Is the following statement correct if the bank decides to accept the loan account of Mr. Roth
Question:
Is the following statement correct if the bank decides to accept the loan account of Mr. Roth in TTM Projects Pty Ltd as collateral?
Statement:
When the loan account is accepted as collateral it will allow the bank to claim the amount of the loan account in addition to other outstanding amounts in case of the insolvency of TTM Projects Pty Ltd. It is not an easy realizable form of collateral, but it will improve the claims of the bank.
a. Correct
b. Incorrect
READ THE CASE STUDY BELOW AND PLEASE ANSWER THE ABOVE QUESTION.
CASE STUDY:
Mr. Roth applies for a medium-term loan (5 years) of $4 000 000 to purchase specialized machinery which would expand the production capacity of his business substantially and $3 000 000 additional overdraft facilities to augment the working capital requirements as a result of the expansion.
The business TTM Projects Pty Ltd specializes in the manufacturing of electrical and electronic components for the automotive industry.
Mr. Roth (the only shareholder of the company) offers the following collateral to the bank for the requested facilities:
- Unlimited guarantee/suretyship by himself;
- A second mortgage bond over his residential property for $2 000 000. (The realistic market value of the property is $3 250 000 according to a valuation recently done by the bank. The first bond to the value of $2,500,000 in favor of your bank secures the existing debt pertaining to the residential property.);
- A cession of debtors;
- A cession of his loan accounts in TTM Projects Pty Ltd;
- A mortgage over the machinery to be purchased; and
- A mortgage over inventory.