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

Zentra Ltd, a company incorporated in a jurisdiction following the ACCA LW Global company law model, granted a registrable fixed charge over its factory to Bank Alpha to secure a loan. Bank Alpha did not register the charge within the required period. Which statement best describes the effect of this failure?

An unregistered registrable charge is void against the liquidator, administrator and other creditors, so the lender loses its security. The loan debt is still owed, and the lender simply ranks as an unsecured creditor. Registration is therefore essential to protect the lender's priority.

  1. AThe charge is void against the liquidator and other creditors of the company, but the loan debt remains payableCorrect
  2. BThe charge is void and the loan itself is cancelled, so Zentra need not repay the money
  3. CThe charge remains fully valid against all parties because registration is only an administrative formality

Explanation

Failure to register a registrable charge makes it void against the liquidator, administrator and creditors of the company. The debt itself is not extinguished, so the lender becomes an unsecured creditor and the money is repayable at once. The option saying the loan is cancelled is wrong because only the security fails.

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