Can security be taken over the following types of asset: i. real property (land), plant and machinery; ii. equipment; iii. inventory; iv. receivables; and v. shares in companies incorporated in your jurisdiction. If so, what is the procedure – and can such security be created under a foreign law governed document?

Lending & Secured Finance

Croatia Small Flag Croatia

Security can be taken over all the above-mentioned assets.

The procedures for the creation of security in relation to the listed types of assets are as follows:

  1. Real property (land) – security may be taken as mortgage or fiduciary transfer of ownership*. The difference between those two types is that the mortgage does not result in the change of ownership title to the creditor, unlike fiduciary ownership that provides transfer of ownership title of assets from the debtor to the creditor. The Security Agreement must be in the form of a notarial deed or in the form of a voluntary court pledge agreement, and registration with the land registry is required for perfection. Security over real property may be extended on plant and machinery if they serve the economic purpose of the building on the real property.
  2. Equipment and inventory – security over equipment and inventory may be established as a pledge or fiduciary transfer of ownership*. Establishing a pledge requires a written agreement between the creditor (pledgee) and the debtor/owner of the pledged assets (pledger). For fiduciary transfer of ownership, the security agreement must be in the form of a notarial deed or in the form of a voluntary court pledge agreement, and the creditor becomes the owner of assets by signing the agreement.
  3. Receivables – security may be established as a pledge and becomes perfected when the agreement is concluded. Security can be created with or without involvement of the court or notary public. The notification to the debtor is not a constitutive element, but if the debtor was not notified, he is entitled to fulfil his obligation by paying the assignor.
  4. Shares in Croatian companies – security over dematerialised shares may be created by assignment and the notarial form is not required while, although the notarial form is neither required for the creation of security over shares in limited liability companies, it is recommendable to create such an agreement in the notarial form in order to register it in the Register of court and notary public security of claims on movable property and rights.

The security can be created under foreign law governed documents but in relation to assets for which the registration with the land registry and Register of court and notary public security of claims on movable property and rights is required. The security document has to be created under domestic law.

*Please note that the fiduciary transfer as a security concept has gone through several changes in law in the last 20 years and due to certain problematic and controversial provisions of the Enforcement Act, the new proposal of the amendments of the Enforcement Act no longer recognises this type of security interest.

Czech Republic Small Flag Czech Republic

Securities can be taken over for all of the abovementioned types of assets. The mortgages and pledges over movable tangible property are subject to Czech law only. Czech law does not prohibit the choice of jurisdiction with respect to other types of assets, however, it is advisable to conclude the other pledge agreements under the Czech law as well and benefit from the law institute of Czech law.

In order to perfect security interests, the following rules must be followed:

  • mortgage (pledge over real property, land) requires a written contract with certified signatures and a registration in the land register, transfer and encumbrance prohibitions should be established

  • pledge over shares / ownership interests requires a written contract with certified signatures and a registration in the commercial register, transfer and encumbrance prohibitions should be established

  • pledge over claims (e.g. claims arising under lease agreements, insurance agreements, management agreements, general contractor agreements, pledge over bank accounts etc.), machinery and other movable assets requires either a written contract or a notarial deed with registration in the pledge register, in each case a negative pledge should be established, which has to be listed in the pledge register

  • pledge over business enterprise or other collective thing (e.g. inventory) requires a notarial deed with registration of the pledge in the pledge register, a negative pledge should be established and registered in the pledge register as well

  • Moreover, an agreement on enforceability, including an acknowledgement of debt, is typically demanded as well.

Finland Small Flag Finland

Yes, security can be taken over all of the above types of assets. The appropriate procedure depends on the type of asset in question.

Security over real property (freehold and certain leaseholds) is created by registering the mortgage with the National Land Survey of Finland. The registrar will register the real estate mortgage on an electronic register. Previously, in order to create security over real property, promissory notes needed to be issued by the mortgagor prior to registration. These promissory notes, once registered, where then handed over to the mortgagee to be held throughout the security period. Even though the system has changed, “old” real estate mortgage notes are still existing and in use.

