Modern Ltd. (”ML”) is engaged in the business of manufacturing steelware products. To finance the business, ML obtained a loan of HK$2 million from Bright Bank in January 2017 which was secured by way of a floating charge against ML’s entire undertaking and business.

The loan agreement expressly stated that ML was not to create any charges upon its properties after the creation of the charge in favor of Bright Bank.

In February 2017, as security for a loan of HK$1 million from Mansfield Bank, ML executed a debenture that created a fixed charge over its book debts in favor of Mansfield Bank.

In August 2017, ML had a cash flow problem and received further finance for the sum of HK$1.5 million from Cunning Bank, the loan being secured by way of a floating charge over its book debts.

All the three charges in favor of Bright Bank, Mansfield Bank, and Cunning Bank respectively were duly registered.

On 10 March 2018, Bright Bank, following several demands for payment and formal written notice served on ML, issued a winding-up petition against ML in the High Court. A winding up order was made and a liquidator was appointed by the Court on 13 April 2018.

In addition to monies owing to Bright Bank, Mansfield Bank, and Cunning Bank, claims are being made by employees of ML for arrears of wages and salary.

The liquidator identified ML’s assets which consisted of (1) HK$ 1 million in cash; (2) some unsold steelware products worth HK$ 1million and (3) HK$1million outstanding book debts.

In respect of this scenario, advise the liquidator of the following:

1. The nature and the validity of the clause in the loan agreement with Bright Bank.

2. The nature and validity of the charge were created in favor of Bright Bank, Mansfield Bank, and Cunning Bank.

(c) The distribution of ML’s assets among Bright Bank, Mansfield Bank, and Cunning Bank. Answer in IRAC format (Issue, Rule, Application, Conclusion) Cite relevant case law and statutory provisions to support your answer.