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.
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Chapter
20. Debt capital and security
Chapter
14. Public Disclosure, Market Regulation and Public Investigations of Companies
This chapter focuses on corporate debt, first considering several special features of corporate borrowing. It then discusses: debentures; secured debt (mortgages, fixed and floating charges); debenture holders’ remedies and the protection afforded by charges; the requirement to register charges; fixed and floating charges; the creation and effect of floating charges; distinguishing between fixed and floating charges; and the use of alternative security devices (‘quasi-security’) such as retention of title agreements.
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’.
Chapter
16. Loan Sales and Securitization
Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare
This chapter examines one context in which contracts and debts are transferred — as banks and bank subsidiaries ‘sell’ their own assets, i.e. their loans, mortgages, credit card receivables, and so on. Commercially speaking, this divides into loan sales and securitization. Among the various motivations for these transactions are to reduce risk, to meet capital requirements, to allow for new lending, and to take advantage of financial and commercial opportunities. Securitization was abused, with many risky loans repackaged and sold as highly rated securities. Its contribution to the global financial crisis in 2008 made it unpopular. However, it remains significant as a financing technique. Before examining loan sales and securitization, the chapter lays out the different legal techniques for transferring debts and contractual rights.
Chapter
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, King’s Bench Division
Essential Cases: Equity & Trusts provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, King’s Bench Division. The document also includes supporting commentary from author Derek Whayman.
Chapter
2. Trusts in context
This chapter places trusts in their contemporary social, economic, legal, and international context. It first discusses their significance to the world outside the lawyer’s office, and shows that they play an important social and economic role in the lives of ordinary people. The trust operates in key areas such as home, employment, and commerce. The chapter also examines the trust in the context of laws, focusing on how it corresponds to, and coexists with, other legal ideas such as contract, debt, powers, gift, agency, bailment, tax, and corporation, and concludes by looking at the international and comparative dimension of the trust.
Chapter
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, King’s Bench Division
Essential Cases: Equity & Trusts provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, King’s Bench Division. The document also includes supporting commentary from author Derek Whayman.
Chapter
24. Liquidation and dissolution—winding up the insolvent company
Winding up or liquidation is the process by which the assets of the company are collected in and realised. This chapter concentrates on the winding up of insolvent companies. The discussion covers: voluntary winding up; compulsory winding up; consequences of the winding-up order; the role and powers of a liquidator; the anti-deprivation rule, proof of debts, and set-off; the order of distribution; and dissolution of the company. The chapter considers the differing types of winding up and, in particular, the ability to have a company wound up where it is unable to pay its debts. It examines the role of the liquidation in realising assets and making distributions to creditors. It considers in detail the order of distribution and the priority accorded to creditors including HMRC (following the expansion of preferential debts), floating chargeholders and unsecured creditors.
Chapter
24. Liquidation and dissolution—winding up the insolvent company
Winding up or liquidation is the process by which the assets of the company are collected in and realised. This chapter concentrates on the winding up of insolvent companies and the distribution of the available assets. The chapter starts with an overview of the legislative framework including that governing cross-border insolvencies. The discussion then moves to the basis and process for voluntary and compulsory winding up and the consequences of a winding-up order. The chapter examines the role and powers of a liquidator and, in particular, the rules governing the assets available in a liquidation, including the anti-deprivation rule and the position on set-off. Finally, the discussion turns to the order of distribution of the available assets to the creditors and the dissolution of the company.
Chapter
2. Trusts in context
This chapter places trusts in their contemporary social, economic, legal, and international context. It first discusses their significance to the world outside the lawyer’s office, and shows that they play an important social and economic role in the lives of ordinary people. The trust operates in key areas such as home, employment, and commerce. The chapter also examines the trust in the context of laws, focusing on how it corresponds to, and coexists with, other legal ideas such as contract, debt, powers, gift, agency, bailment, tax, and corporation, and concludes by looking at the international and comparative dimension of the trust.
Chapter
5. Consideration and estoppel
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter explores and defends the consideration requirement in the enforceability of contractual obligations, both when the contract is formed and if it is varied, refuting some of the criticisms calling for the requirement of consideration to be reformed or abolished in English law. It defines consideration as the ‘price of the promise’ and clarifies that an act or promise must have been requested by the promisor to count as consideration. It explores issues such as past consideration, performance of an existing contractual duty, and part payment of a debt, for which latter issue the common law rule is ameliorated by the equitable doctrine of promissory estoppel.
Chapter
25. Interim Payments
This chapter discusses the rules on interim payments. An order for interim payment is an order for payment of a sum of money by a defendant on account of any damages, debt, or other sum which the court may hold the defendant liable to pay. Such orders are likely to be made in claims where it appears that the claimant will achieve at least some success, and where it would be unjust to delay, until after the trial, payment of the money to which the claimant appears to be entitled. The amount ordered must not exceed a reasonable proportion of the likely final award taking into account any counterclaim and contributory negligence.
