#10286 - Security - Finance and Capital Markets

Take a Floating Charge over all the Undertaking to mop up anything that you may have missed. It will also secure all moneys outstanding to the Bank in situations where the bank failed to properly register any past security. There are 3 ways to perfect security Registration (e.g. Charges), Possession (Lien + Pledge) & Notice (Assignment)

Asset	Security Needed?	Registration requirements
Un-Mortgaged freehold property Factory/plots of freehold property/building	Charge over land by way of legal mortgage (LPA s.87). Include details of the land in a schedule to avoid confusion.	- Register at LR under s.27 LRA 2002. - MR01 Voluntary Registration Companies House within 21 days from date of creation of charge & comply with ss 859A & 859D CA 2006.
Mortgaged freehold property Factory/plots of freehold property/building	Mortgage needs to be removed in order to enter new mortgage. Get an undertaking & make it a condition. Charge over land by way of legal mortgage (LPA s.87). Include details of the land in a schedule to avoid confusion.	- Register at LR under s.27 LRA 2002. - MR01 Voluntary Registration Companies House within 21 days from date of creation of charge & comply with ss 859A & 859D CA 2006.
Future Acquired Land (freehold property)	Future acquired land cannot be secured by legal mortgage, and is therefore secured by an equitable mortgage (s.53(1)(c) LPA 1925) over the property once acquired. (The borrower may then be required to give a legal mortgage) Include a further assurance clause i.e. an undertaking by the borrower to do anything necessary in order to perfect the mortgage i.e. the conversion of equitable mortgage to legal mortgage.	- Register at LR under s.27 LRA 2002. - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.
Leasehold Property (Depends on the Facts)	¿Is there value in the lease? ¿Do the terms of the Lease allow assignment? If answer yes to both questions then, it might be worth taking security over them in the form of legal mortgage for the remainder of the term (LPA s.87). Include details of the land in a schedule to avoid confusion. Commercial Property Usually for a 15 year period where a small premium (if any at all) is payable at the start and thus the rent is set at market value (i.e. high rent) and likely subject to rent review (i.e. again, a high rental value). These elements are likely to make the lease very unattractive and hold a small commercial value, unless it is actually a very favorable lease. Residential Property Usually for a very long year periods where a high premium is payable at the start and thus the rent may not reflect a “real” market value (i.e. rent is likely to be very low) and likely NOT subject to rent review. These elements are likely to make the lease very attractive and hold a high commercial value	- Register at LR under s.27 LRA 2002. - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.
Hire purchase goods	No security possible – such goods are not actually owned by the company.	N/A
Under 100 % of Registered shares P.186 + Note P. 14 WS(5)	Legal Mortgage Transfer share into Bank’s name, have new share certificates issued. This is onerous and there are liability issues (i.e. taking liability for the Co.’s employment contracts or pensions) if the % is substantial. Risk being considered a subsidiary of the Bank if % is substantial. Must Ensure that shares are fully paid, stamp duty paid for and no pre-emption rights. Equitable Mortgage (will enjoy powers of L Mortgage s.101 LPA) Take custody of Share Certificate and a Share Transfer Form executed by borrower – make sure security documents gives right to execute power of sale of shares on default by the Co. Advantages: the bank doesn’t have to vote for borrower or pass on dividends to them. Bank doesn’t have to worry about the company whose shares are owned becoming a subsidiary of the Bank Enviroco Ltd v Fastad Supply.	- Charges over shares are NOT registrable under the Financial Collateral Arrangements (No.2) Reg. 2003. But good practice to register them: - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006. - if doing Equitable Mortgage: Hand over the Blank STF + Share Certificate SC (the Bank must have a power of attorney allowing the Bank to complete the STF + SC and register a new owner)
100 % of Registered shares In Co X Ltd P.186 + Note P. 14 WS(5)	Equitable Mortgage An equitable mortgage is preferred here as this does not require registering the shares under the Bank’s name (like in a legal mortgage). With a Legal Mortgage the bank becomes the owner of X Co. Ltd and therefore any parent-subsidiary relationship will be destroyed. See above. Check per-emption rights in articles and ability to register security trustee as Shareholder should there be transfer of ownership.	- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006. - Hand over the Blank Share Transfer Form STF + Share Certificate SC (the Bank must have a power of attorney allowing the it to complete the STF & SC & register a new owner)
Insurance Policy + other choses in action such leasing rights, debts,, property rights, investments	Legal Assignment P.125 Ian insurance is a Chose in Action. If it is a very valuable policy contract it is worth the effort of taking the assignment. However, check the terms of the policy contract for any restrictions on assignment. On receiving notice of the assignment the Insurance will pay to the Bank any moneys due under the insurance policy. Equitable Assignment P.127 Not as advantageous because the insurer could just pay the Company and the bank wouldn’t have primary access to the money. Thus, the Co can give a legal assignment to a subsequent assignee who, by giving notice, will take priority over the equitable assignee even if his interest predates it.	Legal Assignment Formalities under s.136 LPA 1925 In writing and signed by assignor Absolute (i.e. unconditional, transfer the whole of the debts) Notify in writing the insurer (Dearle v Hall) - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D. Equitable Assignment It is equitable if failed to comply with any of the above.
Painting Vase Sculpture Considerable pricy	Pledge Although it will need to take physical possession which, may be seen as a disadvantage by some (as it may get damaged), Banks have safes and the asset can be insured (the borrower is likely to be the one who ends up paying for the insurance anyway). The Borrower wants the asset to be valued generously and accurately. Therefore, choose Pledge. It gives right to sell the good to repay the loan. Fix charge It will prohibit the borrower form disposing of the asset without the Banks permission; The value of the asset will be maintained and the risk stays with the Borrower, furthermore the Bank still has recourse to the asset in the event of the Borrower’s default. BUT Is it worth a cumbersome registration over an equitable interest? i.e. a bonafide purchaser for value. Legal mortgage Is another possibility for the asset which does not include taking the actual thing with you but confirms ownership. BUT Although a Legal interest which bounds the world is it still worth a cumbersome registration? i.e. think that a bonafide purchaser for value will get equitable remedy.	Pledge Pledges and Liens cannot be registered s.859A at CH therefore, use a memorandum of deposit to prove that it has been transferred. Fix charge & Mortgage - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.
Contracts (or rental rights, insurance proceeds)	Equitable Assignment P.127 An EA is better where the contract is of lower value or/and for a short term as there will be no need to notify the parties. Similarly, if there are too many small contracts for low value it will be administratively cumbersome to have to notify and get consents for a legal assignment of these contracts. Legal Assignment P.125 Legal assignment gives greater protection to the Bank and is preferable where the contract is valuable. Check contract for any restrictions on assignment. On receiving notice of the assignment the other Party to the contract will pay to the Bank any moneys due under the contract. This will work where the contract is for work or goods already supplied by the assignor Co. to the other Party to the Contract and that other Party owes the money. Thus, it will not work for contracts where the work has not been carried out and the Co. is unlikely do so.	Legal Assignment Formalities under s.136 LPA 1925 In writing and signed by assignor Absolute (i.e. unconditional, transfer the whole of the debts) Notify in writing the insurer(Dearle v Hall) - MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D. Equitable Assignment It is equitable if failed to comply with any of the above.
Book Debts P.185	Floating Charge or equitable assignment Equitable assignment ranks above a floating charge so is more advantageous for the bank with...

