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LL202 Commercial Contracts

LL202 Commercial Contracts. Chris von Csefalvay. Agenda for today . Session 10: Credit Recap Class questions. Q1: differentiation between fixed and floating charges. 10’ work in groups please. Q1: differentiation between fixed and floating charges.

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LL202 Commercial Contracts

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  1. LL202 Commercial Contracts Chris von Csefalvay

  2. Agenda for today • Session 10: Credit • Recap • Class questions

  3. Q1: differentiation between fixed and floating charges 10’ work in groups please

  4. Q1: differentiation between fixed and floating charges • Re Spectrum Plus ltd[2005] 2 AC 680 overruling Siebe Gorman v Barclays [2979] 2 Lloyd’s Rep 142: the charge created by the standard bank debenture over book debts is floating, not fixed

  5. Q1: differentiation between fixed and floating charges • Assets subject to fixed charges require the bank’s consent before they can be sold/dealt with (as assets are subject to the charge) • Enterprise Act 2002: • Holders of post-2003 floating charges cannot appoint receivers • A prescribed part of floating charge receipt goes to unsecured creditors

  6. Q2: operation of crystallisation 10’ work in groups please

  7. Q2: operation of crystallisation • Crystallisation is pure magic. • At the event that triggers crystallisation (insolvency), the floating charge becomes a fixed charge and control over the goods is no longer the debtor’s.

  8. Q2: operation of crystallisation • Crystallisation is effectively the mechanism that allows for floating charges: it permits a hybrid charge that is a proper security, but also able to apply to rotating goods.

  9. Q3: ROT as security 5’ work in groups please

  10. Q3: ROT as security • If ROT were a proper security, it ought only bind third parties only if title were registered somewhere. • Charges (securities) are conceptually different – they are equitable interests in property (layer cake), ROT is absolute ownership (unity)

  11. Q4: Artificial transactions 5’ work in groups please

  12. Q4: Artificial transactions • Example: HP – in function, it’s a sale on credit, but they are structured to retain title as security for the lender. • Does that matter?

  13. Q5: Is English law too favourable to secured creditors? 5’ work in groups please

  14. Q5: Is English law too favourable to secured creditors? • Secured creditors with fixed charges have top priority. They are usually banks. Why protect their priority? • Because capitalism is contingent on credit, and capitalism absolutely rocks!

  15. Q6: registration of company charges 5’ work in groups please

  16. Q5: Is English law too favourable to secured creditors? • Probably. It permits creditors to make a more accurate assessment of the status/security of their debts. • The big problem, I think, is that it’s not comprehensive: ROTs, unsecured debts – “unknown unknowns”

  17. End of session 10 See you on Tuesday morning in the same place. – Please do the recommended readings and think about the questions.

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