Tutorial sheet 5
Securities and Loans
What exactly is a share anyway?
Borland’s Trustee v Steel Brothers and Co. Ltd [1901] 1 Ch 279.
A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with s.16 of the Companies Act 1862.
What do you get out of having a share?
Dividents
Voting rights
Investment
What is your responsibility as a shareholder? What is the extent of your risk as a shareholder (think carefully – this is a wider question than it looks).
Voting Power on Major Issues
Ownership in a Portion of the Company
The Right to Transfer Ownership
An Entitlement to Dividends
Opportunity to Inspect Corporate Books and Records
The Right to Sue for Wrongful Acts
If you had a convertible cumulative preference participating non-voting share which was subject to drag-along rights, what rights and duties would that share have?
3. Why do we have all these complicated types of share? Why not just use ordinary shares?
4 Define a debenture under English law, and explain what a debenture trust deed trustee does. What is the equivalent term for a debenture in Scotland?
5. What is the Scottish term for a mortgage over land and buildings, and what happens if you don’t pay the instalments under a mortgage?
6. How does a floating charge operate?
7. How does a qualifying floating charge operate? What is the benefit of a qualifying floating charge over a floating charge?
8. (a) When a venture capitalist invests in a company he will wish to protect his interests and investment as much as he can. He will be particularly anxious that the other shareholders do not attempt to carry out certain actions without his approval. Discuss the various methods that he may legitimately use to ensure that his interests are not ignored by the other shareholders or directors. Are there any commercial or other problems arising out of the use of these methods?
(b) A debenture holder may choose to lend to a company but as a creditor of the company he will wish to protect his loan in a different manner from that in (a). Explain the normal methods that a debenture holder may use to protect his loan and the rights available to him if the company defaults in its obligations to him.
Exam August 2002.
9. Explain how you register a floating charge and a standard security in Scotland.
What is the name of the document that may be drawn up to regulate the priority of competing floating charges and standard securities? How is that registered? Why is it needed? What would happen if you didn’t use it?
Registrar of Companies 21 days after execution. Qualifying floating charge, new, IA 1986 14,2
10. Why is registration of these documents so very important?
To secure yourself as a creditor. Secured creditors have prority to unsecured ones.
What happens if you fail to register a charge within the required time-limits? What are the problems associated with registration?
The charge is not valid. Thompson v Sharp