inferences were supported by Council Privy. In the view of Lord Millet the first two qualities of the floating charge, that demonstrated the hovering nature over assets changing with time, were not the features that distinguished it. However, the third characteristic, mentioned by Romer LJ, was what made the difference between a fixed charge and a floating charge quite clear.