A pledge over movable property such as machinery, equipment and inventory is created by removing the pledgor’s control of the assets, e.g. by way of transferring the pledged property to the possession of the pledgee (possessory pledge). This is however usually not commercially feasible. It is, however possible to take a floating charge, which covers most movable assets of the chargor. A floating charge is created by the parties entering into a security agreement and the chargor issuing one or several standard form floating charge promissory notes which are then registered with the Trade Register. Once registered, the promissory notes will be delivered to the possession of the beneficiary of the floating charge to perfect the security interest.

Receivables will be covered in the floating charge, unless pledged separately. A pledge over receivables is created by the parties entering into a security agreement. In order to perfect the pledge, the underlying debtor is to be notified of the pledge and instructed to make payments to the pledgee.

Security over shares of a private limited liability company – which are most commonly not in dematerialised form – is created by the parties entering into a share pledge agreement. If share certificates have been issued by the target, the pledge is perfected by the pledgor delivering the share certificates to the possession of the pledgee, endorsed in blank. If no share certificates have been issued, the pledge is perfected by notifying the target company of the pledge and instructing it to register the pledge in its shareholder register.

Security may be created using non-Finnish law governed document, but this approach is used very seldom and is usually advised against. In any event, the Finnish law perfection requirements will need to be complied with in order to create a valid security interest.

Germany Small Flag Germany

Security over assets located in Germany may only be granted under German law governed documents. While under certain circumstances German law governed receivables may be assigned under a foreign law governed security agreement this is an option which is rarely made use of.

Real property (land), plant and machinery;

Security over real property is in practice granted through immediately enforceable land charges. While in theory non-immediately enforceable land charges as well mortgages are available those are in practice not being used as they are less advantageous from a lender's perspective.

Immediately enforceable land charges are granted (in a German language document) by the security grantor in front of a notary public and subsequently filed with the land register.

Plant and machinery are either forming part of the real property (and will, thus, captured by the land charge) or are considered moveable assets (and security will be granted through a security transfer agreement which requires those moveable assets to be thoroughly identified, through asset lists, buildings and site maps or otherwise). Whether plant and machinery are captured by a land charge or require a separate transfer under a security transfer agreement depends on the prevailing circumstances of a particular site and the assets located on that site.

Equipment;

Security over equipment is being taken through a written security transfer agreement which requires to identify the transferred assets either by way of reference to detailed building and site maps or lists setting out the items of inventory in an identifiable manner, e.g. through its stock number. The agreement may be made in the English language.

Inventory;

Security over inventory is being taken through a security transfer agreement, as set out for taking security over equipment.

Receivables; and

Receivables are either assigned or (in less frequent cases) pledged, usually in written form, unless exceptional circumstances require notarisation. While an assignment is valid without notice to the third party debtor, it enhances the position of the secured parties if the assignment is being notified to the third party debtor. Third party debtors of trade receivables are, for practical purposes, usually not notified. Unlike an assignment, the pledge over receivables (including bank accounts) requires the notification of each of the third party debtors for the pledge to be valid. The agreement may be made in the English language.

shares in companies incorporated in your jurisdiction.

Shares are usually pledged under a share or stock pledge agreement. Shares in limited liability companies (and, in certain circumstances, partnership interests) are pledged under a pledge agreement which requires notarisation. Pledging stock in a stock corporation may be made in written form. Each of these agreements may be made in the English language.

Spain Small Flag Spain

Yes. Security can be taken over those types of assets in order to secured obligations under a foreign law governed document.

The customary types of security are the following:

- Real Estate mortgage.
- Pledge over shares.
- Pledge over credit rights (receivables, bank accounts, intercompany loans).
- Chattel mortgages over plan, intellectual property (IP), inventory or machinery.

In general terms, under Spanish law, any guarantee, pledge or mortgage must guarantee or secure obligations to which they are ancillary and such obligations must be clearly identified in the relevant guarantee or security agreement. Such security follows the underlying obligation. As such, the security is terminated on the termination of the underlying obligation. However, the cancellation of the guarantee or security needs to be documented in a public deed and, in certain cases, filed in the relevant registry (real estate mortgage, chattel mortgage).

1. Bank Accounts

Pledges may be granted over credit rights arising from bank accounts.
As a general rule, Spanish pledges over credit rights arising from bank accounts must comply with the following requirements in order to be perfected:

- notarisation; and
- notification to the depository bank.

