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Hello Sir
Could you please explain what is meant by crystallization of a floating charge and when does a floating charge crystallize?
Thank you in advance
When a charge is created, the borrower is pledging property as security in the event that the loan is not repaid
That pledge (promise, loan agreement) will be formalised in writing and a copy sent to the Registrar of Companies
Included within the loan agreement clauses will obviously identify the lender, the borrower, the amount lent, the date scheduled for repayment, the rate of interest and details of the property that is promised as security
If the borrower later finds him/herself in financial difficulty and is unable to meet the terms of the loan agreement, for example fails to make an interest payment on time, then the charge crystallises.
The lender may then exercise their rights to, for example, seize/take possession of the asset that was pledged as security
When does a floating charge crystallise? When the borrower fails to comply with the terms of the loan agreement or …
… places the secured asset in jeopardy (eg plans to sell or destroy it) or ..
… commences a liquidation
OK?
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