2/3/2010 Company Law Il Lecture 6: Loan capital Loan capital Alternative financing to share capital Sources of borrowing: ·from shareholders 。from banks from the investing public Company's borrowing powers:ss 5A,5(5)and Sch 7cl13 Directors'borrowing powers:Table A regs 82 and 81
2/3/2010 1 1 Company Law II Lecture 6: Loan capital 2 Loan capital • Alternative financing to share capital • Sources of borrowing: from shareholders from banks from the investing public • Company’s borrowing powers: ss 5A, 5(5) and Sch 7 cl 13 • Directors’ borrowing powers: Table A regs 82 and 81
2/3/2010 Debt securities ·Debentures Definition:Levy v Abercorris Slate and Slab Co (1887)37ChD260 Debenture-holder as creditor ·Certificates:s70 Types of debentures Redeemable and irredeemable debentures ·Convertible notes ·Unsecured notes ·Debenture series ·Debenture stock ·Bearer debentures 2
2/3/2010 2 3 Debt securities • Debentures • Definition: Levy v Abercorris Slate and Slab Co (1887) 37 Ch D 260 • Debenture-holder as creditor • Certificates: s 70 4 Types of debentures • Redeemable and irredeemable debentures • Convertible notes • Unsecured notes • Debenture series • Debenture stock • Bearer debentures
2/3/2010 Matters relating to debentures ·Issuing debentures ·Public issues: Private companies:s 29 Prospectus provisions in CO "Dual prospectus"structure-program and issue prospectus:s 39B and 21st Schedule ·Listing Rules Application of SFO:debentures as "securities" Matters relating to debentures Register of debenture holders:s 74A Inspection of register:s 75 Trustee for debenture holders Meetings of debenture holders:s 75A Majority power and modification of terms of debentures:British American Nickel Corp Ltd v M JO'Brien Ltd [1927]AC 369(PC) Enforcement of contract to take debentures:s 78 3
2/3/2010 3 5 Matters relating to debentures • Issuing debentures • Public issues: • Private companies: s 29 • Prospectus provisions in CO • “Dual prospectus” structure - program and issue prospectus: s 39B and 21st Schedule • Listing Rules • Application of SFO: debentures as “securities” 6 Matters relating to debentures • Register of debenture holders: s 74A • Inspection of register: s 75 • Trustee for debenture holders • Meetings of debenture holders: s 75A • Majority power and modification of terms of debentures: British American Nickel Corp Ltd v M J O’Brien Ltd [1927] AC 369 (PC) • Enforcement of contract to take debentures: s 78
2/3/2010 Bonds ·Bonds notes bills ·Fixed coupon bonds ·Floating rate notes ·Zero coupon bonds Loan agreements Legal concept of a loan Distinguishing a loan from other types of transactions Significance of the distinction ·Loans and trusts. Barclays Bank Ltd v Quistclose Investments Ltd [1970]AC 567 ·Loans and transfers Olds Discount Co Ltd v John Playfair Ltd [1938]3 All ER 275 ·Loans and credit Chow Yoong Hong v Choong Fah Rubber Manufactory [1962]AC 209(PC) 8 4
2/3/2010 4 7 Bonds • Bonds I notes I bills • Fixed coupon bonds • Floating rate notes • Zero coupon bonds 8 Loan agreements • Legal concept of a loan • Distinguishing a loan from other types of transactions Significance of the distinction • Loans and trusts. Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 • Loans and transfers Olds Discount Co Ltd v John Playfair Ltd [1938] 3 All ER 275 • Loans and credit Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 (PC)
2/3/2010 Loan agreements ·Facility letter Loan agreement:agreement between company and lender(bank) ·Terms-egs: Single drawdown? Repayment-when?Term loans and loans repayable on demand. Fixed rate or floating rate? Revolving facility? Security and creditor protection Security through provision of assets: mortgages and charges ·Guarantees Creditor protection covenants in loan agreement: Undertakings by debtor company (eg negative pledge) ■Events of default 6
2/3/2010 5 9 Loan agreements • Facility letter • Loan agreement: agreement between company and lender (bank) • Terms - egs: Single drawdown? Repayment - when? Term loans and loans repayable on demand. Fixed rate or floating rate? Revolving facility? 10 Security and creditor protection • Security through provision of assets: mortgages and charges • Guarantees • Creditor protection covenants in loan agreement: Undertakings by debtor company (eg negative pledge) Events of default
2/3/2010 Transfer/assignment of debenture or debt Bearer debentures:transferable by delivery and not subject to equities Bechuanaland Exploration Co v London Trading Bank [1898]2 QB 658 Other debentures loans:assignment of chose in action: Legal assignments:Law Amendment and Reform(Consolidation) Ordinance s 9 Equitable assignments Assignment is subject to equities (unless agreed otherwise):Hilger Analytical Ltd v Rank Precision Industries Ltd [1984]BCLC 301 Prohibitions against assignment:Helstan Securities Ltd v Hertfordshire County Council [1978]3 All ER 262;Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994]1 AC 85 11 6
2/3/2010 6 11 Transfer/assignment of debenture or debt • Bearer debentures: transferable by delivery and not subject to equities Bechuanaland Exploration Co v London Trading Bank [1898] 2 QB 658 • Other debentures I loans: assignment of chose in action: Legal assignments: Law Amendment and Reform (Consolidation) Ordinance s 9 Equitable assignments Assignment is subject to equities (unless agreed otherwise): Hilger Analytical Ltd v Rank Precision Industries Ltd [1984] BCLC 301 Prohibitions against assignment: Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85