Such security must be governed by Spanish law if the relevant account is located in Spain. Security over cash accounts held off-shore must be governed by the relevant foreign law.

2. Intercompany Loans

Pledges may be granted over credit rights arising from intercompany loans.

As a general rule, Spanish pledges over credit rights arising from intercompany loans must comply with the following requirements in order to be perfected:

- notarisation; and
- notification to the borrower.

3. Intellectual Property

Mortgage over intellectual property (hipoteca) should be used to secure such asset.

The security still allows the chargor to use the relevant intellectual property right. The mortgage must be executed before a notary and must be registered at the Movable Property Registry (and, in some cases, notified to the relevant intellectual property registry).

4. Land and Buildings

Mortgage over real property (hipoteca) should be used to secure such asset.

The security still allows the chargor to occupy the land and buildings. The mortgage must be executed before a notary and must be registered at the Land Registry.

5. Movables

Security can only be taken over movables if the grantor of the security has the freehold right over the assets, and is entitled to freely dispose of them.

There are the methods of taking security over movables:

1. Mortgage over movables (hipoteca mobiliaria)

Movables (e.g. commercial establishment, motor vehicles, tramways, train carriages, intellectual and industrial property, aircraft, and industrial machinery) can remain in the chargor's possession.

Movables must be adequately described in the security document.

Creditors usually incorporate a clause in the security agreement which states that the chargor can use the assets while the security exists, as long as it has notified the secured creditor of its proposed dealings and has obtained the secured creditor's written consent.

The security document must be executed before a notary and must be registered with the competent Movable Property Registry.

2. Pledges without delivery (prenda sin desplazamiento)

Security can be taken over machinery, inventory and other types of movable goods (e.g. agricultural machinery, stored merchandise, raw materials and art).

Movables can remain in the chargor's possession.

Movables must be adequately described in the security documents.

Creditors usually incorporate a clause in the security agreement which states that the chargor can use the assets while the security exists, as long as it has notified the secured creditor of its proposed dealings and has obtained the secured creditor's written consent.

The security document must be executed before a notary and must be registered with the competent Movable Property Registry.

3. Security can also be taken over the business by a mortgage over the "commercial establishment" (hipoteca mobiliaria)

The mortgage covers the premises of the business, its commercial signs and intellectual property, the lease and all rights in the lease, stock and machinery (if owned and paid for by the chargor) and permanently used for the business).

Movables can remain in the chargor's possession.

Movables must be adequately described in the security document.

Creditors usually incorporate a clause in the security agreement which states that the chargor can use the assets while the security exists, as long as it has notified the secured creditor of its proposed dealings and has obtained its written consent.

The security document must be executed before a notary and must be registered with the competent Movable Property Registry.

4. Receivables

Creating pledges over present and/or future credit rights arising from receivables is the best way to secure the receivable. Although there is still some doctrinal controversy about the effectiveness of the pledges over credit rights, most recent case law by the Spanish Supreme Court acknowledges the monetary value of credit rights, their suitability to be charged with a pledge and the setting-off as a means to enforce a pledge over such credit rights.

Spanish pledges over credit rights arising from receivables must comply with the following requirements in order to be perfected:

  • Notarisation.
  • The receivables must be adequately identified in the security document. It is advisable to take all possible steps to identify the receivables (by detailing, if possible the underlying agreements from which the relevant receivables shall arise and any calendar of payments related thereto).
  • Notice of the security must be given to the debtor.

The pledge of receivables could also be created as a possessory pledge in order to avoid the application of the rules governing non-possessory pledges, which establish the need to register the pledge in the Registry of Movable Assets.

5. Shares

Shares in SA (sociedad anónima) companies may be represented by share certificates (in registered form or bearer form (ownership of bearer shares transfers by delivery)) or by book entries. SL (sociedad limitada) companies do not have shares. Members of SLs hold participations.

Security perfection requirements and enforcement procedures differ depending on the type of shares given as security:

Pledge over unlisted shares represented by share certificates

The pledgor should deliver the share certificates to the secured creditor or to a third party acting as a custodian.

As a general rule the pledge agreement should be executed before a notary. This makes it effective against third parties and facilitates enforcement.

