What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?
Usually the underlying assets and related bank accounts and collection accounts are granted as security interest to the investors in a securitisation. In relation to receivables, the security is granted by way of assignment.
As of 1 January 2014, a bill was enacted that resolved past uncertainty with respect to trustees under Danish law, by recognising the use of security agents and trustees in syndicated loans and, subject to certain conditions, the use of bondholder representatives and security trustees in bond issues. The rules provide that security interests can be granted directly in favour of the representative (the security agent) acting on behalf of the secured parties from time to time, therefore, making perfection and preservation of security interests in connection with bond issues more feasible.Perfection
How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?
Requirements to perfect security will depend on the asset and the form of security taken.
In order to create a security interest over the receivables and any related security, the parties would have to enter into a pledge agreement in relation to these assets. The pledge will usually be granted in favour of the bond representative acting as security agent on behalf of the investors.
The perfection requirement would be notice to the obligors along the same lines as in relation to a true sale (see question 33). In addition, the issuer must be deprived of control over the receivables, as well as over any income deriving from these receivables.
Pursuant to the Danish Registration Act, no person may grant security interests over all of his or her present or future assets, whereby the purchaser is unable to grant security interests over all of its assets. As an exemption, the purchaser may grant a floating business charge over some of its assets (including receivables, intellectual property, etc) by way of registration with the Danish Registry of Chattel Mortgages. Perfection is subject to a stamp duty of approximately €200, and an additional 1.5 per cent of the nominal amount of the charge.
It is possible to create a pledge over related bank accounts and the collection account (if any) under Danish law. A pledge over accounts is perfected by delivering notice to the account bank and effectively blocking the pledger’s access to the account. In order to evidence notification, it is common to request that the account bank execute an acknowledgement; however, this is not a legal requirement for the perfection of the pledge. There are no registration requirements in relation to the pledge; however, the pledged account must be effectively blocked at all times in order for the pledge to be perfected. Accordingly, the secured party must consent to each and every release from the pledged account. Account pledges may therefore not work from a practical perspective depending on the account in question.Enforcement
How do investors enforce their security interest?
With respect to the transferred receivables and any related bank accounts, the bond representative (on behalf of the investors) will be able to:
- collect the receivables directly from the obligors as they fall due; and
- take possession of the funds on the pledged account.
Deposits on accounts and receivables may be enforced in accordance with the agreed terms in the pledge agreement without preceding a court order.
In relation to all other assets, the basic rule is that security is enforced by a sale of the secured assets at an auction following an order of the bailiff’s court (unless otherwise agreed) and after notice has been given to the pledgor. However, different rules apply for different assets. The initiation of enforcement procedures in Denmark is not conditional upon the obligors being subject to insolvency proceedings, nor will the enforcement automatically trigger any insolvency proceedings.Commingling risk
Is commingling risk relating to collections an issue in your jurisdiction?
Yes. Commingling is a risk under Danish law. Ideally, any payments collected from the obligors should be made directly into a separate collection account held in the name of the assignee. The assignor can, however, be given the right to act as agent in administering and collecting the receivables as long as the assignor cannot freely dispose of the incoming receivables and the arrangement is carefully monitored by the assignee. It is also possible for payments to be made into an account of the assignor, provided that funds are credited on a daily or very frequent basis to a separate bank account held in the name of the assignee. Payments to the assignee should not be commingled with any other funds of the assignor because this would jeopardise the security interest. If bankruptcy occurs in relation to the assignor, funds standing to the credit of the assignor’s bank account will belong to the assignor’s estate.