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A single debenture of £20,000 from Peppa Ltd secured on Milly Ltd’s inventory. A floating charge was created on 3 March 20X1 and registered on 31 March 20X1.
A single debenture of £5,000 from Otto Ltd that is also secured on Milly Ltd’s inventory. A floating charge was created on 10 April 20X1 and registered on 30 April 20X1.Although registered late, the registration date of Peppa Ltd charge is still earlier than the creation date of Otto Ltd charge so the priority is on Peppa, isn’t it?
Please help me clarifying this,
Thank you.Hi Iniss. A debenture is created on a loan and, to be valid, it should be registered within 21 days of its creation. If it is not registered within that 21 days, the loan doesn’t go away. It’s no longer classed as being a validly registered debenture, but the loan still exists.
Subsequently, registration of this outstanding loan is effected beyond the 21 days time limit.
A few days / weeks / months later a further loan is borrowed and is correctly registered within the allowable 21 days.
So, who has priority?
I believe the 21 day allowable registration period is for the purposes of determining priority where a second loan is borrowed within that 21 day allowable period for registration of the first loan.
In an ideal world, if someone asks to borrow money from you, you would wait 21 days to ensure that there are no prior claims against the assets that are being offered as security.
But in the case of Peppa and Otto, (late) registration IS effected before Otto is approached so the Peppa debenture would rank ahead of the Otto debenture
Does that coincide with your understanding / BPP kit answers?
OK?
Okay! The kit answer also concludes the invalidity of Peppa charge and simply takes the priority to Otto charge without mentioning of the effected registration which makes me a bit confused.
This is not a situation that I have ever previously considered – and I’ve certainly never been asked before either!
But I believe that I’m correct. Yes, after 21 days, the charge is invalid if not registered and the debt is no longer secured (never was!) and becomes immediately repayable on demand. But then subsequent registration takes place crucially before Otto comes onto the scene. I have to assume that the charging instrument (the debenture document) was amended to show the revision to the important dates. If it hadn’t been so amended, the Registrar of Companies would not have acknowledged / registered the charge
OK?
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