1/1/2023

DEBENTURE & CHARGE

NHAS 1

Debenture
• Definition: S 2 CA 2016 – includes debenture
stock, bonds, sukuk, notes and any other
securities of a corporation whether constituting a
charge on the assets of the corporation or not
• S 171 (1) – Subdivision 10 (on debentures) shall
be applicable to an offer made to public, including
an offer made to any section of the public with
regards to:
a. An offer or invitation in respect of shares or
debentures made by an unlisted recreational
club; and
b. An offer or invitation to deposit money with
or lend money to a corporation.

NHAS 2

1
 1/1/2023

Debenture

• Common law – any document which

evidences a debt.

• Chitty J in Levy v Abercorris Slate 7 Slab Co.

(1887) 37 ChD 260;
 “.. A document which either creates a debt
or acknowledges it and any document which
fulfils either one of these conditions can be
regarded as a debenture.”

NHAS 3

TYPES OF DEBENTURE
(a) Debenture may be issued to single
individual, institution such as bank.

(a) Debenture can also be issued to the public.

• S. 176 (1) - A borrowing company which issues
debentures to public shall appoint a trustee
corporation to act as trustee to debenture
holder.

NHAS 4

2
 1/1/2023

Trustee for debenture holders

• S. 176 (2) – for company which needs to appoint trustee, offering
of debenture shall not be made until the appointment of trustee
has been made and trustee corporation has consented to act as
trustee.
• S 176 (3) – a trustee for debenture holders shall not be appointed
without leave of court if the trustee is:
– (a) a shareholder who beneficially holds share in the
borrowing corporation;
– (b) beneficially entitled to moneys owed by the borrowing
corporation;

NHAS 5

Trustee for debenture holders

– (c) a corporation that has entered into a guarantee
in respect of the principal debt secured by the
debentures or in respect of interest in the
principal debt; or
– (d) a corporation that is by virtue of S 7 deemed
related to:
• (i) any corporation referred to in (a), (b) and (c); or
• (ii) the borrowing corporation.
• Duties of trustees – S 177 (1)(a) – (g)

NHAS 6

3
 1/1/2023

Charge
• Debentures are usually secured by a mortgage or
a charge over the borrowing of company’s
property.
• A company may give any type of security in the
form of charge, mortgage or pledges.
• Definition of charge: S 2 - including a mortgage or
any agreement to give or execute a charge or
mortgage whether upon demand or otherwise.
• No definition of mortgage has been provided by
the CA 2016
NHAS 7

TYPES OF CHARGES

Charges

Fixed Floating
NHAS 8

4
 1/1/2023

FIXED CHARGE
• One that attaches to a specific property
owned by the borrowing company.
The company may not deal with the asset so
charged except with the consent of the
chargor.
• The property may or may not be owned by the
company or that is in existence at the time of
creation of the charge.
• Fixed charge on future property is recognised
under equity.
NHAS 9

FLOATING CHARGE
• A charge that floats over specified categories of assets of
company. Eg company’s inventory, stock-in-trade.
• A company is at liberty to dispose of the subject matter
of the charge in the ordinary course of business.
• If the company defaults, the D/H intervenes to enforce
the debenture or the company is wound up. The charge
ceases to be ‘floating’ and attaches to the existing items
of property owned by the company. The floating charge
is said to crystallize and become fixed.

NHAS 10

5
 1/1/2023

FLOATING CHARGE

• Re Yorkshire Woolcombers’ Association Ltd [1903] 2 Ch

284. where Romer J stated the three characteristics of
a floating charge:
– 1. if it is a charge ona class of assets of a company present
or future;
– 2. if that class is one which in the ordinary course of
business of the company;
– 3. if the company may carry on its business in the ordinary
way as far as concerns the particular class of assets.

NHAS 11

FIXED V FLOATING CHARGE

• Evans v Rival Granite Quarries Ltd [1910] 20
KB 979 – Buckley LJ held that:
– Floating charge is a present security;
– It is not a specific security;
– It is not a specific mortgage of the assets, plus
licence to the mortgagor to dispose of them in the
course of his business.

NHAS 12

6
 1/1/2023

Kes : Gov Stock & Other Securities v. Manila

Rail Co.
• Held:
In any cases where a floating charge was
created. Later on the co. default in payment but
the chargor failed to enforce his right over the
charge The floating charge will not have priority
over a fixed charge created later.
• When the chargor fails to enforce his right, the
floating charge remains floating.
NHAS 13

CRYSTALLIZATION OF FLOATING
CHARGES
– A floating charge may crystallize by the
intervention of the holder of the charge upon
occurrence of one or more series of events which
are usually set out in the charge document.
– Eg: winding up, cessation of trading or disposal of
the undertaking with a view to cessation of
trading – Hubbuck v Helms (1887) 56 LJ Ch 536
– Government Stock Investment Co v Manila
Railway [1897] AC 81

NHAS 14

7
 1/1/2023

CRYSTALLIZATION OF FLOATING
CHARGES
– A floating charge may crystallize over all the assets
subject to it (most common), or just some of them
if the lender so decides (rare).
– Upon crystallization:
• the chargor’s ability to deal with the assets is
restricted.
• The charge becomes fixed from the moment.
– To take effect, the creditor needs to apply to
court to appoint receiver.

