LATTED
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~ AGes,
DEBENTURES AND RECEIVERS
PRACTICALLY all companies have an express power to borrow,
which is conferred by the memorandum of association, and
in almost all cases this express power to borrow is coupled
with a power to give security for the loan upon the company’s
property.
A trading company, however, has in general an implied
power to borrow [General Auction Co. v. Smith (1891), 3 Ch.
432]. And where a company has power to borrow, it can,
unless forbidden by its articles, give security, e.g. by mort-
gaging its property [Patent File Co. (1870), 6 Ch. App. 83].
The express power to borrow, which most companies
possess, generally includes the power to ‘raise’ money.
The use of the word ‘raise’ is not meaningless, since a power
to borrow money merely, without power also to raise money,
does not enable a company to issue irredeemable debentures,
which are really a perpetual annuity [Southern Brazilian
Railway Co. (1905), 2 Ch. 78].
The power to borrow may be exercised by the directors, if
the articles expressly or impliedly authorise them to exercise
it. Sometimes the exercise of the power is placed in the
hands of the company in general meeting, but this is fre-
quently inconvenient. It may be, for example, that a
temporary overdraft is required, and it would, if the power
to borrow were exerciseable only by the company, be neces-
sary to convene a general meeting before the transaction
could be carried out.
The usual plan, however, is for the directors to be authorised
to exercise the borrowing powers of the company up to a
certain limit which must not be exceeded without the sanction
of the company in general meeting. If permission to deal
is to be obtained from the Stock Exchange, the articles
must limit the borrowing powers of the Board. The limit
may be the amount of the nominal capital of the company,
or the amount of the issued capital of the company for the
tiine being, or any other reasonable sum. Where by the ar-
ticles the amount borrowed may not exceed the preference
Borrowing
Powers.
