9. Security Flashcards
What should you check before accepting mortgage over shares
Ds cannot refuse reg + pre-emption rights do not apply
What part of Re Yorkshire did Spectrum focus on
B intended to keep trading + control
Method of perfection if fixed charge over cash (other than CH)
Give notice to debtor/bank BUT NOT NECESSARY
Method of perfection for EA of IP
Reg at IP office
What kind of mortgage over shares will L prefer and why
EM to avoid becoming M of company
Method of perfection if LA of insurance C
Notice to insurance company (L at least noted on policy, but better is to be ‘xo-insured’)
How is a lien perfected
L retains property until an O is met
What phrasing stops security falling away upon even temporary repayments
‘By way of continuing security’
What does it mean that most debentures are ‘all monies’ debentures
Provide security for all facilities, including future facilities
When is an assignment by way of security legal
If s.136 LPA ‘25 met
Three methods of security over future IP/property
Fixed charge/EM/EA
Two cases on distinguishing between fixed and floating charges
Re Yorkshire and Spectrum
What kind of right does a charge give
Equitable right over an asset
How is a pledge perfected
L takes actual/constructive delivery
How can you perfect fixed charge over P&M, other than reg at CH
Affix notice
Does any security need to be registered at CH to be valid?
No
What are 3 tests for floating charge
Over present + future class of assets, which in OCoB would change, and B intended to keep trading
Why is it a benefit to L of having QFlC and appointing own A
Control of the administration process
Two examples of floating charges
Stock and book debts (if insufficient control)
Method of perfection if LA over book debts
MUST give notice to debtors to stay LA
If LM of shares, what is the method of perfection
Transfer shares, new certificates and reg in M reg
What should C do once secured debt repaid
Request release of security on register at CH
Name three assets whose only possible method of reg is at CH (but they do not need to be reg at CH)
Goodwill (fixed), stock and cash (floating)
3 things for floating CASE
Re Yorkshire
What M is used for future property
Equitable M
Two kind of charges
Fixed and floating
General rule on priority of security which has not been reg at CH
Date of notification
What kind of charge is generally less advantageous for L
Floating
If trying to assign benefit of C, what should you check first
Doesn’t contain NAC
What is the aim of perfecting security
Notifying 3rd parties
When might book debts be fixed charge
If truly blocked account (Spectrum)
What is the effect of security on B
Lowers borrowing costs + means B who couldn’t get loan otherwise can
Why is a mortgage over shares a weak form of security
Rank bottom in priority + unlisted shares less marketable
What is a floating charge
Attaches to fluctuating assets, allowing B to continue to deal in OCoB, crystallising on specific event
What is CbwolM usually in addition to
Fixed charge over property to
Benefits of grandfathered floating charge
Can appoint AR + not subject to prescribed part + tax advantages
What commercial issues might there be w/ giving notice to 3rd parties
Making 3rd nervous about B’s financial stability
When does reg at CH NOT give constructive notice?
Shares, cash and bonds (covered by Financial Collateral Regs) - only actual notice if checked
Two downsides of pledge
L becomes bailee and B cannot generate income
Two kinds of insurance that may be assigned
Keyman or buildings insurance
If B has CiA against 3rd, what can B do
Assign benefit to L
Most common form of security for land
CbwoLM
What other assets might form basis of security, but are not in BS
Insurance, IP rights, key contracts, goodwill, TMs/patents
Control for floating CASE
Spectrum
What to do before accepting M over shares of non-English company
Local law advice on perfection
What is the effect of reg at CH
Deem 3rd parties to have constructive notice
What is the usual charge over bookdebts
Floating
Cons of floating charge
Vulnerable, not recognised in other Js and if over stock, might be subject to RoTs
What will L want if EM over future property
‘Further assurance’ claus + PoA to be able to take security when new rights acquired
859A gives what
Reg at CH within 21 days from day after creation of charge
What case confirmed Re Yorkshire
Spectrum
When is a floating charge qualifying
Over substantially all the assets + doc states para 14 Schedule B1 applies
What is the CL rule on priority between LAs
Date notice given to debtor (Dearle v Hall)
What is a fixed charge
Attaches to specific asset if chargeholder has sufficient control
Why are floating charges vulnerable
To fixed charges, preferential creditors, A’s costs, and higher chance of avoidance
What kind of M has to be registered to maintain priority against BFP
EM
What is the key criteria that distinguishes LA from EA
Notifying original debtor/counterparty
What is a ‘catch all’ floating charge called and what is it’s purpose
Sweep up floating charge, ensures that charge will = qualifying floating charge
Two situations in which B will not be able to give security
Negative pledge or unlawful FA
If no notice is given to counterparts when assigning benefit of C, what happens (x3)
Only EA, counterparty can set off amounts B owes it, and can pay B directly
What is the criteria in s.136 LPA ‘25
Absolute assignment, in writing, signed by assignor and NOTIFIED to original debtor/counterparty
What administrative issues might there be w/ giving notice to 3rd parties
Too many to give notice to
4 examples of fixed charges
Goodwill, property, book debts, IP, P&M, uncalled capital
Spectrum key
Control for floating
If Ds can refuse reg or pre-emption rights do apply, what should you do before M over shares
Amend AoA
What is the effect of failure to reg security at CH
Void against L/A/other creditors + debt becomes immediately repayable
What is a grandfathered floating charge
Over substantially all assets + pre 15/09/2003
How to reg at CH
Form MR01 + certified copy of debenture + reg fee, within 21 days from day after creation of charge
General rule on priority at CH
By order of creation, subject to proper reg
Priority for CbwoLM
Ranks according to date of reg, not creation (48(1) LRA ‘02)
Two options of security over insurance Cs
Fixed or assignment
What changes the CL rule on priority between LAs
Reg at CH gives constructive/deemed notice, so first reg = priority
859H states what
Consequences of failing to reg security
Procedure for requesting release of security on CH reg
Deed of Release + either MR04 or MR05
Two ways of security through physical possession
Pledge and lien
What is the best protection of security
Reg at CH
Why must you reg EM and EA
BFP for value w/o notice takes free
What documents are required for EM over shares
STF signed but undated, blank share certificates + PoA in favour of bank
What three assets (if they have security over them) do not need to be reg at CH bc covered by Financial Collateral Regulations
Cash, shares and bonds
When must security over future IP/property be reg at LR/IP office
Once acquired
What did Spectrum define a fixed charge as
Asset only released from charge on active occurrence of L, e.g. prior written consent
When is an assignment equitable
If 136 LPA ‘25 criteria not met
Three advantages of floating charge for L
B can keep trading, grandfathered FlC has benefits, and QFlC can appoint own A
Method of perfection of reg land
Reg at LR
When must you consider the value of the security
At time of potential enforcement
Re Yorkshire key
3 things for floating
When is it more likely a book debt will have a fixed charge over it
One-off loan, e.g. inter-group loan
What did Spectrum define floating charge as
Assets not appropriate until a later date
What five subjects of security do not need notice to be given to any third party to perfect
Shares, cash, bonds, goodwill, stock
For what security over cash is there no need to give notice to a bank, even as a matter of good practice
Floating charge - only if fixed charge
