Market Financial Solutions ("MFS"), the mortgage provider, collapsed suddenly last month. This collapse has intensified scrutiny of asset-based lending practices, where loans are secured against tangible assets, and has renewed focus on the risks of double pledging.
Large insolvencies in the financial sector often lead to closer scrutiny of due diligence required, governance practices, lending structures, the manner in which security is taken, as well as reporting and audit and access rights during the life of the transaction. Double pledging was a central issue in the insolvencies of auto parts supplier First Brands and car dealership Tricolor last year. These successive collapses have prompted the market to question whether underwriting standards for asset-based lending are sufficiently robust, particularly as traditional bank lenders have ceded ground to private credit providers (who may use direct lending models) who typically operate under lighter regulatory oversight.
We set out below some practical tips for lenders on the risk of double pledging.
What happened to MFS?
One of the largest lenders to MFS blocked numerous transactions in November last year after uncovering certain irregularities, before freezing all accounts in early January. This freeze alerted the wider market to potential issues.
Ben Browne, Alastair Beveridge and Simon Appell of AlixPartners UK LLP were subsequently appointed as Joint Administrators of MFS on 25 February 2026 by order of the Court. Public records indicate that two creditors, Zircon Bridging Limited and Amber Bridging Limited, filed for the administration of MFS alleging fraud and potential double pledging of assets. Zircon and Amber are themselves now in administration.
What is double pledging?
Double pledging is a vulnerability in asset-based lending structures whereby a loan originator fraudulently pledges the same collateral to multiple lenders simultaneously. This creates a shortfall of collateral and, on a default, lenders who believed they held an exclusive senior claim on assets discover that the collateral is insufficient or legally encumbered elsewhere. The consequences can include significant losses for investors.
In the case of MFS, the company had multiple warehouse lines from numerous lenders. Each lender would have received pledges over a defined pool of assets. Such a pledge is, at its core, simply an assignment agreement between the lender and the loan originator. Where the underlying loans are bridging or short-term facilities (as was the case with MFS), the legal assignment is often never perfected before the loan is exited. This leaves the assignment as equitable only, which can be defeated by a subsequent legal assignment to a bona fide third party.
Practical tips
We set out below some practical steps which may provide comfort that an asset has not been double pledged.
As a starting point, in well drafted documents most lenders will have contractual protection in the form of representations as to good title and assignability, with the remedy typically being repurchase or indemnification. They may also have misconduct guarantees in relation to fraud protection. However, operational oversight is key as contractual provisions may be breached without lender knowledge and may not dissuade bad actors.
Independent collateral verification of pledged assets on entry into a deal was once standard market practice, but competitive pressures and deal velocity on certain platforms have led many participants to move away from this approach. We would recommend reinstating such verification where practicable.
For existing deals, lenders should consider implementing a programme of regular searches. This might include Companies House searches against loan originators and debtors to identify any charges evidencing receivables finance or other encumbrances, insolvency and directors' disqualification searches to identify any filings or disputes, and sample Land Registry searches to verify that security over assigned receivables has been registered, that no second or other charges exist, and that appropriate restrictions are in place against further charges without lender consent. Where relevant, a PN1 search at the Land Registry can provide a record of all properties currently mortgaged to the loan originator. Whilst this will not reveal whether such properties have already been pledged or assigned elsewhere, it does provide visibility of the loan originator's current mortgage book.
Regular checks of the FCA register may also be worthwhile to ensure the loan originator remains registered and that no adverse entries have been published.
Information obligations should be drafted in detail with tight controls. Lenders should consider the source of information to avoid sole reliance on information being provided by their counterparty directly, e.g. access to real time data via direct access to the originator’s systems and restrictions on or read only access to bank accounts. Compliance should be actively monitored, and any breach should prompt immediate action: serve reservation of rights correspondence without delay and request any outstanding information. The same approach should apply where information provided contains gaps or inconsistencies.
Lenders should also review receivables where extensions or event of default waivers have been granted, confirming whether these actions comply with the relevant agreements and lending policies and whether the circumstances in which they were granted raise any concerns.
Audit rights should be written into transaction documents, and lenders should ensure these rights are exercised. A loan originator with nothing to hide will be willing to open its books and provide the information necessary to validate pledges. Where serious concerns arise, lenders might also consider perfecting assignments by serving notice on the relevant debtor. While this may be a measure of last resort in some cases, it may alternatively be possible to write to debtors seeking confirmation that they have not been notified of any competing assignments.
Finally, word of mouth in the market should not be discounted as an early warning sign warranting further investigation.
Next steps
We may see the asset-based lending market moving back towards tighter controls. This could include independent collateral verification, more frequent auditing of pledged assets, use of technology (e.g. models that record and/or execute transactions on the blockchain), or enhanced KYC tools—all of which would make double pledging more difficult. However, market shifts may not happen quickly, and lenders should therefore remain vigilant.
