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

Mirabel Ltd defaults on its debenture. The debenture holder, secured by a floating charge, wishes to enforce. Which right is the debenture holder entitled to exercise under typical debenture terms?

The debenture holder may appoint a receiver or administrator over the charged assets. As a secured creditor, the holder can enforce the security on default and realise the assets, but has no ownership rights over the shares and cannot cancel the company's incorporation.

  1. AAppoint a receiver or administrator over the charged assetsCorrect
  2. BRemove the directors and take over the shares of the company
  3. CCancel the company's incorporation and keep the proceeds

Explanation

On default, a secured debenture holder can usually enforce the security, commonly by appointing a receiver or, where permitted, an administrator, to realise the charged assets. Debenture holders are creditors, not owners, so they have no right to take the shares or remove directors as such. Incorporation can only be ended through formal legal processes.

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