This chapter discusses why companies borrow money, the various sources of debt capital, and the rules relating to secured and unsecured borrowing. An obvious reason why a company might borrow is because it is struggling financially, and so other forms of capital will prove insufficient to meet the company’s debts or liabilities. In such a case, debt capital may be the only obtainable form of capital. Like shares, debt securities are tradeable financial instruments that a company can issue in order to raise finance. The principal form of security is a charge, which can be either fixed or floating. When determining whether a charge is fixed or floating, the courts will focus not on how the charge is labelled, but on the rights and obligations which the parties intended to grant each other. A failure to register the charge will render the charge void against a liquidator, administrator, or creditor.
Chapter
20. Debt capital and security
Chapter
C. Marketable loans
This chapter deals with arrangements by which a company borrows a large sum of money long term. The money is put up by a number of investors who are entitled to receive interest payments (usually twice a year) and, at the end of the term of the loan, repayment of principal. Sale of all or part of an investor’s entitlements is possible and arrangements are usually made for trading on a stock exchange. Marketable loans were once issued to the general public in the same way as shares, but nowadays they are usually held in large quantities by financial institutions and specialist investors. They are described as ‘wholesale’ rather than ‘retail’ investments. Interests in marketable loans are called ‘debt securities’, ‘bonds’ or ‘debentures’.
Chapter
C. Marketable loans
This chapter deals with arrangements by which a company borrows a large sum of money long term. The money is put up by a number of investors who are entitled to receive interest payments (usually twice a year) and, at the end of the term of the loan, repayment of principal. Sale of all or part of an investor’s entitlements is possible and arrangements are usually made for trading on a stock exchange. Marketable loans were once issued to the general public in the same way as shares, but nowadays they are usually held in large quantities by financial institutions and specialist investors. They are described as ‘wholesale’ rather than ‘retail’ investments. Interests in marketable loans are called ‘debt securities’, ‘bonds’ or ‘debentures’.
