For a company to make the right amount of profit and to maintain a running culture there is need to have enough capital to aid sustain the company. For many upcoming companies this capital is a dream. However, many finance bodies, with interest in profits provide solutions of loaning these companies with a satisfactory amount of capital to their ability to pay (Law, 2013). In case the payment delays than the stipulated time, it will be necessary to take legal action. This was the situation in the foundation of loans (Bebchuk, Fried, 1996). However, collaterals have been in use to maintain safety of money in case the client does not pay on time.
The type of collateral depends mostly with the loaner, but in most cases, assets serve as credible collaterals. The collateral must have full documentation to avoid wrangles that may arise during collection of the collateral (Law, 2013). Hence, it is crucial that a financial statement, a security statement and advocacy extract. On the other hand, a general obligation may take effect as security of the loan, in that the creditor can force the borrower into bankruptcy and divide the assets of the obligor (Gilmore, 1965).
In the case of MGI, the first saving bank took the account as collateral, but did not sign a financing statement. Further, it made my company sign for the issuance of the loan. In this case the bank security interests still attach mainly because, the two main document that are crucial in making relevant security details have signatures of the company, that is the loan signature and the security signature. The financing statement is not necessary as the bank is dealing with a company and not an individual (Bebchuk, Fried, 1996). The account of MGI serves as working collateral as it is in the possession of the bank, making it easy to seize and locate assists of the company due to links from the loans and bank receipts (Gilmore, 1965).
Further, financing statement cannot be essential at this moment as the company already signed its property at the beginning of registration in the banks data base, hence security was initialized at the beginning of association with First Saving Bank.
- Bebchuk, L. and Fried, J. (1996). The Uneasy Case for the Priority of Secured Claims in Bankruptcy. Yale Law Journal, p. 857–934. [Accessed: 15 Sep 2013].
- Justia Law (2013). 36 C.F.R. § 1011.1 What definitions apply to the regulations in this part?Title 36 – Parks, Forests, and Public Property. [online] Retrieved from: http://law.justia.com/cfr/title36/36-18.104.22.168.22.214.171.124.html [Accessed: 15 Sep 2013].