This Security Documents Sub-folder contains various agreements for documenting the security arrangements for companies and individuals.
- An Indemnity Agreement which obliges one party to compensate another for a particular loss suffered by that party;
- A Security Agreement where one party owes an unsecured debt to a creditor, who wishes to secure the debt against property of the debtor. This may be of particular use where the debtor wishes to prevent the immediate collection of a debt.
- A Debenture is a document that acknowledges and contains the terms of a loan, which is typically secured by reference to charges over all or substantially all of the Borrower's property or assets in the form of relevant fixed and floating charges over the assets of the borrower; and
- A Chattel Mortgage which creates a mortgage over specified moveable property of a company as security for a loan.
Secured Lending – the pitfalls
Simply-Docs offers a limited range of secured loan agreements however the legal issues surrounding the taking of security are complex, and there are various legal forms that can be used, for example, a chattel mortgage (a mortgage over tangible and moveable property of a company, such as plant and machinery or vehicles), fixed and floating charge, pledge, lien and assignment by way of security. Security over shares is different again, and can be achieved by way of a legal mortgage, an equitable mortgage or an equitable charge.
There are a number of issues that need to be addressed in order for a lender to enforce its security, such as:
- The loan agreement should dovetail with the proposed security arrangement and must contain a right of enforcement (including detailed provisions regarding when and how a lender can enforce its security). Ideally the enforcement provisions should be tailored to reflect the nature of the secured asset.
- The lender must formally demand repayment.
- There must be some agreement as to how the lender takes possession of the secured assets (or in some cases, ownership must pass in order for the security to be valid – for example, in the case of a legal mortgage of shares).
- The loan agreement must contain a power of sale in relation to the secured assets.
- The security may be invalid unless properly perfected and registered at Companies House and/or on the relevant company/asset registers.
- If an individual or partnership provides security over chattels, the requirements of the rather arcane Bills of Sale Act (1878) must be complied with.
In view of the complexity of taking security, you are strongly advised to take legal advice to ensure that the proposed security is valid and enforceable in the event of default in repayment.
All documents in the Security Agreements Sub-folder are fully compliant with the Companies Act 2006.