Chapter 26 Self-test questions

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. Which of the following statements is correct?

In non-recourse receivables financing the financier will typically require a lower rate of return because he will benefit if the assigned debts yield more than was assumed. correct incorrect

There is very little practical difference between receivables financing by outright sale where the assignor must make good the amount of any debts which prove irrecoverable and a loan secured by a charge on them, since in either case, if the financier is not paid by the debtor, the assignor must make up the difference. correct incorrect

Normally the court will not re-characterise a receivables financing described as being by way of sale as being one by charge. correct incorrect

It is unimportant whether a receivables financing is by way of charge or by way of outright sale. correct incorrect

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. Which of the following statements are correct? Please select all that apply.

Where receivables financing is effected by sale, typically the seller/assignor will execute a deed assigning the debts to the financier. correct incorrect

In a 'whole turnover' agreement the parties enter into a separate agreement each time a new eligible debt comes into existence. correct incorrect

Commonly there will be a provision in a receivables financing agreement by sale which requires the business to re-purchase bad debts. This gives the financier recourse to the business if the assigned debts do not realise their full value. correct incorrect

Where there is 'invoice discounting', in the normal course of events the business will continue to deal with its debtors in the same way as it did before the assignment of the debts. correct incorrect

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. Which of the following statements are correct? Please select all that apply.

A receivables financing agreement expressed to be by way of sale will nevertheless be treated as being by way of charge if the value the financier is prepared to put on the assigned debts is calculated by reference to an interest rate. correct incorrect

If the purchase price of the debts assigned is calculated as their face value less the value of bad debts, on the day of the assignment, the parties cannot know the actual price the financier will pay. correct incorrect

In Re Charge Card Services No2 Millet J held that the business was entitled to receive the discounted value of the debts and so the sum retained by the financier out of the purchase price could be the subject of a charge. correct incorrect

As a result of the doubt cast on part of the decision in Re Charge Card ServiceNo2,, sums retained by financiers to take account of the bad debt experienced on the debts assigned can theoretically be the subject of a charge by the business in favour of the financier. correct incorrect

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. The process whereby a financier takes a charge over a debt owed by it to a business is called a ___ ___.

Your response

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. Which of the following statements are correct? Please select all that apply.

A debtor, the benefit of whose debt has been assigned to a financier, will have no defences to a claim made against him by the financier/assignee. correct incorrect

A debtor whose debt has been assigned to a financier/assignee can set off the amount of any claim he may have against the business/assignor against the sum he owes to the assignee/financier. correct incorrect

Until he has received notice of the assignment of his debt, a debtor will get good discharge for the debt if he pays the business/assignor even if the payment never reaches the financier/assignee. correct incorrect

The priority of claimants to a debt depends on the rule in Dearle v Hall, namely the first bona fide purchaser to give notice to the debtor has first claim to the debt. correct incorrect

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. The asset financing industry typically draws a distinction between finance leases and ___ leases.

Your response

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. Which of the following statements are correct? Please select all that apply.

The decision by a business to finance the acquisition of equipment through hire purchase, a conditional sale or through a finance lease may be driven purely by tax considerations. correct incorrect

In accounting terms, equipment which is the subject of a finance lease is treated as an asset of the business. correct incorrect

In a finance lease, the lessee typically selects the goods which are acquired by the lessor. correct incorrect

Since the lessee enters into a contract of sale with the supplier of the goods, he will have a breach of contract claim if for example the goods prove not to be of satisfactory quality. correct incorrect

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. Which of the following statements are correct? Please select all that apply.

Although the lessee in a finance lease has no contractual claim against the supplier for breaches of the contract of sale, it is clear that the lessor can sue and recover substantial damages on his behalf. correct incorrect

If the lessor in a finance lease can recover substantial damages from the supplier on behalf of the lessee it may be sensible for the lessor to assign his right to sue to the lessee. correct incorrect

Because the implied term in the contract of sale between the supplier and the lessor clearly benefits the lessee, the Contract (Rights of Third Parties) Act 1999 will give him a right to sue the supplier. correct incorrect

Any untrue statements made by the supplier to the lessee who induced the lessee to select the goods purchased by the lessor may be actionable by the lessee under a collateral contract. correct incorrect

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. Which of the following statements are incorrect? Please select all that apply.

It is clear that a lessor under a typical finance lease cannot limit or exclude his liability if the goods leased are not of satisfactory quality. correct incorrect

If a finance lease is terminated early, there is normally an acceleration clause that makes all future periodic payments immediately due and payable. correct incorrect

Acceleration clauses are potentially vulnerable to being struck down as being unenforceable penalty clauses. correct incorrect

Since the lessee is in possession of the goods, he can give good title to them to an honest third party purchaser. correct incorrect

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. It is not clear that a lessee under a finance lease has a ___ right in the goods such that his right to possession would bind an honest purchaser of them from the lessor.
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Your response