SGS 9 - Security

Question 1

What is the rule in Clayton’s Case? What is solution?

Answer 1

Problem: Loans are repaid in the order they are created
Solution: Appropriation clause

Question 2

What is the problem with a subsequent overdraft being granted in conjunction with a secured loan?

Answer 2

• Security will not extend to overdraft unless drafted to be ‘all monies’, in original documentation
• CC rule means secured loan paid off first
• Solution:
• All monies drafting
• Appropriation clause

Question 3

Repay release problem

Answer 3

• If RCF is repaid then reborrowed security will have been discharged
• Solution - State security is ‘continuing’ for term of loan

Question 4

What is the problem with the rule in Hopkinson v Rolt?

Answer 4

• If bank A grants RCF to borrower, then borrower takes loan from bank B, and bank B notifies bank A, then bank A’s security will rank behind any security granted to bank B.
• Solution - Ruling off clause

Question 5

What is tacking?

Answer 5

• This is where there is a charge over registered land.
• When a subsequent advance is made under a loan facility, the subsequent loan is tacked on to the existing interest in land, and charge is dated from original creation.
• This rule can be used to defeat the rule under Hopkinson v Rolt

Question 6

What are the requirements for upstream collateral to be granted?

Answer 6

Benefit (comapny derives benefit - S172(1) CA)
Power (Company has power to grant)
Prejudice (does not prejudice shareholders)