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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Brandt Co has an unregistered charge in favour of Lumen Finance. Brandt is not insolvent, and the charge is still unregistered. Lumen demands payment on default and wishes to enforce against Brandt's assets. Which statement is correct under the usual rule?

Lumen can still sue Brandt for the debt, because non-registration does not extinguish the loan. The failure to register mainly damages the security against a liquidator, administrator or other creditors, leaving Lumen unsecured against them.

  1. ALumen may still sue Brandt on the debt, and the lack of registration mainly affects Lumen's position against a liquidator, administrator or other creditorsCorrect
  2. BThe loan is automatically cancelled once the registration period expires
  3. CLumen must first obtain a court order before it can ever claim the debt
  4. DLumen loses the right to the money as against Brandt and everyone else

Explanation

Non-registration invalidates the security against specified parties such as the liquidator, administrator and creditors, but the debt remains a contractual obligation owed by the company. Lumen can therefore sue on the debt. The option stating the loan is cancelled wrongly treats the loss of security as loss of the debt.

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