Security

Types

What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?

English securitisation SPVs usually grant security as mortgages, charges or assignments by way of security. Charges can be fixed or floating in nature. A security interest is floating if it expressly states that it is floating; and is likely to be held to be floating if it allows the debtor to dispose of assets subject to it without having to obtain the consent of the secured creditor. However, a floating charge will rank behind a fixed charge in priority, so most securitisations will endeavour to take as much notionally fixed security (including assignments by way of security over contractual rights and receivables) as possible and also a qualifying floating charge.

Such security will typically be granted to a security trustee to hold for the benefit of the securitisation investors and will be enforceable only by such security trustee. While the securitisation investors will not have rights to directly enforce the security, they typically have the ability to direct (if a sufficient proportion of them provide the requisite directions) the security trustee to enforce such security.

Perfection

How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?

Where the SPV granting the security is a company incorporated under CA 2006 (as is usually the case), the details of the security it grants will (with limited exceptions) need to be lodged for registration with UK registrar of companies within 21 days of being created. Failure to so lodge the relevant details will result in the security being invalid against the other creditors of the SPV and any liquidator or administrator (both types of insolvency official) appointed in respect of the company.

Enforcement

How do investors enforce their security interest?

See question 25. If the securitisation is structured, as described in the second paragraphs of questions 2 and 25, then the security trustee is likely to enforce the security by appointing an administrative receiver. An administrative receiver is an official who acts in the interests of such secured creditors. Administrative receivers have wide-ranging powers to use and dispose of the assets of the debtor over whom they have been appointed, but subject to the terms of the security documents under which they are appointed. An administrative receiver could, in theory, service the securitised assets and operate the cashflows of the issuer throughout the remaining life of the securitisation. However, in practice, the administrative receiver will generally try to sell the assets for the best price reasonably achievable and distribute the proceeds thereof in accordance with the applicable priorities of payment. For so long as an administrative receiver is in office, the unsecured creditors are not entitled to appoint any official over the assets the subject of the administrative receivership (theoretically, a liquidator could be appointed while the administrative receiver is in office, but such liquidator would not have any rights to the secured assets until the secured creditors had been fully paid; in practice, such appointment of a liquidator is unusual in securitisations). The person entitled to appoint an administrative receiver is also entitled to be notified of any steps being taken to appoint another insolvency official and to seek appointment of an administrative receiver instead.

Commingling risk

Is commingling risk relating to collections an issue in your jurisdiction?

Commingling risk is an issue in the UK. Where the proceeds of securitised assets are paid into an account that also holds other funds, there is a risk that in the collection accountholder’s insolvency, the proceeds of collections related to the securitised assets might not be available to the securitisation investors. Mitigating techniques include the collection accountholder declaring a trust over the proceeds of securitised assets in such account, sweeping funds frequently from the collection account to an account in the name of the securitisation SPV or both.