When companies borrow money, they usually provide guarantees for creditors who provide loans. When the debtor provides a guarantee for the creditor, the creditor enjoys the property right provided by the debtor. When the debtor can't pay off all the debts, the secured creditor has the priority to the secured property relative to other general creditors. A common way for companies to provide guarantee is asset mortgage. Debts that trigger or admit debts often contain clauses that set assets as collateral.
Chattel mortgage
It is a kind of guarantee that does not transfer the ownership of the property, and its effectiveness and effectiveness do not depend on the guarantor's possession of the guaranteed property. For example, when a bank provides financing for a company to buy machinery and equipment, although the company needs to use the equipment in its factory, it can still use the equipment to set a guarantee for the bank. The effectiveness of asset mortgage does not require banks to possess machinery and equipment. Because of its non-possession, asset mortgage can also be set on intangible assets or book claims.
In a paid transaction, if the company and creditors express their existing or future property as a guarantee for repayment of debts; In addition, creditors have realistic rights and can demand that the property be used for debt guarantee; Then, although the creditor's real right can only be realized in the future, or the creditor only has the right to ask the debtor to provide guarantee for the relevant property in the future without obtaining the legal right to the relevant property, in this case, the asset mortgage is still established.
Fixed and floating mortgage
The company's assets mortgage can be fixed or floating. Fixed mortgage is set on the specific property that the mortgagor has or may have in the future. For example, a company can use the existing machinery and equipment in its factory or the machinery and equipment it may acquire in the future to set a mortgage for others. Fixed mortgage refers to the specific property when mortgage is created or property is acquired. Therefore, the company shall not transfer the mortgaged property to a third party. If the company sells it without authorization, it is a violation of the mortgage terms. Unless the third party has paid the consideration for purchasing the property and doesn't know that there is a fixed mortgage on the property, the third party can't get full ownership.
Floating charge does not point to the specific property of the company when it is established.
The property related to mortgage is constantly "floating" and changing, until the emergence of specific circumstances makes the mortgage point to specific property. At this point, the mortgage has actually become a fixed mortgage. The circumstances in which the floating charge can be fixed, that is, the circumstances pointing to a specific property, can be stipulated in the debt note. The parties may agree that in some cases, the floating charge will be automatically fixed without the parties doing anything; Or in some cases, the mortgagee sends a notice to the mortgage company to confirm the mortgage. Floating charge may also be fixed for other reasons, such as the company entering liquidation stage or stopping business.
The advantage of floating charge is that it can be set on changing assets.
If most of the company's assets are perishable goods or raw materials, it is not feasible to set a fixed mortgage, because these goods must be sold or used for the company's production in a short time. If fixed mortgage is set on these items, it will bring great inconvenience to the company, because the company needs the consent of the mortgagee every time it sells goods or consumes raw materials. Floating mortgage enables the company to still sell or use these properties, and its right to dispose of the property ends only when the mortgage is fixed. However, if the related assets are not disposed of in the normal business, such as machinery and equipment or the parent company's shares in subsidiaries, it is more desirable to set a fixed mortgage.
mortgage registration
According to Article 13 1 of the Singapore Company Law, part of the mortgage set by the company must be registered with the company management authority. Without registration, this mortgage is invalid for the liquidator of the company and other secured creditors. Because the mortgagee wants to exercise the mortgage right when the company goes bankrupt, he is urged to ensure the registration within 30 days after the mortgage right is established according to Article 13 1( 1) of the Company Law. If the company fails to register within 30 days, the registration period may be extended according to Article 137 of the Company Law. For example, failure to register is accidental or will not harm the interests of creditors or members of the company.
According to Article 13 1(3)(g) of the Company Law, all floating mortgages must be registered, and only the fixed mortgages listed in Article 13 1(3) of the Company Law must be registered.
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