CMS Expert Guide for taking security in England and Wales

Yes. Please see answers to question ‎4 below. 

No. Security/guarantees/indemnities are all distinct instruments. It is, however, common practice to see guarantees and indemnities contained in the same agreement, and sometimes guarantees and indemnities are included in security documents.

No.

Yes. An upstream guarantee is where a subsidiary company guarantees or indemnifies the obligations of its parent company.

Please see answers to question ‎4 below.

Yes. A downstream guarantee is where a parent company guarantees or indemnifies the obligations of its subsidiary company.

Please see answers to question ‎4 below.

Yes. A cross-stream guarantee is where a company guarantees or indemnifies the obligations of its sister company/ies.

Please see answers to question ‎4 below.

Corporate benefit: the directors of a company are under a statutory duty to act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

It is generally accepted that there will be corporate benefit to a parent company granting a downstream guarantee however the corporate benefit can be harder to establish in the case of an upstream or cross-stream guarantee.

A beneficiary will typically require the guarantor to recite the corporate benefit to be derived from the transaction in board minutes and to seek shareholder approval.

Capacity: the company’s constitutional documents will need to be reviewed to determine whether a company has the power to provide security/guarantees/indemnities, and to determine if there are any limitations on the directors’ exercising their powers.

Financial assistance: subject to certain exceptions, it is unlawful for a public limited company to give financial assistance for the purpose of the acquisition of its own shares. Financial assistance can also apply in certain other limited circumstances.

Unfair terms, consumer rights and consumer credit: certain guarantees may be subject to consumer rights, consumer credit and unfair terms legislation and consideration will be required on a case-by-case basis particularly where individuals are involved in the transaction.

Undue influence and duress: the beneficiary will typically require a personal guarantor to obtain, and provide evidence of, independent legal advice to assist in minimising the risks of challenge for undue influence and/or duress.

Caps on liability: a corporate guarantee can be limited or unlimited.

Variation of guaranteed obligations: amendments to the underlying agreement may discharge the guarantor’s liability under the guarantee. Certain protective measures can be taken to minimise this risk but given the common law position on this topic is not definitive, lenders are advised to take a more cautious approach

By law, a guarantee is to be made in writing and signed by the guarantor or by a person authorised by it. Guarantees and indemnities are typically given by way of deeds.

No registration or notarisation requirements apply to guarantees or indemnities in England.

Guarantees and indemnities governed by English law will typically be written in the English language and will not require translation unless required on a cross‑border transaction for registration in other jurisdictions.

If there are any foreign aspects involved in the transaction, local law advice will be required in the relevant jurisdictions.

Please also see answers to question ‎4 above which will also impact upon the validity and/or enforceability of guarantees and indemnities.

A guarantee and/or indemnity can be granted in relation to existing and future obligations however a variation to the underlying agreement to, for example, increase the guaranteed obligations, may discharge the guarantor’s liability.

It is possible to secure future obligations under a security document with careful drafting which will differ depending on the nature of the transaction.

Please see answers to question ‎12 below.

Guarantees: yes, the guarantor’s liability is contingent on the validity of the underlying principal obligation. If the principal obligation is set aside or the principal obligor is discharged this will have the same effect on the guarantee/guarantor.

Indemnities: yes, in contrast to a guarantee, an indemnity creates a primary obligation which is independent of the principal obligation. An indemnity will (absent any other issues) remain valid notwithstanding the underlying agreement being set aside, or the principal obligor being discharged.

Security: security can be granted to secure a borrower’s own liabilities (first party security) or the liabilities of another (third party security). Once the principal liabilities have been repaid or discharged in full, the security can be formally released. 

Yes, guarantees/security can be continuing for as long as guaranteed/secured obligations remain outstanding.

A guarantee is automatically released upon the release of the principal obligation, or the valid and effective and non-voidable repayment of the underlying guaranteed obligation in full. An indemnity can survive the release of the underlying obligation as it is a primary obligation. It is not customary to enter into a formal deed of release in relation to guarantees or indemnities.

The equity of redemption is a right afforded to security providers to recover the assets over which it granted security upon the full repayment of the secured obligations. Security/finance documents also typically contain a contractual right to release the security upon the expiry of the security period. 

Yes.

Yes, a security trust can be created. The security/guarantees/indemnities are held on trust by a security agent/security trustee for the benefit of the secured parties from time to time i.e. on syndicated loan transactions.

The security trust structure allows for the secured parties to change and for existing creditors to exit the structure and new creditors to buy into it, subject to the parameters of the security trust. It may be necessary for the new creditor to accede to the arrangements. Other ancillary documentation is routinely required including confirmations from the obligors in relation to the existing security/guarantees/indemnities and/or supplemental security/guarantees/indemnities. 

