CAF-4 · Chapter 21

Mortgages and charges MCQs with Answers

3 multiple-choice questions on Mortgages and charges for CAF-4 Business Law Dynamics. Try each one before revealing the answer and explanation.

1. Question 1

   Under the Companies Act, 2017, the memorandum and articles of association are deemed to include implied borrowing powers. However, what is the primary condition for a public company having share capital to exercise this borrowing power?

   • A) It must secure approval from the Securities and Exchange Commission of Pakistan (SECP).
   • B) It must have at least 50 members on its register.
   • C) It cannot exercise any borrowing power unless it is entitled to commence business.
   • D) It must first declare a dividend for its shareholders.
   Show answer & explanation

   Answer: C) It cannot exercise any borrowing power unless it is entitled to commence business.

   A public company having share capital is restricted from exercising any of its implied borrowing powers (which include mortgaging or pledging assets) until it is legally entitled to commence business.

2. Question 2

   Which of the following instruments is explicitly NOT required to be registered as a charge under the provisions of the Companies Act, 2017?

   • A) A mortgage on a factory building.
   • B) A charge over the company's inventories.
   • C) A second charge on the company's head office building.
   • D) A promissory note given to secure the payment of any book debts of a company.
   Show answer & explanation

   Answer: D) A promissory note given to secure the payment of any book debts of a company.

   According to Section 100, a promissory note given to secure the payment of any book debts of a company is an exception and is not required to be registered as a charge.

3. Question 3

   If a company acquires an asset, such as plant and machinery, which is already subject to a registered charge by the previous owner, what is the legal status of that charge?

   • A) The charge is automatically voided upon the transfer of ownership.
   • B) The acquiring company must register a brand new charge within 15 days.
   • C) The charge continues to be valid and enforceable against the acquired assets.
   • D) The charge is transferred solely to the directors of the acquiring company.
   Show answer & explanation

   Answer: C) The charge continues to be valid and enforceable against the acquired assets.

   When a company acquires property that is already subject to a mortgage or charge, the existing charge continues to be valid and fully enforceable against those acquired assets.