Security – general

Security agreements
Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?

Yes. In England and Wales, security may be granted over individual assets (eg, a piece of land or a bank account) or over the whole of a company's assets and undertaking (present and future) via a single universal security instrument – a debenture.

Release of security
What are the formalities for releasing security over the most common forms of assets?

English law-governed security is typically released by way of a deed of release. From an English company's perspective, it is preferable for such release to be recorded at the Companies Registry by way of filing the relevant release forms; however, this is not required in order for such release to take effect. Where security over registered land is released, the appropriate Land Registry release forms are required to be filed at the Land Registry in order for the release to take effect.

Asset classes used as collateral for security

Real estate
Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes. The most common form of security interest granted in respect of land in England and Wales is a charge by way of legal mortgage created in a deed. Such a security must be registered at the Land Registry to take effect in law and, where granted by an English company or a limited liability partnership (LLP), must also be registered at the Companies Registry within 21 days of creation. 

Machinery and equipment
Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. The most common forms of security granted over machinery and equipment are fixed charges (in the case of machinery and equipment over which the security taker will exercise control over the assets) and floating charges (where the security grantor will retain control over the assets), in each case created in a deed and, where granted by an English company or LLP, required to be registered at the Companies Registry within 21 days of creation.

Typically, the security taker will require the security grantor to attach a nameplate to the charged assets in order to notify third parties of its security.

Whether security purported to be taken over particular assets is characterised as a fixed or floating charge will depend on whether sufficient control is granted to the security taker over those assets. Without sufficient control by the security taker, the charge will be deemed to be a floating charge. It may be that the security taker does not want to exercise control over certain types of assets, in which case it will be more appropriate to take a floating charge over those assets.

Whether a secured lender has the benefit of a fixed or floating charge will be relevant in the event of insolvency of the charger company in terms of the secured lenders' rights and priority in recovery.

Receivables
Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. The most common forms of security granted over receivables are legal assignments and fixed charges (where the security taker will exercise control) or floating charges (where the security grantor will retain control over the assets) created in a deed. Where granted by an English company or LLP, such security is required to be registered at the Companies Registry within 21 days of creation.

Typically, security over receivables is perfected by providing notice of the security to the third party against which the assigned right is enforceable.

Please see above under "Machinery and equipment" for further detail as to the characterisation of fixed and floating charges.

Financial instruments and cash
Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security can be granted over all types of financial instruments – again, typically made by way of deed. Security over certificated registered shares is usually by way of equitable mortgage or fixed charge (these methods avoid the security taker having the administrative burden of ownership, which comes with a legal mortgage). The security taker is therefore not noted on the share register, but protects its interest by taking possession of the share certificates and executed stock transfer forms (blank as to the transferee), which will enable it to transfer the shares on enforcement. Shares in listed companies are typically uncertificated and held through the electronic settlement system, CREST, which maintains the share register. Again, security is usually by way of equitable mortgage or fixed charge. To create this security, the security grantor transfers the shares (or other securities held in CREST) into an escrow account. It cannot transfer them out of that account without the security taker's permission.

Most bearer debt securities are in global form (ie, a single certificate, physically held by a common depository, representing the whole of the issue). Interests in the securities are typically cleared through a system such as Euroclear or Clearstream; however, the noteholder typically holds its interest through one or more intermediaries (typically, banks acting as custodians). The noteholder's interest is therefore recorded in book-entry form with an intermediary and its primary ‘asset’ is a claim against the relevant intermediary. Security is therefore taken via an assignment or charge over the securities account, over the corresponding rights against the relevant intermediary and (to the extent that the securities come out of global form) over the securities themselves. The security taker's interest is noted as a book entry.

Security over financial instruments or cash given by an English company or LLP will normally be registered at the Companies Registry within 21 days of creation, although the security may be exempted from this requirement if it falls within the ambit of the Financial Collateral Regulations (No 2) 2003.

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. The most common form of security granted over cash deposits are fixed charges (where the security taker will exercise control over the assets) and floating charges (where the security grantor will retain control over the assets), in each case created in a deed and, where granted by an English company or LLP, required to be registered at the Companies Registry within 21 days of creation.

Typically, security over cash deposits is perfected by providing notice of the security to the third party against which the security right is enforceable (eg, in the case of a bank account, the account bank).

Please see above under "Machinery and equipment" for further detail as to the characterisation of fixed and floating charges.

Intellectual property
Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. The most common forms of security granted over intellectual property are fixed charges (where the security taker will exercise control over the assets) and floating charges (where the security grantor will retain control over the assets), in each case created in a deed and, where granted by an English company or LLP, required to be registered at the Companies Registry within 21 days of creation.

Please see above under "Machinery and equipment" for further detail as to the characterisation of fixed and floating charges.

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