Question

Do you think “Creditors receive adequate protection under UK Company Law”?

Please discuss the issue by showing argument in favor of the topic. Discuss the topic with minimum 600 words. Do not do any copy paste, please

Thanks

Answer 1

The level of protection for creditors mainly depends on the type of security interest he is holding towards his credit.

1 ) Firstly speaking about Secured Creditors : -

The secured creditors have security interest towards the assets of the corporate debtor against the loan or financial arrangement or credit.we simply may call it as charge. here, there are 2 types of charge. a) Fixed Charge b) Floating Charge

the fixed charge is directly linked and attached to a specific asset/s of the company whereas the floating charge is linked to all the assets of the whole company and the administrator/liquidator would allocate the proceeds of assets to these floating charge creditors in a systematic way.

so we can say, the Fixed Charge secured creditors wins in the race against the floating charge secured creditor. as if the company is being liquidated, then proceeds from those assets linked to fixed charge would be allocated to pay off these creditors first and remaining proceeds would be given to others.

2) Unsecured Creditors :-

As in the name itself, we can conclude that these creditors were unsecured and hence they cannot enforce their right towards any asset directly except they could get payments from the administrator after the pay offs to secured creditors and limited pay offs to employee compensations.

So, Fixed Charge secured creditors were highly protected while compared to others.

And one advantage to unsecured creditors (or) secured floating charge creditors is that they can have the knowledge about the charge created on the assets of the company because, the charge creation would be registered publicly (so, Transparency would not be a problem) which means unsecured creditors too can choose wisely while providing credit.

One more protection that creditors were given is - The directors of the company could be sued for defaulting the credit or performing their duties negligently which led to the default. so this would work as a disciplinary mechanism towards management of the company and protective mechanism for creditors - as this avoids credit defaults.

Finally, We can conclude that the creditors would be protected from defaults of corporate debtors mostly based on their choice of having security interest and their action towards management if any default occurs.

" I hope this answer would be helpful,"

Thank You