UNIVERSITY OF GHANA SCHOOL OF LAW

COMPANY LAW

DEBENTURES AND CHARGES

LECTURERS: Dr. Kweku Ainuson, Mr. William Demitia, Mrs. Clara Beeri Kasser Tee, Mr.
Courage Asabagna, Mr. Kenneth Ghartey.

Most companies may inevitably require some debt financing in the course of their
operations specially to finance capital intensive ventures that are beyond the resources or
risk thresholds of the shareholders. This lecture is the concluding part of two lectures on the
financing options available to a company under Ghanaian law, the first part of which was on
raising capital through equity. This second lecture would consider how debt is made
available to the company (simple loans, debentures, syndicated loans) and how these are
secured (by way of charges and other security interests).

Discussion Points
Introduction to Debt Finance
Defining Debentures
The main Terms of a Debenture
• Payment of Principal
• Payment of Interest
Terms of Issue
• Par Value
• Premium
• Discount
Issue of Debentures
 • For Cash
• For a consideration, other than cash
• As a collateral security

Redemption of Debentures
• Payment in Lump Sum
• Payment in Instalment
• Purchase in the Open Market
• Conversion into shares or new debentures

Types or kinds of Debentures

• Redeemable and Irredeemable (Perpetual)
• Convertible/ Non- Convertible
• Secured and Unsecured

Difference between Shares and Debentures

Documents relating to Debentures

• Transfer of Debentures
• Register of Debentures
• Debenture Trust Deed
• Meetings of Debentures

Remedies Available to Debenture holders

Charges-
• Definition
• Benefits of taking security
• Types of Charges
• Fixed Charge – Chalk V Khan [ 2000] 2BCLC 361, Agnew v CIR [ 2001] 2BCCLC 188.
• Floating Charge
Crystallization -
• Types
• De-Crystallization
• Partial Crystallization
Priority of Charges
• Difference between a Floating and a Fixed Charge
• Charge over book debts: Fixed or Floating Charge?
• Case- Siebe Gorman v Barclays Bank Ltd [ 1979] 2 Lloyd’s Rep 142

Essential pre-lecture reading

• Statute
• Companies Act, 2019 (Act 992)
• Chapter 2, Part I – Debentures and Debenture Stock, ss. 83-97*
• Chapter 2, Part J – Transfer of Shares and Debentures, ss. 98-105*
• Chapter 2, Part L – Registration of Particulars of Charges, ss. 110-121*

Borrowers and Lenders Act, 2020 (Act 1052)

• Application of Act – s. 1
• Meaning of credit facility, credit transaction and credit guarantees - s.1-5
• Collateral registry and registration of charges – ss. 21-31
Text

• PE Bondzi-Simpson, Company Law in Ghana (2nd edn, Avant 2009), Chapter 18,
205-218

• PL Davies and S Worthington, Gower & Davies’ Principles of Modern Company

Law, (9th edn, Sweet & Maxwell 2012), Chapter 32, paras. 32-1 to 32-35 ONLY i.e
from 1207- 1235 ONLY ** [This chapter provides a more detailed and helpful
discussion of company charges beyond what is provided in Bondzi-Simpson
above]

Other Helpful Sources for Reading

On Fixed and Floating Charges

• S Worthington, Sealy & Worthington’s, Text, Cases and Materials in

• Company Law (11th edn, Oxford 2016) – Fixed and Floating Charges, paras. 12.04 -
12.21, 632 – 663.
 • L Gullifer (ed), Goode on Legal Problems of Credit and Security (5th edn, Sweet &
Maxwell 2013) – Chapter 4 Specifically on floating charges

• E McKendrick, Goode on Commercial Law, (4th edn, Pearson) Chapter 25, 721 –
736.

Cases
The legal nature of security interests
Bristol Airport Plc v Powdrill [1990] Ch. 744, Browne-Wilkinson V-C., at 960

“Security is created where a person (‘the creditor’) to whom an obligation is owed by

another (‘the debtor’) by statute or contract, in addition to the personal promise of the
debtor to discharge the obligation, obtains rights exercisable against some property in
which the debtor has an interest in order to enforce the discharge of the debtor’s
obligations to the creditor” Gower & Davies, 1209

Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council

[2002] 1 A.C. 336, para 53, Lord Scott

“a contractual right enabling a creditor to sell his debtor’s goods and apply the proceeds
in or towards the satisfaction of the debt is a right of a security character. [It is important
to note that] the conclusion does not depend on the parties’ intention to create a
security. Their intention, objectively ascertained, is relevant to the construction of their
contract. But once contractual rights have, by the process of construction, been
ascertained, the question whether they constitute security rights is a question of law that is
not dependent on their intentions”
Gower & Davies, 1209
The legal nature of fixed and floating charges Fixed charges
Agnew v Commissioner for Internal Revenue (Re Brumark) [2001] 2 A.C. 710 (PC), [2001] 2
BCLC 188 **

Re Cosslett (Contractors) Ltd, Clark v Mid Glamorgan CC [1996] 1 BCLC 407

Floating charges

• George Cohen (WA) Ltd v Comet Construction Co Ltd; Ghana Commercial Bank
(Claimants) [1966] GLR 777**

• Republic v James Town Circuit Court, ex parte Annor [1978] 1 GLR 453 **

• Re Yorkshire Woolcombers’ Association Ltd [1903] 2 Ch. 284 (see Romer LJ)

“I certainly do not intend to attempt to give an exact definition of the term ‘floating charge’
nor am I prepared to say that there will not be a floating charge within the meaning of the
Act, which does not contain all the three characteristics that I am about to mention, but I
certainly think that if a charge has the three characteristics that I am about to mention it is a
floating charge. (1.) If it is a charge on a class of assets of a company present and future. (2.)
If that class is one which in the ordinary course of the business of the company would be
changing from time to time; and (3.) If you find that by the charge it is contemplated that,
until some future step is taken by or on behalf of those interested in the charge, the
company may carry on its business in the ordinary way so far as concerns the particular class
of assets I am dealing with” @295

• Illingworth v Houldsworth [1904] A.C 355, HL Evans v Rival Granite Quarries Ltd
[1910] 2KB 979
“A floating charge is not a future security; it is a present security which presently affects all
the assets of the company expressed to be included in it…” @999

• Re Spectrum Plus Ltd [2005] 2 A.C. 680, HL **

Distinguishing between fixed and floating charges

• Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Report 142 Re Brightlife
[1981] Ch 200

• Agnew v Commissioner for Internal Revenue (Re Brumark) [2001] 2 A.C. 710 (PC) **
• Re Spectrum Plus Ltd [2005] 2 A.C. 680, HL **

• Re Harmony Care Homes Limited [2009] EWHC 1961 (Ch)

Post-Lecture Reading

• Statute

• Companies Act, 2019 (Act 992)

• Chapter 2, Part K – Branch Registers, ss. 106-109 Chapter 2, Part X – Invitations to

the Public, ss. 294-296

• Chapter 4, Part A- Prospectuses and Statements In lieu of Prospectus, ss. 303-319

• Chapter 4, Part B- Dividends and Transfers, ss. 320-322

Sources for Further Reading

• JEA Mills, Priority between a Debenture Holder Secured by a Floating Charge and an
Execution Creditor [1986-90] Vol. XVII, UGLJ