ACCA LW Capital and financing of companies: practice questions with answers

Answer: C. A floating charge is an equitable charge over a class of assets, present and future, that changes in the ordinary course of business. Inventory and receivables are typical examples. The company may deal with those assets freely until the charge crystallises, for example on liquidation or on the appointment of a receiver. The charge then fixes on the assets owned at that time. A fixed charge, by contrast, attaches to specific assets immediately.

Answer: A. Registering a charge gives public notice of the security. If a registrable charge is not registered in time, it is void against a liquidator, an administrator and any creditor of the company. The lender then loses its security and ranks as an unsecured creditor. However, the obligation to repay the loan itself is unaffected. The court may in some cases allow late registration.

Answer: B. Class rights can only be varied in accordance with the procedure in the articles or, if the articles say nothing, with the consent of the holders of at least three-quarters (by nominal value) of the issued shares of that class, given in writing or by a special resolution passed at a separate meeting of the class. A minority of the class who did not consent may apply to the court to have the variation cancelled if it is unfairly prejudicial to them.

Answer: A. Preference shares carry a right to a fixed dividend that must be paid before any dividend on ordinary shares. Unless the terms state otherwise, the preference dividend is presumed to be cumulative (arrears are carried forward) and the shares are presumed to be non-participating (no further share of profits beyond the fixed dividend). Any dividend, including a preference dividend, can be paid only out of distributable profits. On a winding up, shareholders rank after all creditors; preference shares often carry a right to repayment of capital ahead of ordinary shares, but never ahead of creditors.

Answer: D. A floating charge hovers over a changing class of assets, which the company may deal with in the ordinary course of business. It crystallises, becoming in effect a fixed charge over the assets then held, when the company's right to deal with the assets ends. Typical crystallising events are: the company going into liquidation; the company ceasing to carry on business; the appointment of a receiver or other step by the chargeholder to enforce the security; and any event that the charge document specifies (for example, a notice from the chargeholder). A later charge, ordinary trading or trading losses do not crystallise it.

Answer: D. When shares are issued at more than their nominal value, the excess must be credited to a share premium account. Under the capital maintenance rules this account is treated as if it were paid-up share capital, so it cannot be returned to members or distributed as a dividend, except through a lawful reduction of capital. Its permitted uses are limited to paying up bonus shares and writing off the expenses of, and any commission paid on, the issue of the shares that gave rise to the premium.