Errol contracts with XYZ Construction to build his company,OP Finance,a new high-rise office building.The building will cost $3 million.OP Finance has a very high accounts receivable balance.In order to pay XYZ,Errol arranges a loan from CIBC.Which of the following is the most desirable for CIBC?

Question

Quizplus · Accepted Answer

CIBC would prefer to take assignment of accounts receivable because it gives them a direct claim on the money that OP Finance is owed. This is more secure than taking a conditional sale of the building, which would only give CIBC ownership of the building if OP Finance defaults on the loan. Taking a general security agreement or a security interest in the building would also be less desirable, as these would only give CIBC a claim on the building itself, which may not be worth as much as the accounts receivable. A floating charge would also be less desirable, as it would only give CIBC a claim on the assets of OP Finance that are not already secured by another creditor.

Errol Contracts with XYZ Construction to Build His Company,OP Finance,a