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IAI Actuarial Core Principles · Business Finance · Structure and methods of financing a company

A company issues debentures that are secured by a charge over a specific asset, such as a factory building, which the company cannot dispose of without the trustee's consent. How is this type of security best described?

This is a fixed charge. It attaches to a specific identifiable asset and stops the company disposing of it without the lender's or trustee's consent. A floating charge, by contrast, covers a changing pool of assets that the company may deal with in the ordinary course until crystallisation.

  1. AA fixed chargeCorrect
  2. BA floating charge
  3. CAn unsecured charge
  4. DA negative pledge only
  5. A crystallised floating charge

Explanation

A fixed charge attaches to a specific, identifiable asset and prevents the company from dealing with it freely without the chargeholder's consent. A floating charge covers a changing pool of assets such as stock and receivables, which the company can trade in the ordinary course until crystallisation.

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