NHAS 15

CRYSTALLIZATION OF FLOATING
CHARGES
• Automatic crystallisation of floating charge
occurs when the borrowing company:
–Defaults in payment of interest for a
specified period;
–Breaches restrictions on future
borrowings;
–Allows the value of charged assets to
decline below a minimum amount;
–Ceases to deal with the charged assets in
the ordinary course of its business.

NHAS 16

8
 1/1/2023

REGISTRATION OF CHARGES
• S 352(1) – a company that creates a charge over a
property or any registrable undertakings shall lodge
within 30 days from the creation of the charge a
statement of particulars of the charge in the form
and manner so prescribed by the ROC.
– United Asian Bank Bhd. v KYBB. (unreported) OS
No C98 of 1980
– Johor Para Rubber Co. Ltd. v ROC [1948] MLJ 135
– Esberger & Son Ltd v Capital & Counties Bank
[1913] 2 Ch 366
• S 352(6) – subsection (1) is not applicable to the
provided transactions.

NHAS 17

REGISTRATION OF CHARGES
• S 352(2) – any contravention to (1) shall render the
charge void.
• S 352(3) – the liability for repayment is immediate in
case of a charge becomes void under this section.
• S 353 – types of charges requiring registration
• S 352(4) –prior to the lapse of 30 days, registration of
another charge would not be allowed unless the
Court is satisfied (grounds so provided).
• S 361 – extension of time
• S 357 – register of charges is to be kept by the
Registrar

NHAS 18

9
 1/1/2023

PRIORITY OF Yehh!!!!!.....
CHARGES May the best
mice
winnnn…..!!

NHAS 19

PRIORITY AMONG CHARGES

 Priority among charges arises in the case where the
company is being wound up. Creditors of the
company would then claimed their rights in the
company’s asset. It may happen that the creditor will
claim priority of payment over other creditor. This is
happen where all the co’s asset is not sufficient to
settle the co debt.

• The lender as creditor were among those who always

claim priority in payment of debt. In this situation
the liquidator will consider the payment accdg to
types of charge that has been secured to the lender.
NHAS 20

10
 1/1/2023

PRIORITIES OF CHARGES
i) Registered charges have priority in order of
registration with the Registrar
- Re Benjamin Cope & Sons Ltd [1914] 1 Ch 800

An equitable charge has no priority over a legal

charge unless it was created earlier and the legal
chargee knew of it -United Overseas Bank Ltd lwn.
Forward Overseas Credit Ltd [1988] 1 MLJ 496

NHAS 21

PRIORITIES OF CHARGES
– A registered charge has priority over an
unregistered charge unless the unregistered
charge was created first and the holder of the
registered charge had actual or constructive
notice at the time of the creation of the
registered charge of the existence of the
unregistered charge.
– Unregistered charges have priority in accordance
with their time of creation.

NHAS 22

11
 1/1/2023

• ii) Between two or more floating charges,

priority will be given to the first one being
registered at the CCM.
- Re Benjamin Cope & Sons Ltd [1914] 1 Ch
800

• iii) Between two or more fixed charge,

priority is given to those firt being
registered at CCM.
NHAS 23

THE RULE

• iv) Fixed charge will have priority against floating

charge. Thus if the company grant floating charge and
subsequently grant fixed charge, the fixed charge will
have priority.

EXCEPTION; floating charge is created earlier and its

existence is known to the fixed chargee.
Case : United Overseas Bank Ltd. v Forward Overseas
Credit Ltd. [1988] 1 MLJ 496
Case : Kay Hian & Co. (Pte) Ltd. V. Jon Phua Ooi Yong &
Ors. [1989] 1 MLJ 284
NHAS 24

12
 1/1/2023

• Negative pledges - is a contractual

promise given by borrowing company
that it will not grant charges in favour of
other creditors w/o the prior consent of
a lender. Such agreement are binding
b/w the co and the debenture holder as
a contractual covenants..

–Re Vallertort Sanitary Steam Laundry

Co. Ltd. [1903] 2 Ch 654

–Wilson v Kelland [1910] 2 Ch 306

NHAS 25

• Eg: If company grant fltg charge and put NP on that

charge stating that further charge will have no
priority over the said charge. Then co create fxd
charge to one lender and the lender know about the
NP, then the holder of fixd charge will have no
priority over the fltg charge since they have
knowledge about the NP created by the co and the
fltg charge holder.

NHAS 26

13