Security Reviews & Enforcement


Creditors, who are individuals or organisations that lend money to Companies or individuals [borrower], will often take security over a borrower’s assets in return for making a loan.

This is to increase the lender’s chances of getting paid should the borrower get into financial difficulty.

Assets can include property or if you are a business the lender can take security over the goodwill of the business.

A security review is the name given to a report prepared by a lawyer for a lender to assess the scope and effectiveness of security over the assets of a borrower.

This is can be compared to a survey of a property where you want to see if the property is structurally secure before purchasing it.

The security review is a tool used to see if the security is effective before agreeing to lend money.

The Corporate Recovery and Insolvency Team have extensive experience in dealing with security reviews and resolving issues with enforcing security.

To discuss further, please contact Angus Ashman, Partner and Head of Dispute Resolution.

How can the security be enforced?

The document which contains the security will set out the circumstances as to when the security will become enforceable.

For example: if loan payments are not made on time, if the provisions of the document are breached or if the borrower gets into financial difficulty the lender may be able to take possession of the asset and will be able to sell it.

What rights of enforcement are available to you?

This will depend on the type of loan in place, below are some forms of security that can be made and how they can be made enforceable by the borrower:

Mortgage

This is where security can be made over land, buildings, machinery aircraft and ship and even shares in other companies. To enforce the security the lender will be able to take possession of an asset.

The lender can take possession of an asset if there is a term in the mortgage deed (form of contract agreed at the time of taking out the mortgage). If the lender takes possession the lender has the power to sell and appoint an individual called a receiver who will manage and sell an asset.

Charge

There can be the express power to sell, take possession and to appoint an individual called an LPA/fixed charge receiver to manage and sell the asset(s).

There are different types of charges that can be created and we can help and advise you when it will become enforceable and the consequences as a result.

Pledge

This is when an asset is physically delivered to the borrower from the lender to serve as the security until the borrower has paid their debt.

The only way a lender can enforce its security with a pledge is if the borrower is in default, the lender is then able to sell the asset which the lender has taken security over.

Lien

This is a right to a physical possession of the borrower’s goods until the loan has been repaid.

There is no right to sell the assets to settle the debt owed, however, the lender can apply to the Court for an order for sale provided that certain criteria are satisfied.

We can advise you on security reviews, when a security review will become enforceable or whether you wish to pursue a claim for the recovery of your security.

We have extensive experience in advising borrowers and lenders on security.