BETWEEN FIXED AND FLOATING CHARGES: AN EFFECTIVE CORPORATE SECURITY

BETWEEN FIXED AND FLOATING CHARGES: AN EFFECTIVE CORPORATE SECURITY

Author by Dr. Veronica Ekundayo

Language: English

Abstract

Companies depend upon loan finance as one of their major sources of capital, while banks and other financial institutions involved in the business of lending money will ensure that their exposure to the risk of non-repayment is minimized. A lender has two options in providing credit facility: He may rely entirely on the borrower’s covenant to repay having been satisfied of the viable purpose for which the credit facility is required and the certainty of the source of repayment, in which case the debenture is called unsecured or naked debenture. The lender may however take in addition to the debtor’s covenant to repay, tangible assets and/or personal assurances in the form of guarantee or indemnity as security for the loan. When the loan is secured by way of a charge on the asset(s) of the debtor company, such charge may be fixed or floating. This paper attempts to examine the effectiveness or otherwise of this forms of charges as corporate securities.


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