-This problem is based on priority of charges created by the company. It is clear that the first charge in favor of Tumaini Bank had a negative pledge clause which prohibited Smart Ltd from creating a charge in priority thereof. But Smart Ltd created a fixed charge thereafter in favor of Mali Bank which claims ignorance of the prohibition.
- Tumaini Bank's charge has priority in that it was created first and had a negative pledge clause and covers all the assets of the company.
- Mali Banks fixed charge ranks second in that it was created after Tumaini Banks Charge. The contention that the bank was unaware of the prohibition is untenable as the bank as a 3rd party is deemed to know the contents of the company's public documents. This is because charges are registrar with the registrar of companies. Arguably, therefore the doctrine of constructive notice renders the banks argument unsustainable.
(c) This is a document issued by a company as security whenever series of debentures or debenture stock are issued.
-It is an acknowledgment that the company is indebted to trustees on behalf of the creditors.
-It confers upon the trustees a legal mortgage over all the company's assets.
- It embodies an undertaking by the company to honor its obligations to all creditors.
- It describes the nature of the security given, methods of redemption, circumstances in which the security may be realized meetings of creditors, powers of trustees etc.
- Facilitates protection of the company's assets or security for the benefit of all creditors.
- Trustees acquire a legal charge over all assets of the company.
-Trustees have the right to take possession of the security.
-Trustees are entitled to sell the security in the event of default.
marto answered the question on February 7, 2019 at 05:47
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