Un-Mortgaged freehold property Factory/plots of freehold property/building

Charge over land by way of legal mortgage (LPA s.87). Include details of the land in a schedule to avoid confusion.

- Register at LR under s.27 LRA 2002.

- MR01 Voluntary Registration Companies House within 21 days from date of creation of charge & comply with ss 859A & 859D CA 2006.

Mortgaged freehold property Factory/plots of freehold property/building

Mortgage needs to be removed in order to enter new mortgage. Get an undertaking & make it a condition.

Charge over land by way of legal mortgage (LPA s.87). Include details of the land in a schedule to avoid confusion.

- Register at LR under s.27 LRA 2002.

- MR01 Voluntary Registration Companies House within 21 days from date of creation of charge & comply with ss 859A & 859D CA 2006.

Future Acquired

Land (freehold property)

Future acquired land cannot be secured by legal mortgage, and is therefore secured by an equitable mortgage (s.53(1)(c) LPA 1925) over the property once acquired. (The borrower may then be required to give a legal mortgage)

Include a further assurance clause i.e. an undertaking by the borrower to do anything necessary in order to perfect the mortgage i.e. the conversion of equitable mortgage to legal mortgage.

- Register at LR under s.27 LRA 2002.

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.

Leasehold Property

(Depends on the Facts)

¿Is there value in the lease?

¿Do the terms of the Lease allow assignment?

If answer yes to both questions then, it might be worth taking security over them in the form of legal mortgage for the remainder of the term (LPA s.87). Include details of the land in a schedule to avoid confusion.

Commercial Property

Usually for a 15 year period where a small premium (if any at all) is payable at the start and thus the rent is set at market value (i.e. high rent) and likely subject to rent review (i.e. again, a high rental value). These elements are likely to make the lease very unattractive and hold a small commercial value, unless it is actually a very favorable lease.

Residential Property

Usually for a very long year periods where a high premium is payable at the start and thus the rent may not reflect a “real” market value (i.e. rent is likely to be very low) and likely NOT subject to rent review. These elements are likely to make the lease very attractive and hold a high commercial value

- Register at LR under s.27 LRA 2002.

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.

Hire purchase goods

No security possible – such goods are not actually owned by the company.