Changes to guaranteed/secured obligations – the extent to which existing guarantees/security can accommodate new or amended debt obligations is an area of some uncertainty. There is often no straightforward answer to whether new or supplemental security/guarantees should be entered into, and a systematic analysis is required. Current market practice is in favour of re‑taking security/guarantees where there is any uncertainty that the security/guarantee extends to the amended guaranteed/secured obligations.

Confirmations of existing guarantees/security will almost always be necessary even where the wording in the existing guarantee/security makes it clear that the guarantee/security extends to all obligations of the obligor.

Where the guaranteed/secured obligations are “all monies”, it is not generally necessary to confirm/re-take security/guarantees but each particular case should be reviewed on its merits before concluding on a course of action.

Changes to the obligors – accession of a new obligor will invariably include entry into security and guarantees in equivalent terms to the existing security/guarantees. Typically, confirmations of existing guarantees/security will also be necessary.

Registration requirements apply to any new security – see 20.2.

Parties are free to choose the governing law of the security/guarantee/indemnity but typically security over assets situate in England and Wales will be governed by English law.

On cross‑border transactions, local law advice will be required in determining the appropriate governing law of documents being by entered into by foreign obligors and/or in relation to foreign assets. 

Submission to foreign courts – local law advice will be required to determine whether the parties can submit to the jurisdiction of a foreign court in the event of a dispute.

Arbitration – an English company can agree to arbitration under an English law governed document where: (1) the seat of arbitration is in England and enforcement of an award will be sought in England or (2) where the seat of arbitration is in a foreign country which is a signatory to the New York Convention and the enforcement of an award made in that country will be sought in England.

Local law advice will be required to determine whether an arbitration award made in a New York Convention country will be enforced in another New York Convention country other than England.

No.

If a company has entered into a formal insolvency process, certain types of antecedent transactions are vulnerable to review and challenge. Reviewable transactions include:

• Transactions at an undervalue – within two years before the onset of the company’s insolvency (unless the transaction was entered into for the purpose of putting assets beyond the reach of creditors in which case there is no hardening period).
• Preferences – within the six months (or, where the person that has been preferred is connected with the company, two years) before the onset of the company’s insolvency
• Extortionate credit transactions – up to three years before the day on which the company entered into administration or went into liquidation.
• Invalid floating charges – within one year (or, where the floating charge is created in favour of a connected person, two years) before the onset of the company's insolvency.

Yes, it is possible to create security over multiple assets under one security document. Charges (fixed and floating), assignments and mortgages are three of the most commonly used types of security.

Yes, it is possible for a company to create a floating charge over all, or substantially all, of its assets or over a class of assets.

Clear descriptions of the secured assets should be included in the security documents for the purposes of identifying the secured assets, and in support of any fixed security.

The type of security interest to be taken will depend on the asset, the nature of the transaction and a number of other factors which our Banking team can advise on in more detail.

Yes, subject to the same considerations as discussed in the answers to question ‎4 above. 

No. Unless required by any applicable local laws.

Yes. Security granted by a company incorporated in England and Wales must be registered at Companies House within 21 days after the date of its creation. Failure to register renders the security void against a liquidator, administrator and any creditor of the company. The holder of the unregistered charge will rank as an unsecured creditor and the money secured by the charge immediately becomes payable which could trigger cross defaults under funding arrangements.

Security granted over real estate must be registered at the HM Land Registry prior to expiry of the applicable priority period.

Security granted over certain intellectual property rights must be registered at the relevant IP registries (which may include the UKIPO, the EUIPO and the WIPO).

Security over ships and aircraft require registration at the relevant specialist asset registers.

In cross‑border transactions, any non- English language in a security document will need to be accompanied by a certified translation into English in order to be able to submit the application for registration of the security at Companies House. 

To perfect a legal assignment, notice of assignment will need to be served on the contractual counterparty, and typically a signed acknowledgement to that notice is required from the contractual counterparty.

For a fixed charge, a notice of charge may be served on the contractual counterparty to notify them of the security over the asset. The notice will require the counterparty to act on the security holder’s instructions from the date of the notice, or following receipt of an enforcement notice. Signed acknowledgements to notices of charge may also be required from the contractual counterparty.

Certain other documentation may need to be completed to put in place any blocked account arrangements, including signing mandates and authorities.

In connection with taking security over shares, a security holder will typically take possession of the original share certificate(s) and stock transfer form(s) (with transferee details left blank) to assist with any enforcement of the security over shares.

The approach taken to the steps noted above often depends on the type of security, the asset and any commercial agreement reached between the parties. 

Yes.

Subject to a number of exceptions including ensuring registration and perfection (where applicable), as a general rule in England and in the absence of a separate priority agreement: (1) the holder of a fixed charge or mortgage will have priority over the holder of a floating charge over the same asset(s); (2) fixed charges or mortgages over the same asset(s) will rank according to the date of creation; and (3) floating charges over the same asset(s) will rank according to the date of creation.