The pledgor will retain voting rights and the rights to receive payment of dividends until enforcement, unless otherwise agreed in the pledge agreement.

It is particularly advisable to endorse (note) the creation of the pledge on the share certificates.

It is advisable to review the bylaws of the company whose shares are pledged in order to assess whether there are certain limitations on, or requirements for, the creation or enforcement of the pledge, e.g. restrictions on transfers or who can exercise voting or dividend rights.

Pledge over shares (listed or unlisted) represented by Book entries

The creation of the pledge should be entered into the registry where the book entries are kept. This is required to make the pledge effective against third parties.

As a general rule the pledge agreement should be executed before a notary. This is required to make it effective against third parties and facilitates enforcement.

The pledgor will retain voting rights and the rights to receive payment of dividends until enforcement, unless otherwise agreed in the pledge agreement.

A certificate evidencing the creation of the pledge will be issued by the entity in charge of the registry where the book entry is kept.

It is advisable to review the bylaws of the company whose shares are pledged in order to assess whether there are certain limitations on, or requirements for, the creation or enforcement of the pledge (e.g. restrictions on transfers or who can exercise voting or dividend rights).

Pledge over Participations.

Participations are not in paper form so the participation itself cannot physically be delivered to the secured creditor or to a third party. Notice to the company shall be given and the pledge should be entered into the book registry of participation holders (socios).

The pledge agreement should be executed before a notary. This makes it effective against third parties and facilitates enforcement.

The pledgor will retain voting rights and the rights to recover payment of dividends until enforcement, unless otherwise stated in the by-laws of the company.

It is advisable to review the by-laws of the company whose participations are pledged in order to assess whether there are certain limits on, or requirements for, the creation or enforcement of the pledge, (e.g. restrictions on transfer).

It is advisable to endorse the creation of the pledge on the public document evidencing the ownership of the participations.

Philippines Small Flag Philippines

i. Real property (land), plant and machinery

A Real Estate Mortgage may be constituted over immovable property and real rights over immovable property such as land, plant and machinery through the execution of a security agreement between the mortgagor and mortgagee. This makes the security valid as between the parties. To be binding on third persons, a real estate mortgage must: (a) appear in a public instrument; and (b) be recorded in the Registry of Deeds where the real property is located. Once registered, a real estate mortgage becomes a real right attaching to the property.

ii. equipment

Security can be taken over equipment by undertaking the following steps:

(a) Creating security interest by the execution by the lender and grantor of a security agreement. The agreement may consist of one or more writings that, taken together, establish the intent of the parties to create a security interest over collateral that is reasonably identified;

(b) To be effective against third parties, perfecting the security interest by undertaking any of the following actions:

1. registration of a notice with the centralized and nationwide electronic registry established in the Land Registration Authority (LRA) where notice of a security interest and a lien in personal property may be registered (the “Registry”); or

2. lender taking possession of the secured equipment.

iii. inventory

Security can be taken over inventory by undertaking the following steps:

(a) Creating security interest by the execution by the lender and grantor of a Security Agreement;

(b) To be effective against third parties, perfecting the security interest by undertaking any of the following actions:

i. registration of a notice with the Registry; or
ii. lender taking possession of the secured inventory.

iv. receivables

Security can be taken over receivables by undertaking the following steps:

(a) Creating security interest by the execution by the lender and grantor of a Security Agreement;

(b) To be effective against third parties, perfecting the security interest through any of two (2) ways:

i. registration of said agreement with the Registry, or
ii. lender taking control over the receivables of the grantor.

Security over investment property and deposit account may be perfected by control through:

a. the creation of a security interest in favour of the deposit-taking institution or intermediary

b. the conclusion of a control agreement among the issuer/intermediary/deposit-taking institution, the grantor and the secured creditor, according to which the issuer, intermediary or deposit-taking institution agrees to follow instructions from the secured creditor with respect to the security, without further consent from the grantor

c. for an investment property by way of an electronic security not held with an intermediary, the notation of the security interest in the books maintained by or on behalf of the issuer for the purpose of recording the name of the security holder.

v. shares in Philippine registered companies

Security can be taken over shares of stock in Philippine registered companies by undertaking the following steps:

(c) Creating security interest by the execution by the lender and grantor of a Security Agreement

(d) To be effective against third parties, perfecting the security interest through either of two (2) ways:

i. registration of said agreement with the Registry, or
ii. lender taking control over the receivables of the grantor.

