Question

Broke Pty Ltd borrowed $500,000 from Bad Bank Ltd. Bad Bank Ltd was granted a security interest in some of Broke Pty Ltd’s equipment. Broke Pty Ltd has defaulted on the loan and appointed a voluntary administrator.
Advise whether Bad Bank Ltd is entitled to seize the equipment subject to the security interest. Would your answer differ if Bad Bank Ltd’s security interest covered all the assets of Broke Pty Ltd?

Answer 1

Answer:

Bad Bank Ltd is entitled to seized the equipment if the Broke defaulted in payment

Step-by-step explanation

When a bank perfected security over a specific equipment, the bank is said to have a fixed charge . In fixed charge, the bank has a right of foreclosure over the equipment to recover the loan.

However in the event Bad Bank attaches security over all the assets , then that type of security s described as floating charges . Floating charges has lower priority hence can only be paid once fixed charge holders has been paid. hence Bad Bank can not seized the equipment

References;

Renshaw, S. (2020, October 7). fixed and floating charges in Company Debt.

https://www.companydebt.com/what-are-fixed-and-floating-charges/ .