The Board of Borrowers Company Ltd. has applied for a loan from Uchumi Commercial Bank. The Bank has advised that any loan will be conditional upon the bank being granted security in the form of a combination of fixed and floating charges on the companies assets. The bank has also advised Borrowers Company Ltd. that the charges will be contained in the bank’s standard form debenture document. This contains a “negative pledge clause” and a term which enables the bank to place the company in administrative receivership in the event of default by the company.
(a)(i)In numbered paragraphs distinguish between a fixed and a floating charge. (6 marks)
(ii)What are the disadvantages of a floating charge to the bank? (4 marks)
(b)Explain the meaning of a “negative pledge” clause. (4 marks)
(c)Explain how administrative receivership differs from liquidation. (6 marks)
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