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WorksheetsCompany Finance Loan Capital Quiz
Total questions: 60
Worksheet time: 30mins
Under the CA 2006, what power do all companies have?
The power to declare dividends
The power to issue shares
The power to borrow money to raise finance
The power to merge with other companies
When can a Ltd company start borrowing money?
After a year of operation
As soon as they receive Certificate of Incorporation
Once they are listed on the stock exchange
After they receive their trading certificate
When can a PLC start borrowing money?
As soon as they receive Certificate of Incorporation
After a year of operation
Once they are listed on the stock exchange
Until they receive their trading certificate
What does loan capital consist of?
Short term borrowings like credit card debts
Equity investments from shareholders
All the long term borrowing of a company
Profits retained within the company
Which of the following is referred to as debentures?
Overdrafts and unsecured loans
Loans secured on company assets
Equity shares issued by the company
Trade credits from suppliers
What are bonds classified as in a PLC?
Equity securities
Tradeable securities
Non-tradeable assets
Fixed assets
Who is considered a creditor of the company in the context of bonds?
The investor
The bond holder
The company
The stock market
What do bonds represent?
A share in the company
A contractual loan by the investor to the company
A donation to the company
A credit line from the bank
When traded on the stock market, what two values can bonds have?
Face value and intrinsic value
Book value and intrinsic value
Nominal value and market value
Par value and coupon value
What is a debenture?
A short-term source of finance with a variable interest rate
A long-term source of finance with a fixed rate of interest
A document that transfers ownership of a company
A legal agreement for employment
How was a debenture defined in Levy v Abercorris State & Slab Co. (1887)?
As a legal contract for employment
As a document that transfers ownership of a company
As a document that creates a debt or acknowledges it
As a short-term financial agreement
What does the debenture state?
The terms on which the company will transfer ownership
The terms on which the company has borrowed money and is issued by the company to the lender
The terms on which the company will enter into a partnership
The terms on which the company will dissolve
Who is considered the creditor of the company in the context of a debenture?
The shareholder
The CEO of the company
The debenture holder
The company's accountant
What happens to debentures if the company is unable to pay from other sources of funds?
They are converted into company shares
They are nullified
They are set against the chargeable assets of the company
They are insured by the government
What does a debenture document provide the lender in the event the company defaults on repayment?
A) A list of the company's board of directors
B) A series of safeguards and powers
C) A share in the company's profits
D) A detailed history of the company
What is the obligation of the company to the debenture holder according to a debenture document?
A) To provide a detailed financial report annually
B) To pay the debenture holder the principal sum interest
C) To grant the debenture holder voting rights in the company
D) To offer the debenture holder a position in the company
What might a debenture document specify as security provided by the company for the loan?
A) A charge (fixed or floating) over an asset
B) A personal guarantee from the CEO
C) A percentage of future sales
D) A promise of company merchandise
Which event listed in a debenture document would allow the debenture holder to enforce the terms of the loan?
A) A change in the company's management
B) The launch of a new product by the company
C) Failure of the company to make payment
D) A merger with another company
What does a debenture document include provisions relating to?
A) The role and powers of debenture holders
B) The daily operations of the company
C) The marketing strategies of the company
D) The company's expansion plans
What is a single debenture?
A document representing a series of loans made to a company
A document which consists of a single loan made between the company and the lender
A type of stock issued by a public company
A loan fund created by a number of investors
What characterizes a Series Debenture?
It is issued by a public company as debenture stock
It is a single loan made between the company and a bank
It is a series of separate loans made on different dates to different lenders
It is a trust deed administered by trustees
Who can issue Debenture Stock?
Any company or individual
Only private companies
Only public companies
Banks and financial institutions
What is the role of trustees in the context of debenture stock?
To issue debentures to the public
To protect the interests of the lenders and ensure the company complies with the terms of the debenture
To create a loan fund for the company
To rank the debentures in terms of repayment
Under the CA 2006 s738, what is a debenture defined as?
A document that outlines the duties of company directors
A type of company asset
A form of investment in company shares
A security consisting of "debenture stock, bonds or any other security whether or not constituting a charge on the assets of the company"
What is usually required when a company borrows money from a debenture holder?
A fixed interest rate
A form of security
A public announcement
A change in company management
What does the security provided to a debenture holder usually take the form of?
A personal guarantee from the company's CEO
A charge over an asset of the company
A percentage of the company's profits
A legal claim over the company's intellectual property
What can a debenture holder enforce if the company fails to pay the loan or the interest?
A new loan agreement
A merger with another company
Its security and seize an asset
Immediate bankruptcy proceedings
What is the purpose of providing security to a creditor?
To ensure the company's stock prices remain stable
To allow the creditor to become a shareholder
To guarantee the creditor with some chance to get some sort of repayment if the firm goes into liquidation
To create a long-term partnership between the creditor and the company
What assets are identified by fixed charges?
Intangible assets such as patents and copyrights
Current assets like inventory
Specific assets which may not be sold or disposed of during the loan period, such as plant, machinery, land, premises
Assets that can be quickly converted into cash
What happens if a company with a fixed charge on an asset defaults on repayment of the loan?
