Charge on assets of a company.

A company, when empowered to borrow, inherently possesses the authority to secure the debt by placing a charge on its properties, as an incident to such borrowing power. This includes the power to charge uncalled capital, unless stated otherwise in the memorandum and articles. However, borrowing against reserve capital is not permissible.

A charge, in this context, refers to an interest or right that a lender or creditor obtains in the company's property as security for the repayment of the debt. Charges can be fixed or floating:

Fixed Charge:

Against specific, clearly identifiable, and defined property.

The identity of the property does not change during the existence of the charge.

The company can transfer the property only subject to the charge, prioritizing payment to the charge holder.

Floating Charge:

Applicable only to companies as borrowers.

Covers assets of a circulating and fluctuating nature, such as stock-in-trade and debtors.

Attaches to property in varying conditions, remaining dormant until it crystallizes into a fixed charge.

Characteristics of a Floating Charge:

A charge on the class of assets of the company, both present and future.

The class of assets changes in the ordinary course of the company's business.

Contemplates that the company may carry on its business until steps are taken to crystallize the charge.

Consequences of a Floating Charge:

The company can deal with the property until the charge crystallizes.

The company can create specific mortgages with priority over the floating charge.

The company can sell its entire undertaking, even with the floating charge, if specified in the memorandum.

Crystallization of Floating Charge:

Occurs when the charge holder takes steps to enforce the charge.

Situations include the company ceasing its business, commencing winding up, or the debenture holder realizing securities.

Registration of Charges:

A company must maintain a register of charges at its registered office.

Charges requiring registration include those on debentures, uncalled share capital, book debts, goodwill, etc.

Registration provides public notice of the charge holder's interest in the property.

Effects of Registration:

Acts as notice to the public of the charge holder's interest.

Certificate of charge issued by the Registrar is conclusive evidence of proper registration.

Consequences of Non-Registration:

A charge not registered is void, affecting the availability of the charged security to creditors.

The security's void status does not impact the company's obligation to repay the debt.

Memorandum of Satisfaction:

When the debt secured by a registered charge is paid or satisfied, a memorandum of satisfaction can be entered on the register.

Failure to register particulars of a charge is punishable with fines.

This comprehensive system of registration and enforcement ensures transparency and protection of interests for both the company and its creditors.