TITLE : REFLECTIVE JOURNAL 2 ( PF 501 BANKING AND FINANCE LAW )

DUE DATE : 2/10/2014

NO NAME METRIC NUMBER
1 MUHAMMAD NUR ZAHIZAMUDDIN BIN MOHD KODORI 01DKB12F1010
2 MOHAMAD NAJMI BIN MD AKHIR @ HARUN 01DKB12F1013



1) Summarize the article regarding Debentures
Debentures are a common method of obtaining security, under which a lender is
typically granted both fixed and floating charges over all of a company's assets and
undertakings. Debentures are intended to meet the need of companies for increased working
capital by allowing additional borrowing secured on the circulating assets of a trading business.
The key distinction between a fixed and floating charge is that a lender has control of the assets
subject to a fixed charge, whereas the borrower retains control over those assets subject to a
floating charge. Fixed charges are typically granted by a borrower over assets such as freehold
and leasehold properties, and fixtures such as plant and machinery. It also be granted over
book debts, uncalled capital, goodwill and shares. Floating charges are less attractive to a
lender than fixed charges as they rank behind preferential creditors and certain other creditors
in the event of a default by a borrower. Borrower can deal with the assets subject to the charge
in the ordinary course of business, by selling stock for example, without obtaining the lender's
consent. If the borrower is default, the lender has the right to appoint an administrator or
administrative receiver to realize any assets subject to a fixed charge, and will be paid out of the
proceeds in preference to other creditors. Lender take control which would crystallize to become
fixed charges, leaving the borrower unable to deal with the assets in the ordinary course of
business. To make it enforceable, must register at Companies House, and may also involve
obtaining prior consent by giving notice of the security interests to third parties and the
registration of the security interest in other public registers such as the Land Registry.




2) Relate the article with banking sector especially related to banking law.

Banking sector take debenture as security for the loan that make by borrower for continuing
repayment on schedule time. Debenture including debenture stock, bonds, notes and other
securities of a corporation. In term of the law, debenture holder is a creditor and entitled to
all remedies available to a creditor to be paid the amount of money to be paid to him. The
rights of holders of debentures are only contractual rights against the company. So, it is a
loan secured to the company assets. Debenture may be issued without a pledge of property
to it infrastructure. Instruments that create recognition debenture indebtedness contain
adequate infrastructure and this type of debenture is not a security and its called
unconvertible debenture. The all-encompassing nature of debentures makes them an
attractive form of security for lenders, but equally unattractive to borrowers. For the
borrower, in the event of a default, the lender has the right to appoint an administrator or
administrative receiver to realise any assets subject to a fixed charge, and will be paid out of
the proceeds in preference to other creditors. In such circumstances the lender would
normally gain control over the assets which were subject to floating charges, which would
crystallise to become fixed charges, leaving the borrower unable to deal with the assets in
the ordinary course of business. In order to be enforceable, security under a debenture
needs to be perfected. This involves registering the debenture document at Companies
House, and may also involve obtaining prior consent by giving notice of the security
interests to third parties and the registration of the security interest in other public registers
such as the Land Registry.




3) Recommendation/conclusion about Debentures as one of the service provided by
bank.
Debenture holders are the creditors of the company to which company pays the interest at a
fixed rate and at the intervals stated in the debenture. No voting rights are given to the
debenture holders. Usually debentures are secured by charge on the assets of the
company. So to make debentures are useful, financial institution should make the debenture
holders hast right to vote and make them can share a profit when company gain many profit.
It also can make the debenture give unlimited returns to the extent of interest irrespective of
the higher or lower earnings of the company. Debenture is an important source of raising
money for long term financial needs of the company. Though it raises a considerable
proportion of the capital, it is not the only source. Bank loans, equity shares and bonds are
also used by companies to raise money. A company should understand the differences
between the various sources of long term debt and decide the most suitable one after a
complete consideration.

References
Articles:
1) http://vspages.com/debentures-vs-loan-5998/
2) http://accountlearning.blogspot.com/2011/04/differences-between-shares-and.html
3) http://www.streetdirectory.com/travel_guide/18666/investment/difference_between_debe
ntures_and_stocks_and_bonds.html
4) http://www.investopedia.com/terms/d/debenture.asp