Chapter
7. Capital and capital maintenance
This chapter discusses the two principal types of capital that companies acquire: share capital (capital obtained by selling shares) and debt capital (capital borrowed from others). Having obtained share capital through the selling of shares, the law requires that the company ‘maintain’ that capital by not distributing it in unauthorized ways, notably by prohibiting companies from returning capital to the shareholders prior to liquidation.
Book
David Fox, Roderick Munday, Baris Soyer, Andrew Tettenborn, and Peter Turner
All books in this flagship series extract key cases, legislation, and academic debate, providing students with an invaluable resource. This new edition includes discussion of new legislation, including the new Insolvency Act 1986, ss 263H–263O; the Payment Services Regulations 2017; the Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018; and the Business Terms (Assignment of Receivables) Regulations 2018. In addition it discusses new case law such as Glencore International AG v MSC (on personal property law and shipping documents); Volcafe Ltd v Cia Sud Americana de Vapores (on bailment); Kaefer Aislamientos v AMS Drilling Mexico, Bailey v Angove’s Pty, and Banca Nazionale del Lavoro v Playboy Club (on agency); PST Energy 7 Shipping v OW Bunker Malta, Bajaj Healthcare v Fine Organics, Gunvor v Sky Oil & Gas, and Euro-Asian Oil SA v Crédit Suisse AG (on sale of goods); The Erin Schulte and Taurus Petroleum v State Oil Company (on trade finance); BP Oil International v First Abu Dhabi Bank (on assignment); Haywood v Zurich Insurance, The DC Merwestone, and Axa Insurance UK v Financial Claims Solutions (on insurance); and Jetivia SA v Bilta (UK) Ltd and JSC BTA Bank v Ablyazov (on insolvency). Other developments are also covered, such as the proposed reform of bills of sale recommended in the 2017 Law Commission report on Bills of Sale. The book contains a new introductory section on the likely detailed impact of Brexit on English commercial law.
Chapter
4. Consideration and estoppel
Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. This chapter explains the nature of consideration with the aid of examples and discusses two basic definitions of consideration (consideration as a legal benefit or burden and as the price of a promise) as well as the past consideration rule. It addresses whether performance of an existing duty can count as a legal benefit or burden to form consideration for a promise. It considers existing public duties, existing duties owed to a third party and existing duties owed to the promisor. The chapter examines the related rules concerning part payment of a debt and the extent to which promises not supported by consideration can be enforced using promissory estoppel.
Chapter
7. Capital and capital maintenance
Each Concentrate revision guide is packed with essential information, key cases, revision tips, exam Q&As, and more. Concentrates show you what to expect in a law exam, what examiners are looking for, and how to achieve extra marks. This chapter discusses the two principal types of capital that companies acquire: share capital (capital obtained by selling shares) and debt capital (capital borrowed from others). Having obtained share capital through the selling of shares, the law requires that the company ‘maintain’ that capital by not distributing it in unauthorized ways, notably by prohibiting companies from returning capital to the shareholders prior to liquidation.
Chapter
23. Loan capital—secured creditors and company charges
The majority of companies rely on commercial borrowing—loan capital—from high street banks and financial institutions. The lender will need security to cover the amount lent. This chapter discusses: company charges, fixed and floating charges, the approach to categorisation, registration of charges, and enforcement of a floating charge. The key concern for the creditor is to obtain the maximum security while the company is concerned to have the maximum freedom to act. The distinction between fixed and floating charges is considered and the characteristics of a floating charge are discussed with particular regard to charges on book debts. The chapter also considers the registration requirements with the registrar of companies.
Chapter
18. Specific Remedies
Jack Beatson, Andrew Burrows, and John Cartwright
This Chapter considers specific remedies for breach of contract. Under certain circumstances, a contractual promise may be enforced directly. This may be by an action for the agreed sum, by an order for specific performance of the obligation, or by an injunction to restrain the breach of a negative stipulation in a contract or to require the defendant to take positive steps to undo a breach of contract. These remedies have different historical roots, the claim for an agreed sum being, like damages, a common law remedy whereas specific performance and injunctions are equitable remedies that were once exclusively administered by the Court of Chancery.
Chapter
5. Non-contractual promises
Promissory and proprietary estoppel
This chapter considers how promissory and proprietary estoppel intersect with the law of contract. Where an agreement is unenforceable at contract law because some legal prerequisite or formality has not been met, that role is played by the law of estoppel. The law of estoppel works by deeming a party to be legally prevented (‘estopped’) from going back on something she has in the past asserted, promised, or accepted. The effect of estoppel is to hold the person to that past assertion or promise, by preventing her from resiling from it. This chapter first examines the context of promissory estoppel before discussing its requirements and its effect, such as suspending rights and extinguishing debts. It then explains the requirements of proprietary estoppel; namely, there must be a promise or encouragement, the promise or encouragement must induce reasonable reliance, reliance must be detrimental, and unconscionability.
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