The parties can agree to modify the order of priority of security and payments on the company’s insolvency if they have entered into a subordination, priority or intercreditor agreement. 

Security easily established and encumbrances easily checked.

Yes. E-signing (which includes virtual Mercury signings and electronic signings) are generally acceptable methods of execution for guarantees/security subject to certain exceptions and compliance with certain protocols, including compliance with HM Land Registry requirements (where applicable) and signing instructions/protocols. The company’s constitutional documents will also need to be reviewed to ensure there are no restrictions on this method of execution.

If it is not possible to execute by way of e‑signing, wet-ink signatures will be required. 

Yes. The charges register of a company can be accessed at Companies House which is publicly available and accessible online. Other asset specific registries such as HM Land Registry are also accessible online and fees are payable.

The company that created the charge or any person interested in that charge (which would include the security holder) can register it at Companies House. It is market practice for the security holder’s lawyers to register the security at Companies House.

Registrations at HM Land Registry will tend to be made by the company’s lawyers with solicitors’ undertakings having been put in place.

Security granted by companies and LLPs incorporated in England, Wales, Scotland and Northern Ireland must be registered at Companies House with Form MR01 and fees payable. The registration will need to be submitted with accompanying documents including (as applicable) any translation and a cover letter.

Registration at HM Land Registry will require the relevant forms, conveyancer’s certificates (where electronic signatures have been used), powers of attorney (if used) and fees to be submitted. If any priority arrangement affects the security, then the subordination, priority or intercreditor agreement will also need to be submitted. 

Quick to check the charges register at Companies House (information is available instantaneously) or to order company searches (searches can be available in a few hours).

Quick to obtain office copies from HM Land Registry (information is available instantaneously but some information has to be ordered which can take a few days/weeks).

Low disbursement costs apply to access information at Companies House and HM Land Registry.

Availability (and associated costs) at other asset specific registries will vary

Quick to file Forms MR04 or MR05 at Companies House to record full or partial satisfaction of a released or discharged charge (instantaneous online, or a few days by post).

Quick to file Forms DS1 or DS3 at HM Land Registry to record full or partial satisfaction of a released or discharged charge (processing can take a number of weeks/months).

No disbursement costs apply to file these forms at Companies House or HM Land Registry.

Other asset specific registries will vary. 

Please note that the information contained in this section is a summary and indicative only. It is not legal advice and is not to be relied upon for any investment or other decisions. This summary is based on a number of assumptions including that: (i) all security is valid, enforceable and fully perfected at the point of enforcement; and (ii) there are no cross-border aspects to consider. It reflects the position as at 6 June 2025.

In this section, references to “lender” taking enforcement action should be taken to include reference to any security agent/security trustee taking such action on behalf of a group of lenders, pursuant to the provisions of the relevant finance document(s).

In a typical commercial lending transaction, finance documents usually contain enforcement provisions which set out the circumstances when, and certain methods by which, security can be enforced.

The typical position prescribed by finance documents (assuming the facility is not “on demand”) is that the security becomes immediately enforceable on the occurrence of an event of default (“EOD”). EODs are typically set out in the facility agreement (but may be set out in the security document(s)). EODs often include non‑payment of interest or principal, breach of financial (or other) covenants, misrepresentation, cross‑default, insolvency or insolvency proceedings (certain of which may be subject to conditions/grace periods). There may be a requirement for an EOD to be “continuing” (this typically has a specified meaning, such as the EOD not having been remedied or waived) before security can be enforced. Other documents may also contain provisions which could impact the enforcement of security, so should also be reviewed.

Various enforcement rights may also be available under statute and common law – these vary depending on the facts (including the type of security interest and the way the document creating the security has been executed). The enforcement provisions contained in finance documents often disapply/modify the application of certain provisions imposed by law (particularly those which may restrict or place conditions on the exercise of certain enforcement rights (see question ‎30 below) and extend the rights, powers and discretions conferred by law), but will be subject to any mandatory laws.

As noted at question ‎29 above, in a typical commercial lending transaction, finance documents usually contain enforcement provisions which set out the circumstances when, and methods by which, security can be enforced. Typically, once the security has become enforceable in accordance with the terms of the finance documents (i) there will be no mandatory cure period, and (ii) there will be no steps that must be taken, prior to enforcement.

