Company Law



Company Law

Case: I Paul's Retail Pty Ltd

The reforms of the Personal Property Securities (Corporations and Other Amendments) Act 2011, which incorporates into the Corporations Act Personal Property Securities Act 2009 (PPS Act). This particular Act has replaced the prior law which synchronized securities for personal property on the source of the legal form of the contract and its terms and concepts have been incorporated into the Corporations Act (Phillip Lipton, Abe Herzberg, Michelle Welsh,2011). 

Unsecured Debt

In this case we attempt to understand the rights and claims of the unsecured creditors and debenture holder in order to suggest an appropriate solution for the case as per the Corporation Act 2001. In general studies acclaimed by the law experts, unsecured credit is referred to a type of debt or an obligation that is not collateralized by a lien or any other particular type of asset of the borrower for the situations of liquidation, bankruptcy or failure to meet payment terms. Franke, Nicholas (2005). It may also be defined as a credit that extends without any collateral security only on the basis of the debtor's repayment promise (Morath Eric, 2009).

Unsecured Creditors

With reference to the relevant Case Law and the Corporation Act 2001 the unsecured creditors are the creditors who do not have a security and are not at a preferential status when it comes to the repayment of loan or the outstanding amount(Corp. Act, 2001, 40.97,General) (May, 2008). Although fairly speaking, a creditor at a preferential status and not holding a security is also an unsecured creditor. Here, the liquidation of the corporation, a general claim from the unsecured creditors can be imposed to particular pledged assets of the borrower only after the assets have been assigned to the secured creditors for their settlement. Unsecured creditors generally realize a proportion smaller than the secured creditors and would only be able to claim against the general assets of the company. Assets that a business may pledge as collateral for secured loan include mortgages, vehicle loans and equipments (Phillip Lipton, Abe Herzberg, Michelle Welsh,2011).

Liquidation & Bankruptcy claims

If a company is going through bankruptcy or liquidation, the creditors will line up to collect the outstanding amount from the assets of the company based on the type of the debt. Secured creditors receive the payment on the priority basis from the assets pledged against their debt( Hanrahan, P., Ramsay, I., & Stapledon, G. (2011). Whereas, an unsecured creditor has no right to repossess any property and receives nothing until the secured creditor are fully repaid. (Goergen, Sascha, 2012).Unsecured creditors are further divided into two categories that are senior and subordinate unsecured creditors. Once the secured creditors get fully paid off out of the organizational assets, then the other company's assets are used to repay senior unsecured creditors and any remaining asset will repay the subordinate creditors (Friederike.,2012).

Debenture

Debenture is a type of a debt instrument that is not collateralized or secured by any physical asset. Buyers usually purchase debenture with a belief that it is unlikely that the ...