N/A

Under 100 % of Registered shares

P.186 +

Note P. 14 WS(5)

Legal Mortgage

Transfer share into Bank’s name, have new share certificates issued. This is onerous and there are liability issues (i.e. taking liability for the Co.’s employment contracts or pensions) if the % is substantial. Risk being considered a subsidiary of the Bank if % is substantial. Must Ensure that shares are fully paid, stamp duty paid for and no pre-emption rights.

Equitable Mortgage (will enjoy powers of L Mortgage s.101 LPA)

Take custody of Share Certificate and a Share Transfer Form executed by borrower – make sure security documents gives right to execute power of sale of shares on default by the Co. Advantages: the bank doesn’t have to vote for borrower or pass on dividends to them. Bank doesn’t have to worry about the company whose shares are owned becoming a subsidiary of the Bank Enviroco Ltd v Fastad Supply.

- Charges over shares are NOT registrable under the Financial Collateral Arrangements (No.2) Reg. 2003. But good practice to register them:

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.

- if doing Equitable Mortgage: Hand over the Blank STF + Share Certificate SC (the Bank must have a power of attorney allowing the Bank to complete the STF + SC and register a new owner)

100 % of Registered shares

In Co X Ltd

P.186 +

Note P. 14 WS(5)

Equitable Mortgage

An equitable mortgage is preferred here as this does not require registering the shares under the Bank’s name (like in a legal mortgage). With a Legal Mortgage the bank becomes the owner of X Co. Ltd and therefore any parent-subsidiary relationship will be destroyed. See above.

Check per-emption rights in articles and ability to register security trustee as Shareholder should there be transfer of ownership.

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.

- Hand over the Blank Share Transfer Form STF + Share Certificate SC (the Bank must have a power of attorney allowing the it to complete the STF & SC & register a new owner)

Insurance Policy

+ other choses in action such leasing rights, debts,, property rights, investments

Legal Assignment P.125

Ian insurance is a Chose in Action. If it is a very valuable policy contract it is worth the effort of taking the assignment. However, check the terms of the policy contract for any restrictions on assignment. On receiving notice of the assignment the Insurance will pay to the Bank any moneys due under the insurance policy.

Equitable Assignment P.127

Not as advantageous because the insurer could just pay the Company and the bank wouldn’t have primary access to the money. Thus, the Co can give a legal assignment to a subsequent assignee who, by giving notice, will take priority over the equitable assignee even if his interest predates it.

Legal Assignment

Formalities under s.136 LPA 1925

In writing and signed by assignor
Absolute (i.e. unconditional, transfer the whole of the debts)
Notify in writing the insurer (Dearle v Hall)

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D.

Equitable Assignment

It is equitable if failed to comply with any of the above.

Painting

Vase

Sculpture Considerable pricy

Pledge

Although it will need to take physical possession which, may be seen as a disadvantage by some (as it may get damaged), Banks have safes and the asset can be insured (the borrower is likely to be the one who ends up paying for the insurance anyway). The Borrower wants the asset to be valued generously and accurately. Therefore, choose Pledge. It gives right to sell the good to repay the loan.

Fix charge

It will prohibit the borrower form disposing of the asset without the Banks permission; The value of the asset will be maintained and the risk stays with the Borrower, furthermore the Bank still has recourse to the asset in the event of the Borrower’s default. BUT Is it worth a cumbersome registration over an equitable interest? i.e. a bonafide purchaser for value.

Legal mortgage

Is another possibility for the asset which does not include taking the actual thing with you but confirms ownership. BUT Although a Legal interest which bounds the world is it still worth a cumbersome registration? i.e. think that a bonafide purchaser for value will get equitable remedy.

Pledge

Pledges and Liens cannot be registered s.859A at CH therefore, use a memorandum of deposit to prove that it has been transferred.

Fix charge & Mortgage

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D CA 2006.

Contracts (or rental rights, insurance proceeds)

Equitable Assignment P.127

An EA is better where the contract is of lower value or/and for a short term as there will be no need to notify the parties. Similarly, if there are too many small contracts for low value it will be administratively cumbersome to have to notify and get consents for a legal assignment of these contracts.

Legal Assignment P.125

Legal assignment gives greater protection to the Bank and is preferable where the contract is valuable. Check contract for any restrictions on assignment. On receiving notice of the assignment the other Party to the contract will pay to the Bank any moneys due under the contract. This will work where the contract is for work or goods already supplied by the assignor Co. to the other Party to the Contract and that other Party owes the money. Thus, it will not work for contracts where the work has not been carried out and the Co. is unlikely do so.

Legal Assignment

Formalities under s.136 LPA 1925

In writing and signed by assignor
Absolute (i.e. unconditional, transfer the whole of the debts)
Notify in writing the insurer(Dearle v Hall)

- MR01 Voluntary Registration at Companies House within 21 days from date of creation of charge and complying with ss 859A and 859D.

Equitable Assignment

It is equitable if failed to comply with any of the above.

Book Debts

P.185

Floating Charge or equitable assignment

Equitable assignment ranks above a floating charge so is more advantageous for the bank with...

#10286 - Security - Finance and Capital Markets

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