In practice, certain steps are typically taken by a lender prior to enforcement in any event – these include:

1. Lender issuing a reservation of rights letter (promptly) while considering its options – this is not required by law but assist in preserving the rights of the lender in relation to the EOD and reducing the risk that the lender may be deemed to have waived the EOD (though the lender should ensure its conduct is not inconsistent with the reservation of rights).
2. Lender issuing a formal demand declaring all outstanding amounts immediately due and payable (this should comply with the terms of the finance documents). The lender should review the finance documents to establish whether the issue of a demand is a prerequisite to taking enforcement action. Even where, as is often the case, the issue of a demand is not an express prerequisite to taking enforcement action under the finance documents, lenders often issue a demand in order to give the chargor one last chance to pay, and to try and ‘flush out’ whether the chargor disputes the right to enforce.
3. Lender may take protective steps to preserve value and prevent leakage e.g. seeking to block, and restrict payments from, certain bank accounts.

These steps assume that the security is enforceable (see question ‎29 above) and that the decision to enforce is ultimately taken, which would usually be taken only after lender has tried to exhaust all other options (including exploring restructuring options).

Yes. See question ‎32 below.

The most common out-of-court enforcement methods used in practice are the appointment of a receiver or the appointment of an administrator. At a high level, these enforcement methods involve the following (though there will be further conditions/considerations in each case):

1. Appointment of a receiver – a receiver is appointed over specific assets, with the directors remaining in control of the chargor; often referred to as a “fixed charge receiver”. Preferred appointment method: pursuant to a power to appoint which is typically contained in a security document. The security document will also typically set out extensive powers for the receiver and usually include an express power for the receiver to manage and sell the secured assets for application against outstanding obligations of the chargor(s). To be differentiated from an administrative receiver, which is a receiver appointed over all or substantially all a chargor’s assets but is only available in limited circumstances.
2. Appointment of an administrator - administration is a formal, collective insolvency process where the administrator displaces the directors and manages the affairs, business and assets of the company for the benefit of creditors as a whole. Directors remain in office unless removed by the administrator but are prohibited from exercising powers of management without the administrator’s consent. Preferred appointment method: subject to certain conditions, an administrator can be appointed “out of court” by “the holder of a qualifying floating charge” (statutory defined term) which is enforceable. An administrator often looks to sell the business and assets of the chargor as a going concern. A statutory moratorium is triggered by the appointment of an administrator which prevents creditors from taking certain actions during the administration period without the permission of the court or the consent of the administrator.
3. Exercise power of sale directly - this option is less likely to be pursued than options 1 and 2 above as there are more potential direct risks/considerations for the lender. Preferably exercised pursuant to an express power of sale contained in the security document(s).

Other enforcement methods/credit mitigation strategies may be available, subject to several factors including the terms of the finance documents and the type of asset secured. For example, where the lender has a fixed charge over shares in the chargor, it may, in certain circumstances, be possible to exercise voting rights to change the directors, with a view to taking control away from existing management and, for example, pursuing a consensual restructuring or sale of the relevant entity’s business and assets. Under limited circumstances, the statutory self-help remedy of “appropriation” may be available. Where available, and provided specified pre-conditions and requirements are met, it essentially allows certain collateral-takers (which have the benefit of specified security interests, created or arising under a “security financial collateral arrangement” (a term defined under statute) on specified terms, in respect of certain types of collateral (broadly including cash, certain financial instruments (such as shares) or certain credit claims)) the right, in the event that the security becomes enforceable, to vest in itself the collateral provider’s absolute interest in that collateral without needing a court order. There are certain requirements on a collateral-taker exercising a right of appropriation including (broadly) around valuing the relevant collateral and accounting for certain differences in value on appropriation.

A power of attorney clause is typically included in a number of finance documents, including security documents. In the context of security documents, where effective (and subject to certain conditions) this clause broadly provides that the chargor appoints the lender / each receiver to be its attorney and carry out certain actions on behalf of the chargor. This is often coupled with a further assurance clause requiring the chargor to take such action as the lender or a receiver may require, including to facilitate the exercise of certain rights of the lender / each receiver or the realisation of secured assets. 

The applicability of, and interaction between, the procedures outlined at question ‎32 above and other restructuring or formal insolvency procedures is complex and should be carefully considered on a case-by-case basis.

There are a number of other factors which may impact the ability of a lender to enforce, the enforcement method chosen and/or the enforcement timetable, the applicability of which should be considered on a case-by-case basis. This includes national security laws, economic crime legislation, market abuse laws, sanctions, building safety legislation, mandatory provisions of insolvency law (including the antecedent transaction rules outlined at question ‎16 above) and limitation periods.

England and Wales is generally seen as a creditor friendly jurisdiction, but there has been a shift with changes which were introduced in 2020 in response to the Covid‑19 pandemic. Under the Corporate Insolvency and Governance Act 2020, a new restructuring tool and a new standalone moratorium were introduced, coupled with restrictions imposed on suppliers exercising certain rights under contracts for the supply of goods and services when their counterpart enters an insolvency process.

Timing depends very much on the particular circumstances involved.

No.