Module: General Practice
Q124: Scenario: A company has a Term Loan from Bank A secured by a First Charge on Plant and Machinery. Later, the company takes a Working Capital loan from Bank
✅ Correct Answer: B
Second Charge: Since Bank A already holds the First Charge (priority right to sell the asset and recover dues), Bank B can only hold a Second Charge unless Bank A agrees to share the charge.
Implication: In the event of liquidation or sale of the asset to recover dues, Bank A gets paid first.
Bank B receives money only if there is a surplus left after fully satisfying Bank A's dues.
Pari-Passu Charge: This would mean Bank A and Bank B share equal rights in proportion to their debt.
This requires Bank A's explicit consent (Ceding of charge), which is not the default position in this scenario.
Implication: In the event of liquidation or sale of the asset to recover dues, Bank A gets paid first.
Bank B receives money only if there is a surplus left after fully satisfying Bank A's dues.
Pari-Passu Charge: This would mean Bank A and Bank B share equal rights in proportion to their debt.
This requires Bank A's explicit consent (Ceding of charge), which is not the default position in this scenario.