Security interest law in England and Wales

Guarantees

1. Can an intercompany guarantee be granted?

1.1 Upstream?

Yes, as long as sufficient corporate benefit.

1.2 Downstream?

Yes

1.3 Lateral?

Yes

2. Can a guarantee be given under foreign law (e.g. English law)?

Yes, with local advice.

3. Any special arrangements (e.g. to deal with transfer pricing/corporate benefit)?

Need board approval to demonstrate corporate benefit.
Potentially shareholder resolutions if seen to be a “corporate benefit” issue i.e. upstream.

Security

4. Can a security interest be granted in the following type of asset?

4.1 Real property

Yes

4.2 Shares (privately held)

Yes

4.3 Shares (marketable securities)

Yes

4.4 Receivables

Yes

4.5 Bank account

Yes

4.6 IP/Trademark

Yes

4.7 Equipment/Plant/Machinery

Yes

4.8 Inventory

Yes

4.9 Insurance

Yes

4.10 Rights under a contract

Yes

5. Can security interests be granted to a foreign lender?

Yes, again, local advice required.

6. Can multiple security interests be granted over the same asset?

Yes, however, these will be ranked according to priority. Often also need consent from existing security holder (negative pledge).

7. Can a security interest be granted to secure liabilities of a holding company, a subsidiary or any other affiliate?

Yes

Perfection

8. In order to be enforceable against third parties, must a security interest be?

8.1 Notarised?

No

8.2 Registered?

Yes, different registration processes depending on the asset (and different timing).

8.3 Other?

Notice requirements and acknowledgements (preferable only).

9. Does registration in most cases protect the secured creditor against the debtor’s subsequent dealings with the secured asset?

Yes

10. Is there any stamp or similar tax or duty payable on the security document?

No

Enforcement

11. For a security interest to be legally enforceable which items must be filed as part of the registration or notarisation process?

11.1 Entire security agreement?

Yes

11.2 Names of pledgor and pledgee?

Yes

11.3 Description of secured asset in general terms?

Yes

11.4 Description of each individual secured asset?

Not required by law but if information is available, advisable to include.

11.5 Documents concerning ownership of secured asset?

No

11.6 Documents concerning debt in respect of which the asset is being secured?

No

12. Can a right to enforce security arise:

12.1 When the secured debt is unpaid and due?

Yes

12.2 When there is some other breach of the pledge/security agreement?

Yes

12.3 When the debtor becomes insolvent?

Yes, if specified, would expect this to be written into the document.

13. Can the creditor enforce its security interest by taking possession of the asset and selling it without court assistance?

Yes

14. Is an instrument for direct enforcement necessary/available/market practice?

No

15. Are powers of attorney to the secured party used to facilitate a sale of secured assets in an enforcement situation?

Yes

16. If a sale is permitted without court assistance does it have to be made by public auction?

No

17. Can a transfer of all or part of the debt be made without affecting the security over the assets?

Yes, England and Wales recognise the concept of Security Trustee.

18. Is there anything else of which a lender should be aware as unusual or particularly difficult?

Enforcement of security outside the jurisdiction is not straight forward e.g. if borrower’s assets are outside their jurisdiction.
Enforcement is lengthy and costly.
Do not want to become mortgagee in possession.