Explain the following:
i) Floating charge (4 marks)
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A floating charge is an equitable charge over the whole or a specified part of the company’s undertaking and assets both present and future. This kind of charge does not preclude the company from dealing with such assets until the security becomes enforceable and the holder thereof, pursuant to a power in that behalf in the debenture or the deed securing the same, appoints a receiver or manager or enters into possession of such assets; or
- the Court appoints a receiver or manager of such assets on the application of the holder; or
- The company goes into liquidation.
On the happening of any of such events the charge shall be deemed to crystallize and to become a fixed equitable charge on such of the company’s assets as are subject to the charge.
ii) Naked Debentures (4 marks)
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Naked Debentures are unsecured debentures having no charge either fixed or floating (Section 86)
iii) Income Surplus (4 marks)
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Section 70 of Act 179 provides that Income Surplus of a company with shares is the net assets i.e. the total value of the assets less liabilities and the stated capital and less amounts attributable to:
- Any unrealized appreciation in the value of any asset of the company
- Any credit balance on the share deals account immediately before the ascertainment of the income surplus.