Fact pattern (C)

Graffen Limited is funded by an unsecured bank overdraft facility and a loan made by Chris Parker, one of its directors. Due to the company’s current financial position, the bank is refusing to extend the overdraft. The company has some cash available, as a result of the £10,000 loan Chris Parker provided six months ago. However, to pay existing debts and buy stock to continue trading, the company requires a further £5,000. Chris Parker agrees to provide this on condition he is given security by way of a floating charge over all the company’s assets. Graffen’s board agree to this and the transaction takes place, with the floating charge being expressed to secure all monies due to Chris Parker. Six months later, he lends a further £2,000 to the company. Eight months later, Graffen enters creditors’ voluntary liquidation. At the date of liquidation, Chris Parker is owed £9,000 in respect of his loans made to the company, plus £550 interest accrued over the past year. Consider your advice on the following issues.

Graffen Limited is funded by an unsecured bank overdraft facility and a loan made by Chris Parker, one of its directors. Due to the company’s current financial position, the bank is refusing to extend the overdraft. The company has some cash available, as a result of the £10,000 loan Chris Parker provided six months ago. However, to pay existing debts and buy stock to continue trading, the company requires a further £5,000. Chris Parker agrees to provide this on condition he is given security by way of a floating charge over all the company’s assets. Graffen’s board agree to this and the transaction takes place, with the floating charge being expressed to secure all monies due to Chris Parker. Six months later, he lends a further £2,000 to the company. Eight months later, Graffen enters creditors’ voluntary liquidation. At the date of liquidation, Chris Parker is owed £9,000 in respect of his loans made to the company, plus £550 interest accrued over the past year.