SGS 8 (Security) Flashcards
Pros and cons of a legal mortgage over shares?
P: L has rights, greater control and priority over third parties.
C: administrative duties as SH of company.
Pros and cons of equitable mortgage over shares?
P: less onerous admin
equity’s darling buys free of mortgage (avoid by registration).
Procedure for taking a legal mortgage over shares?
B executes an STF in favour of the L
L entered in register of members of subsidiary company
Issue new share certificate to L
Procedure for taking an equitable mortgage over shares?
Signed, undated STF provided by company to bank
Security power of attorney in debenture (so that bank can complete STF if wants to.
On enforcement of security:
Lender will date the STF and present to company at such a time as L wishes to become registered holder of shares
Entered in register of members
What is assignment commonly used for?
security over contractual rights against a third party (choses in action)
preferred to a fixed charge as enforcement easier.
requirements for a legal assignment?
s.136 LPA 1925
in writing
absolute assignment (whole of existing debt, not part)
signed by assignor
notified to original debtor / contract counterparty
Equitable assignment?
parties purport to create legal assignment but element of statutory criteria fails e.g. notice to original third party involved.
Advantageous if undesirable to notify third party.
Disadvantageous as no control over third party changing terms of the contract
What should you do for ALL security?
Register at CH under s.859A CA
Form MR01, certified copy of debenture and fee within 21 days
otherwise security void against liq, administrator or any other creditor and secured debt immediately repayable.
Perfection of CBWLM?
Register at LR.
What is the specific issue as relates to book debts?
For a fixed charge need to show sufficient control over debt and debt proceeds, Spectrum.
Get B to collect debt as lender’s agent and pay proceeds into a ‘blocked account’, from which B cannot make withdrawals.
What is the problem with the solution to book debts?
Commercially impractical as borrower cannot drawdown and if a trading company (needs proceeds for day-to-day costs) (note not if it is a holding co.)
If challenged, may be floating, but always try to make it fixed.
What is the additional perfection requirement with insurance?
Notice to insurance company
Ideally, bank co-insured in respect of rights interest, if borrower does something vitiating its own policy, lender’s INTEREST still stands but L not repsosnibele for paying B’s premium.
As a minimum, bank’s interest noted on insurance policy.
What is a compromise position given the administrative difficulty and commercial unattractiveness of serving notice on all contract counterparties for assignment perfection?
B to sign notices and deliver to lender at time security is granted but for L to agree to only deliver the notice following an event of default under terms of the finance document
What is the priority as regards fixed charges?
Date of creation provided registered within the 21 days
Priority over floating even if created after (Check for negative pledge in floating charge security document.)
Specialist registers in addition to CH registration – take date of registration in specialist registry.
Floating charge priority?
LR priority?
Rank between themselves according to date of creation.
Date of registration.
Assignment priority?
Date of notification to debtor (Dearle v Hall)
Rule does not apply where subsequent assignee knows of the earlier assignment so registration of security at CH can defeat the rule as it amounts to constructive / deemed notice.
What is the common security for investments?
Legal or equitable mortgage over shares.
If portfolio traded frequently may need a floating charge to allow for trading without lender’s permission.
Issues with overseas elements to assets?
Overseas security will need to be created over the asset and local law advice taken.
Consider whether expense of the advise is justified in relation to the value of the asset.
Also need local law advice for perfection requirements.
What is normally taken over cash?
Floating charge but could be fixed if a deposit account.
What does not need to be registered?
Charges over cash, shares and bonds as covered by Financial Collateral Regulations (No. 2)
In practise usual to register.
IP?
Software
Assignment or fixed charge
Registration at IP office in addition to CH (nb no register for copyright)
nominate notification (UK domain name)
After all assets what else may you need?
floating charge over everything (ensures charge is a QFC allowing bank to appoint own nominee as administrator and use out of court procedure for appointment).
How do you perfect a fixed charge?
Affix a notice to the asset.
Notice to debtors (good practise only.
