ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Dalmore Ltd gave Norvik Bank a registrable charge over its machinery but the charge was never registered within the time allowed. Dalmore later enters insolvent liquidation. Under the usual rule in company law regimes that require registration, what is the position of Norvik Bank?
The charge becomes void against the liquidator and other creditors, but the debt itself survives. Norvik Bank can claim in the liquidation only as an unsecured creditor, because failure to register removes the security, not the obligation to repay.
- AThe charge is void against the liquidator and other creditors, but the loan debt itself remains owed as an unsecured debtCorrect
- BThe charge is valid against everyone because the parties agreed it in writing
- CThe whole loan agreement is void and Dalmore need not repay the loan
- DThe charge is valid but ranks behind all other secured creditors
Explanation
Failure to register makes the security void against the liquidator and creditors, but the underlying debt remains payable, so the bank becomes an unsecured creditor. The loan is not cancelled, which rules out the option saying the agreement is void. A written agreement between the parties does not remove the need for registration.
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