ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Kestrel Ltd grants a bank a fixed charge over its freehold factory to secure a loan. Kestrel's company law requires registered charges to be notified to the company registry. What is the main purpose of this registration requirement?
The purpose of registering a charge is to provide public notice of the security the company has given, so that creditors and potential lenders can discover it. Registration does not transfer ownership or approve the loan terms.
- ATo give public notice of the charge so that third parties dealing with the company can discover existing securityCorrect
- BTo transfer legal ownership of the factory to the bank immediately
- CTo guarantee that the bank will rank ahead of the company's employees in every circumstance
- DTo allow the company registry to approve the commercial terms of the loan
Explanation
Registration of charges creates a public record so that creditors and potential lenders can see what security the company has already given. It does not transfer ownership, approve loan terms, or guarantee priority over all claims. The distractor on ownership confuses a charge, which is security, with a transfer of title.
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