Subject: Commercial law--CREDIT AND SECURITY: PROPRIETARY SECURITY Jurisdiction: HK/UK

Pantry Magic Limited (PML) is a company which makes and sells kitchen utensils. It has a factory in Kwun Tong and a shop in Wanchai. Business at the shop has been good in recent years and Mr Wan, the controlling shareholder, wants to expand the company's business.

The company approaches Mega Bank for a loan of $2,000,000. In return for the facility, Mega Bank asks for a security package that comprises the following:

a fixed charge over PML's machinery in its Kwun Tong factory;

a fixed charge over the receivables of the business and a floating charge over its

proceeds (which are to be deposited into an account with Mega Bank);

A mortgage by Mr Wan of his flat in Kennedy Town.

All necessary registrations have been made in accordance with the Companies Ordinance and Land Registration Ordinance.

With the loan, the company adds new shop space and inventory to cater to its customer base.

Two months ago, a rival shop commenced business next door and business at PML has since declined considerably. Also, PML's customers have not been promptly paying PML's invoices. As a result, PML has defaulted on a number of loan repayments and is in a dire financial state.

Answer the following questions:

1. How can a company provide security for its borrowing from a bank?
2. What is a fixed charge? What are the advantages and disadvantages of a fixed charge?
3. What is a floating charge? What are the advantages and disadvantages of a floating charge?
4. Mega Bank now wants to enforce the security package. Advise the bank as to the extent of the enforceability of the security package and what assets they are able to enforce their rights over.

Many thanks in advance:)))