Republic Act No. No. 11057, otherwise known as the Personal Property Security Act (“PPS Act”) which is the basis for the personal property security process described, is a new law which changed the security platform in the country. Considering its implementing rules and regulations have yet to be formulated, it is possible that additional details pertaining to the procedure and interpretation of the provisions of the PPS Act for the perfection of security on personal properties may be issued.

While parties are free to stipulate that a foreign law shall govern the relationship between them in a security agreement, Philippine law must be observed in the creation of security over real or personal property situated in the Philippines.

Sweden Small Flag Sweden

Security can be taken over each of the assets listed above in Sweden. In order to create a security interest under Swedish law, the pledgor must grant the security interest, typically in the form of a pledge agreement, and the security interest must be perfected.

The pledge agreement can be governed by foreign law, but perfection of the security interest must meet the Swedish law requirements.

The procedure and the perfection requirements for creating a security interest in respect of the assets listed above are as follows:

i. Real property (land), plant and machinery

Security interests over real property are created in the form of real property mortgages. In order to obtain a mortgage (Sw: inteckning) on real property, a two-step procedure must be followed.

First, the registered owner must apply to the relevant Land Registration Authority (Sw: inskrivningsmyndighet) for a mortgage, stating the mortgaged amount in SEK (i.e. the loan amount). When granting the application, the National Land Survey (Sw: Lantmäteriet), at the request of the Land Registration Authority, issues a mortgage certificate (Sw: pantbrev). The mortgage certificate is a bearer document which can be replaced by an entry on a computerised register (Sw: datapantbrev). Stamp duty of two per cent. of the amount of the mortgage certificate is levied on the issuance of the mortgage certificate (there is no additional stamp duty payable when pledging the mortgage certificate).

Secondly, a security interest in the real property is created when the owner of the real property pledges the mortgage certificate as collateral for a credit or a claim, and delivers the mortgage certificate to the pledgee. A computerised mortgage certificate is considered delivered when the mortgagee or his authorised representative receives the computerised mortgage into its electronic archive kept by the National Land Survey. The security created by the original delivery of the mortgage certificate is generally deemed to be transferable together with the credit or claim which is secured by the mortgage.

The real property mortgage encumbers both the underlying land and the property together with fixtures (Sw: fastighetstillbehör), including any forest and buildings located on the real property.

Fixtures and other equipment to buildings that are devoted to permanent use for the building or part thereof (Sw: byggnadstillbehör) are deemed to pertain to the building, and thus to the real property, provided that they are owned by the property owner. Also fixtures and equipment for industrial use and for the particular business carried out on the property (Sw: industritillbehör) are deemed to pertain to the real property. Fixtures and equipment for industrial use may however be separated from the property if the owner has made a declaration to that effect and such declaration has been registered in the land registry, in which case such fixtures and equipment may be separately pledged as set out under item (ii) (equipment) below.

The aggregate amount to which the holder of a first ranking mortgage certificate is entitled to be paid to cover its claim as a secured creditor in respect of each real property during any bankruptcy or enforcement proceedings, with respect to any borrower, will be equal to (depending on priority of mortgage certificate and sale proceeds) the amount shown on the mortgage certificate as being its nominal amount, plus 15 per cent. of the nominal amount of the certificate, plus interest from the date of the application for bankruptcy (or, as the case may be, the enforcement decision) to the date of payment to the creditor, calculated on the nominal amount of the mortgage certificate at a rate per annum equal to the official reference rate (as set from time to time by the Central Bank of Sweden) plus four per cent.

ii. Equipment

Security interests over equipment are generally (indirectly) achieved through taking security over corporate mortgages, which inter alia will include the pledgor’s equipment. Security over equipment can also be taken over specific equipment, either by way of a registered chattel sale (Sw: lösöresköp) or by way of pledging the equipment (in which cases the specific equipment will no longer be included in the corporate mortgage). Please see below for further details on the various ways of taking security over equipment.

