Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?
Lending & Secured Finance
A company that is incorporated in Croatia cannot grant security over its future assets but it may provide security in relation to its future obligations.
In general, this is possible. Nevertheless, the future assets or obligations must be specified precisely.
Yes. However, the pledge of any future assets (for example receivables) that are not in existence upon their transfer may not be deemed effective or enforceable in relation to third parties until such assets have come into existence, any requisite counter-performance has been made and the pledge is duly perfected.
Yes, provided that the relevant security agreements provide for the relevant provisions and the future assets and future obligations are sufficiently identifiable.
Security over certain future assets, such as receivables and inventory, is available in Spain. The majority of scholars admit that a pledge may secure future obligations, provided that such obligations (a) are linked to an underlying legal relationship (already existing when the security is created) and (b) can be identified. A general "all monies" charge is therefore unlikely to be enforceable.
The Spanish Insolvency Act states that pledges over future credit rights will be privileged provided that the following requirements before the declaration of insolvency are met:
- Future credit rights must derive from contracts concluded or legal relationships born prior to the declaration of insolvency.
- Pledges will have to be executed by means of a public document, or, if said pledges are considered non possessory pledges (“prenda sin desplazamiento”), they must be registered in the Registry of Movable Assets (“Registro de Bienes Muebles”).
For other future assets, such as land and shares, promissory security is available. Please note that the promissory security will not grant the lender any right over the assets expressly subject thereto, until the relevant security documents have been executed, and each of the actions required for the perfection of the security (e.g., registration in the case of a mortgage) has been fully performed.
Promissory security usually has a "trigger event" such as a breach of certain covenants. It is advisable to complement the promissory security with an irrevocable power of attorney, so that the lender may execute and perfect the security if the chargor does not create it when requested. In relation to the irrevocability of powers of attorney, please note the following:
- The irrevocable nature of a power of attorney is based on Spanish case law. However, since such irrevocable nature may be considered as an exemption to the rules generally applicable to powers of attorney under Spanish law (Civil Code), we should not disregard a different view by the Spanish Courts.
- If the grantor of the power of attorney is declared insolvent, any power of attorney granted by it will become invalid.
For real property, the law requires the mortgagor to be the absolute owner of the property mortgaged. Accordingly, a party to a contract may not constitute a real estate mortgage over property the mortgagor does not yet own. However, for personal property, a security agreement may provide for the creation of a security interest in a future personal property, but the security interest in that property is created only when the grantor acquires rights in it or the power to encumber it.
A company incorporated in Sweden can grant security over its future assets and for future obligations provided that relevant assets or obligations are (or will be) sufficiently identifiable. However, in the event of the company’s insolvency, security over future assets may be challenged in respect of assets over which the security was perfected during a three months hardening period preceding the commencement of the relevant insolvency proceedings.
For instance, security over receivables will not be perfected until the receivables arise. Consequently, a hardening period may apply for every new receivable, even if the debtor has previously been notified of the security, to the extent the new receivable secures previously incurred obligations.
In addition to our explanations under Question 4 above, Turkish law allows for future movable assets and receivables of a Turkish entity to be pledged subject to the Movable Pledge Law. Also note that a mortgage and a movable asset pledge subject to the Movable Pledge Law can secure the future obligations provided that such future obligations are definite and ascertainable at the date of the relevant mortgage/pledge agreement.
Yes, a company that is incorporated in the United States can grant security over its future assets by including an affirmative statement in a security agreement creating a security interest in its after-acquired property. If the security agreement contains such a statement, then no additional action is required to create such security interest. The security interest over such future assets will attach automatically once the company or debtor acquires rights in the after-acquired property, unless there is language in the security agreement specifically delaying such attachment.
One item to note is that an after-acquired property clause in a security agreement will not be sufficient to perfect a security interest in future commercial tort claims. In order to perfect a security interest in a commercial tort claim that arises after the signing of the security agreement, the language in the granting clause would need to be updated at the time that such commercial tort claim arises, in order to describe such claim with specificity.
Yes, provided that the relevant security agreement allows for the future assets to be identified or identifiable and the future secured obligations to be specific enough.
The floating charge element of an all assets debenture will ordinarily cover future assets which are acquired by the relevant company or limited liability partnership. It is also possible for a fixed charge or mortgage to cover future assets to the extent that these assets are sufficiently identified in the relevant security document. Such charge will be "equitable" rather than "legal" in nature until the assets come into being and come into the ownership of the borrower.
A judicial hypothec will secure all of the immovable property of a hypothecary debtor but such a hypothec must relate to a particular liability and the ‘billet’ or acknowledgment will refer to that liability. The hypothec must be created for a specific sum. The hypothec will only secure the property owned at the date of registration and not any future property.
It is possible to take security over all present and future intangible movable property held by the grantor in Jersey from time to time. Under the Security Interests (Jersey) Law 2012 (SIL), a security interest attaches to an asset under a security agreement when:
a) value is given in respect of the security agreement;
b) the grantor has rights in, or the power to grant such rights, in that asset; and
i. the secured party (or someone on its behalf other than the grantor) has possession or control of that asset; or
ii. the security agreement contains a description of the asset sufficient to enable it to be identified.
When these elements are satisfied, a security interest in the asset has been created and has ‘attached’ and it can now be enforced by the lender against the grantor. Once a security interest has attached, it must be perfected to ensure that it is enforceable against third parties subject to the priority rules. If a security interest is not perfected, amongst other things:
a) it is void against the Viscount (the Jersey court appointed insolvency officer) or liquidator on the insolvency of the grantor;
b) it will rank after all perfected security interests;
c) the ability to enforce the security interest against proceeds may be lost; and
d) a person who acquires the collateral for value will take free of the security interest, unless such security interest was created or provided for by a transaction to which that person was a party.
A security agreement may be expressed as securing all present and future obligations under specific finance document or as securing all monies owed at any time to the lender. SIL makes it clear that the making of further advances can be envisaged in a security agreement and that a security interest is not extinguished by repayment of a current advance and a redraw. Further, the priority given to the security is the same for all advances.
A chargor may grant security over future assets, provided that it is sufficiently identified.
Future obligations may be secured, provided they fall within the contemplation of the chargor at the time of taking the security (and all future obligations contemplated in the underlying document will be secured). Care would need to be taken at the time of any future amendments to the underlying obligations to ensure any obligations arising after such amendments fall within the scope of the security. Otherwise, it would be necessary for the security provider to charge/mortgage/assign such future obligations when they come into effect.
In principle the granting of security over future assets of a company is not possible under Austrian law. Due to the principles of granting securities under Austrian law (i.e. principle of specialty and accessoriness), security arrangements must be made specifically with respect to each asset including provisions for the requisite perfection. However, it is also possible to assign future receivables, if the future receivables are properly described in the assignment agreement.
The same principles (i.e. principle of specialty and accessoriness) apply to the question whether or not a company can grant security for future obligations. Therefore, the collateralisation of a future obligation must be determinable (i.e. properly described in the respective agreement), meaning it needs to contain information on creditor and debtor as well as the underlying legal basis of the obligation.
Yes. Mexican law permits both the creation of security over future assets and for future obligations.