June 2014 (HK Law)
Q10
Education Ltd is listed company in the HKSAR. Recently, the company entered into a loan agreement with Bank Ltd under which the bank agreed to lend to Education Ltd a sum of money.
The loan agreement has, among others, the following provisions:
i) The company shall charge to the bank the property of the company
ii) Unless the company has prior written approval from the bank, the company shall not deal with the property in whatever manner
iii) The property does not include the trading stock of the company.
The loan agreement has no definition for the type of properties to be covered by the provisions of the agreement.
Required:
In relation to company law, explain the nature of the charge given by Education Ltd to Bank Ltd.
For the answer it classifies it as floating charge. However for point i) the charge is fixed on an identified property and in point iii) it mentioned that the charge does not include the trading stock of the company which is a class present and future assets and keep on changing on the original course of business of the company. More importantly, for point ii) it mentioned that company shall not deal with the property unless there is written approval from the bank. That means company has limited ability to dispose of its assets.
For the above reasons, shouldn't the charge classified as fixed charge? But why the answer is floating charge instead.
Thanks!!
Ask the Tutor ACCA LW
Fixed and Floating charge
11y ago#1A floating charge is one that floats "over the whole or substantially the whole of a company's assets / property including goodwill" ("property" is my insert) so there's no distinction between non-current assets and current assets. Equally there's no distinction between tangible and intangible assets
"Property" is causing me a bit of a problem. In the UK we talk about property as a house / home or even just land but it tends to refer to "land and buildings" whether owned or leased. That's why I have a problem because it seems to me that property in the above details refers to all assets of the company.
"Property law" relates to land and buildings rather than your umbrella or your car. But the office at a railway station called "Lost property" certainly doesn't have a selection of land and buildings that passengers have carelessly left on the train - it's full of umbrellas and children's toys.
I can certainly accept that "property" relates to assets generally simply by opening my blinkered mind and I am therefore happy enough with the answer "floating charge"
But that gives rise to a further problem and that is the restriction on the availability of the company to "deal with the property in any manner" because this suggests a fixed charge (as you so rightly point out)
As you can see, I'm not totally happy with the question - unless matters are different in Hong Kong, I believe that this is a poor question
Ok?
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