Debt finance & security
Companies raise debt finance by borrowing, usually giving security over their assets. SQE1 tests the difference between fixed and floating charges, registration requirements and the priority of competing security.
What "Debt finance & security" covers
- Debt finance includes overdrafts, term loans and debentures; unlike equity it must be repaid and does not dilute ownership.
- A fixed charge attaches to a specific asset and restricts the company's dealings with it; a floating charge hovers over a class of assets (such as stock) until it crystallises.
- A floating charge crystallises on default, cessation of business, liquidation, or as provided in the debenture, fixing on the assets then held.
- Most company charges must be registered at Companies House within 21 days of creation (s.859A CA 2006).
- An unregistered charge is void against a liquidator, administrator and creditors, though the underlying debt remains payable (s.859H CA 2006).
- Priority generally runs by date of creation, but a later fixed charge can outrank an earlier floating charge over the same asset; whether a charge over book debts is fixed depends on control (Re Spectrum Plus).
- On insolvency, floating charge realisations rank behind fixed charges, insolvency expenses, preferential creditors and the ring-fenced prescribed part.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For debt finance & security, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Missing the strict 21-day registration deadline — late registration requires a court order.
- Saying an unregistered charge makes the loan unenforceable; the debt survives, only the security is void against the office-holder and creditors.
- Labelling a charge over book debts as fixed without the requisite control over the proceeds (Spectrum).
Learn this subtopic in the course
A video lesson, notes and exam-style practice on debt finance & security.
FAQ
Is debt finance & security tested on SQE1?
Yes — debt finance & security is part of the SQE1 Business Law and Practice syllabus (FLK1) and can appear in single best answer questions.
How is debt finance & security examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (s.859A CA 2006, s.859H CA 2006) helps.