BBBL2043 Corporate Law

Tutorial 8

1. Describe the effects of non-registration of a charge. (4 marks)

2. The research team of Robot Empire Bhd. has recently invented a social humanoid robot. The
company requires huge working capital to produce the robot. Robot Empire Bhd. approaches
Eazy Bank for a loan of RM 50,000,000. Robot Empire Bhd. is asked to charge its assets to
the bank for security for the loan.

Robot Empire Bhd. owns a factory in Bangi. With the working capital of RM 50,000,000, it is
projected that the company would be able to produce 100 units of the social humanoid robots.
The Board of Directors of Robot Empire Bhd. is unable to decide whether to create a fix
charge on the factory or a floating charge on the robots.

(a) Outline to the BOD of Robot Empire Bhd. whether they should create a fix charge or
floating charge by comparing the different characteristics of the charges. (10 marks)

Issue: whether the BOD of Robot Empire Bhd should create a fix charge or floating charge
by comparing the different characteristics of the charges.
Law: There are two (2) types of charges which are fix charge and floating charge. A fixed
charge is one that is attached on specific property as soon as the charge is created. It is a
charge on specific assets of the company. Based on case law Siebe Gorman & Co. Ltd. V
Barclays Bank Ltd. (1979), once a fixed charge is created, the company is prevented from
dealing freely with the property, for example the company must not dispose of that
property; and cannot create any other charge on that property without the consent of the
existing holder of the charge.
Re Yorkshire Woolcombers Association Ltd. (1903):
A charge would be a floating charge if it has the following characteristics: -
 It is a charge on a class of assets both present and future;
 It is a class, which in the ordinary course of business, would be changing from time
to time;
 Until some steps are taken by the debenture holder or some event occurs, by which
the charge ceases to float and becomes fixed, the company may deal with the assets
charged and carry on its business in the ordinary way.

Application: Compared to fixed charge, BOD of Robot Empire Bhd are suggested to create
the floating charges on the robots, it is because floating charges like robots are applicable
to current assets which may be easier to realise. Moreover, BOD of Robot Empire Bhd can
 deal with the assets charged such as robots without the consent of the debenture holders.
Additionally, Assets such as robots can still be used in the ordinary course of business by
BOD of Robot Empire Bhd.
Conclusion: BOD of Robot Empire Bhd should choose to create a floating charge.

(b) With reference to decided cases, explain to the BOD of Robot Empire Bhd. under what
circumstances a floating charge will crystallise. (10 marks)

The floating charge will crystallize when any of the following events occurs:
i. According to the case law of Re Panama, New Zealand & Australia Mail Co.
(1870), When the company goes into liquidation (once the liquidator takes over, it
will become a fix charge).
ii. Based on case law of UMBC Bhd. v Official Receiver & Liquidators of Soon Hup Seng
Sdn. Bhd. (1986). When a receiver or liquidator is appointed by the court or by the
debenture
holders under a power contained in the debenture.
iii. When the company ceases to carry on its business - Re Wooldroffes Ltd.
(1985).
iv. Where an event of default as specified in the instrument of charge provides
for crystallization on the occurrence of certain event and that event occurs
and the chargee (creditor) gives notice to the chargor (company) that the
charge is converted to a fixed charge - Re Brightlife Ltd. (1987).
v. Automatic crystallization clause – the floating charge contract sometimes
make provisions for ‘automatic crystallization’ i.e. the charge is to crystallize
when a specific event occurs, whether or not –
a. The chargee learns of the event; and
b. The chargee wants to enforce the charge as a result of the event –
Fire Nymph Products Ltd. V The Heating Centre.

3. Explain the section of CA 2016 which confers borrowing power to a company. (4 marks)

4. The research team of Maha Car Bhd recently invented a flying car. The company requires
huge working capital to produce the flying car. Maha Car Bhd approaches N Bank for a loan
of RM 50,000.000. Maha Car Bhd is asked to provide sufficient securities for the loan.
 Maha Car Bhd owns a factory in Sekinchang a the market value of RM 75,000,000. With the
working capital of RM 50,000,000, it is projected that the company will be able to produce 10
units of flying car per annum.

Appraise whether the board of directors of Maha Car Bhd should create a fix charge or
floating charge in favour of N Bank. (20 marks)

5. (a) To conduct business activities, a company may raise capital either by issuing shares or by
borrowings. However, if the company resorts to borrowings to raise its capital, it may create
charges over its assets as security to the loan in favour of the lenders. The charge may be
either fixed or floating. Based on the Companies Act 2016 or case law, if any, discuss
THREE (3) differences between a fixed and a floating charge. Suggest, with reasons, which
type of charge is more advantageous to the company as a chargor. (10 marks)

(b) Feel Honey Bhd. has created the following charges over its assets in favour of these
creditors:

(i) On 1 January 2019, a floating charge over its stock of goods in favour of Summer Bank for
a loan of RM10,000. Until now, the charge was never registered;

(ii) On 1 March 2019, a fixed charge over a land in Klang in favour of Winter Bank for a loan
of RM2 million. The charge was unregistered.

(iii) On 3 April 2019, a floating charge over its book debts in favour of Autumn Bank. The
charge was registered.

(iv) On 5 May 2019, a fixed charge over a land in Cyberjaya in favour of Cloudy Bank for a
loan of RM1 million. The charge was registered.

Feel Honey Sdn. Bhd. is currently in liquidation process and attempting to discharge its debts.
Based on the Companies Act 2016, discuss the order of priority in payment to the
abovementioned creditors. (15 marks)