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In addition, Kangaroo may have given the bank a charge
over its assets as security for the loan. There is a risk that
the disclosure of any security given is not complete.The loan correspondence should be reviewed to ascertain
whether any security has been given, and this bank
should be circularized as part of the bank confirmation
process.Dear professor, could you please explain this to me. I don’t get this. And I can see this written everywhere.
A charge over the assets = a mortgage to secure a loan. You cannot tell if there is a charge just by looking at the assets so you need to look at documentation.
Your post is titles ‘loan covenant’ but your question does not mention that. Broadly a loan covenant is an undertaking given by the borrower such as not to pay more than 10% of profits as dividends or to leg the current ration fall below 1.5. If a covenant is breached the lender could demand repayment – with going concern implications.
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