Lending across borders can involve several risks and jurisdiction-specific requirements.
Cross-border bank security taken by a bank or institutional lender is usually a charge over the assets of a corporate entity located in the UK.
It can also be taken by a bank or an institutional lender situated in the UK over the assets of a company located in an overseas jurisdiction or a combination of both.
The reasons for taking such security can vary on a case by case basis, with the most common reasons being access to international financing and to provide additional collateral for pre-existing overseas loan facilities (most commonly where new companies are acquired into a group).
Our Banking Lawyers investigate the key issues, considerations and jurisdictional differences of cross-border bank security.
Key Issues in Cross-Border Security
The following are some of the issues that may arise when attempting to take cross-border security (which can impact the validity and enforceability of the relevant security):
- Inadequate due diligence
- Failure to register or perfect the security
- Incomplete or improperly drafted security agreements
- Failure to obtain corporate authorities and consents
- Failure to obtain guarantees
Due to the risks associated with taking cross-border security, it is crucial that thorough due diligence is undertaken and advice is obtained from specialist lawyers at the outset of the process to minimise the issues/risks mentioned above and ensure the enforceability of the relevant security suite.
Considerations and Jurisdictional Differences
Different jurisdictions will require different types of security to be taken over different types of assets.
Security in the UK usually includes legal charges (whether over real property, a class of assets, or specific fixed assets), debentures (containing both fixed and floating charges), third-party charges, cross-guarantees, corporate guarantees, and personal guarantees.
The following points will need to be considered by both the lender and borrower:
- Will the lender become the legal owner of the assets once collateral is taken?
- What conditions must be met for certain types of security to be taken?
- Will the charge need to be registered to take effect and be enforceable?
- Where will the security rank?
- What will happen if the security provider becomes insolvent?
- Does the jurisdiction allow for the charge to be taken over future assets?
- Does the security agreement include a negative pledge which would prevent the borrower from giving future security?
- Is a third-party guarantee required by the lender?
- Are there existing security/facilities in place to which accession of a group company is required?
Where there is a group structure in place, it is usual for the group companies to be parties to a cross-guarantee arrangement whereby each company guarantees the financial obligations of the other companies.
This provides additional assurance to the lender that the loan/financial indebtedness of the main lender or group lending will be repaid.
Contact Our Banking Lawyers
Having acted on various cross-border security arrangements, our banking team can assist with the UK-based elements of overseas banking arrangements, including accession arrangements, the amendment and restatement of existing loan facilities and the collateralisation of UK corporate assets, real estate and other assets.
If you would like to get in touch, please call us on:
01619414000
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