A secured lender will rank ahead of an unsecured lender if there are eventually funds available to be paid to creditors. Secured lenders also have a wider choice of options for the enforcement of action than unsecured lenders.
Secured lenders will generally fall into two main types: those with a Fixed Charge over a specific asset or class of assets (e.g. a lease creditor who has funded the purchase of a piece of plant) or a Fixed and floating charge creditor such a a Bank with a debenture. The main differences for the Company is that a fixed charge asset cannot be sold without the permission of the creditor, whereas floating charge assets (such as stock or book debts) can be sold / realised without reference, but on an insolvency event the lenders rights crystallise over those floating charge assets and they become fixed charges. Land and buildings will usually be secured by a Fixed Charge such as a Mortgage, and there may well be a Fixed and Floating Debenture as well.
Your enhanced rights over unsecured creditors mean that not only do you stand a better chance of a recovery in an insolvency, you are also better placed to get early warning of financial stress and to influence the company directors to take advice. Signs to look for will include late payments, requests for additional finance under existing loans, requests for redemption values, and contact from other lenders seeking details of your security over assets.
If your customer agrees, we can review their management accounts to see if they show signs of stress or insolvency, and if agreed, we can advise them on their insolvency options and possible restructuring routes that might be open to them. If your customer refuses to engage with you, or to take the steps you think they need to, your only option is to exercise your rights granted in your loan documents.
As always, the sooner you act, the better are the prospects of a successful outcome.
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