The company can sell the asset to repay the loan
The lender has the rights of enforcement against the physical asset with the fixed charge
The company can use the asset as collateral for another loan
The fixed charge is automatically discharged
When can a fixed charge be discharged?
When the company decides to sell the asset
When the asset depreciates in value
When the debt is fully repaid
After a set period of time, regardless of debt repayment
Which of the following is usually not suitable for a fixed charge?
Real estate property
Plant and machinery
Current assets such as stock
Long-term investments
Why were floating charges created?
To increase the company's current assets
To overcome the difficulty with the fixed charge
To reduce the company's stock value
To increase the permission required from the lender
What can a floating charge be applied to?
Only to the company's fixed assets
Whole or part of a company's current assets
Only to the company's intellectual property
Only to the company's capital assets
What happens to the floating charge when the stock is sold?
It disappears
It remains with the old stock
It automatically moves and floats over the new stock
It requires revaluation
Does a company need the lender's permission to transfer the current asset when there is a floating charge on it?
Yes, always
No, only if it's a fixed charge
No, the company can transfer freely
Yes, but only for book debts
What does the floating charge float over in relation to book debts?
Over the fixed assets
Over the capital assets
Over the book debts
Over the intellectual property
According to the case of Re Yorkshire Woolcombers Association Ltd (1903), which of the following is NOT a characteristic of a floating charge?
It is a charge on a class of assets of a company present or future.
The class of assets does not change in the ordinary course of business.
Permission of the lender is not required in carrying on dealing with the assets in the ordinary course of business.
The assets subject to the charge may change from time to time.
When does a floating charge attach to a company's assets?
When the company files for bankruptcy
When the company defaults on the repayment of the loan
When the company makes a profit
When the company issues new shares
What happens when a floating charge crystallises?
The company's assets are sold off immediately
The floating charge is converted into a fixed charge
The company's debt is forgiven
The floating charge is removed from the company's assets
What is the consequence for the company when the charge is crystallised?
The company can use the asset as it pleases without restrictions
The company must seek permission from the lender to use the asset
The company receives additional funding from the lender
The company's credit rating is automatically improved
What can happen to stock over which a company has a floating charge if the charge crystallises?
The stock can be freely traded on the stock market
The stock can be used as collateral for another loan
The stock will be seized or cannot be used by the company without permission
The stock dividends are paid out to shareholders
Which of the following events can crystallise a floating charge according to the legislation and debenture document agreed between the parties?
A change in company management
Appointment of a receiver
Introduction of a new product line
A significant increase in sales
What is one of the events that does NOT crystallise a floating charge?
A company is winding up
Cessation of a business
By Notice
A merger with another company
What happens to the security when a company goes into liquidation?
The security is divided equally among all charges.
The security is repaid in the order of the charges as they were created.
The security becomes void and cannot be enforced.
The security is repaid based on the amount of each charge.
Which charge is always paid before the other, regardless of the order of creation?
Floating charge
Fixed charge
The charge with the highest amount
The charge created last
As per the Finance Act 2020, which entity regained status as preferential creditor for insolvencies commencing on or after 1st December 2020?
The company's shareholders
The company's employees
HMRC
Unsecured creditors
What is the first category to be repaid in the order of repayment?
Insolvency fees and expenses
Fixed Charges
Preferential debts
Unsecured creditors
Which of the following is repaid after fixed charges but before preferential debts?
Floating Charges
Secondary Preferential debts
Insolvency fees and expenses
Unsecured creditors
What are considered as Secondary Preferential debts?
HMRC for VAT PAYE, NICs
Employees wages
Fixed Charges
Preference shareholders
Who gets paid last in the order of repayment?
Floating Charges
Unsecured creditors
Preference shareholders
Ordinary shareholders
Under CA 2006, within how many days must a company register certain types of charges with the Registrar?
14 days
21 days
28 days
30 days
What can the court grant to a company regarding the registration of charges?
An extension beyond 21 days in certain circumstances
Immediate deregistration of charges
Exemption from all charges
A reduction in registration fees
What will the Registrar issue once a charge is registered?
A notice of completion
A certificate with the details of the charge
A bill for the registration service
A declaration of the company's assets
What is the consequence of failing to register a charge?
The charge becomes void and the company is liable to be fined
The company receives a warning
The charge is automatically registered after a penalty
The company is given an extension without penalties
Where must a company keep a register of the charge?
At the Registrar's office
At the court
At its premises
Online on the company's website
What is the charge code in the context of the registration of charges?
The date the charge was registered
The number allocated to the charge by Companies House
The amount of the charge
The status of the charge
What does the creation date refer to in the registration of charges?
The date the charge was registered by Companies House
The date the original written instrument was created
The number allocated to the charge
The status of the charge
What is the registration date in the context of the registration of charges?
The date the original written instrument was created
The number allocated to the charge by Companies House
The date the charge was registered by Companies House
The amount of the charge
Which of the following details is NOT mentioned as part of the register of mortgages or charges?
The color of the charge document
Details of the mortgage or charge
Persons entitled to the charge/chargee or mortgagee
The status of the charge