Corporate mortgage

A corporate mortgage (Sw: företagshypotek) entitles the holder to a security over those of the debtors' movable assets that are included in the company's business in Sweden. The corporate mortgage is not applicable for cash and bank deposits, shares, or other financial instruments intended for public sale, including assets that can be pledged in a specific manner or assets that can neither be foreclosed for a debt nor part of the debtors' bankruptcy.

It is commonly used by local banks when granting loans or lines of credit to their corporate clients rather than for structured finance transactions.

The debtor obtains the registration of a corporate mortgage by applying to the Company Registration Office (Sw: Bolagsverket) using a standardised form. The document evidencing the registration is called a corporate mortgage certificate (Sw: företagsinteckningsbrev). The value of the corporate mortgage can be fixed for any chosen amount. In addition to a nominal registration fee, a stamp duty of one per cent. of the value of the corporate mortgage is payable when the corporate mortgage certificate is issued.

Security through a corporate mortgage is obtained by the debtor pledging the corporate mortgage certificate to the creditor and the security is perfected by the certificate being physically transferred to the creditor or the creditor being registered as the holder of an electronic corporate mortgage. The creditor is then in bankruptcy or upon an enforcement given priority to receive payment for its claim from the sale proceeds from the assets included in the corporate mortgage up to the amount of the corporate mortgage certificate in accordance with the Swedish Rights of Priority Act (Sw: Förmånsrättslag (1970:979)).

To the extent the amount stipulated in the corporate mortgage certificate is not sufficient to satisfy the debt, the creditor is entitled to a supplementary payment. The supplement may not exceed 15 per cent. of the amount stipulated in the corporate mortgage certificate. The creditor is also entitled to interest from the day the asset was foreclosed or from the day the application for bankruptcy was filed.

Registration of a corporate mortgage gives a right of priority in relation to another registration according to the chronological order in which the application for the registrations were made.

Registered chattel sale

As mentioned above, equipment will normally be included in a pledge over the company’s movable assets by way of corporate mortgage. Individual equipment can however also be secured separately by way of a registered chattel sale, which is a way to take security without actually transferring possession of the asset to the creditor. Along with perfection requirements, the title of an asset is transferred to the lender who, at the end of the term, will transfer it back to the borrower. This can also be achieved through sale and leasing of the asset and conditional sale.

Pledge

Equipment can also be pledged separately provided that it is kept separate from the pledgor. The pledgor may, in other words, not have access to the equipment once pledged. A security agent can be used to maintain and service the inventory on behalf of the pledgee.

iii. Inventory

Security interests over inventory can be achieved in the same way as security interest over equipment, i.e. either by a corporate mortgage, a registered chattel sale of specific inventory or by way of pledging the inventory (please see above).

iv. Receivables

A pledge over accrued receivables (which are receivables that have been earned by the creditor but need not necessarily have fallen due) is possible. It is also possible to have a pledge over unearned receivables, if the parties agree. However, a pledge of such receivables cannot normally be perfected until the receivables have accrued. If the obligation that the pledged receivables secured arose before the receivables accrued, the perfection of the pledge is delayed and due to such fact, the pledge may, in the event of the pledgor's insolvency, be subject to challenge.

A pledge over receivables is perfected if two criteria are fulfilled. First, the debtor of the underlying receivable must be notified. There is no requirement as to the form for such notification other than that the notification sufficiently identifies the pledged receivable, the identity of the pledgee, and contains information that the receivables have been pledged and an instruction to the effect that payment of the pledged receivable only may be made to the pledgee. Secondly, the pledgor must no longer be able to deal with the pledged receivable, e.g. to collect it in its own name or agree to amendments to its terms, but servicing in all other aspects as per a securitisation or factoring transaction would be allowed as this would not be for the pledgor's benefit.

The above perfection requirements apply as a matter of Swedish law, which is applicable if the debtor of the underlying receivable is domiciled in Sweden. In case of foreign debtors, local perfection requirements may apply.

Please note that receivables are included in corporate mortgages unless separately pledged as set out above.

v. Shares in companies incorporated in Sweden.

A pledge over the shares in a Swedish company is perfected by transferring the original share certificate(s) representing the shares, duly endorsed in blank, to the pledgee. If no share certificate has been issued by the company, the pledge is perfected by notifying the company’s board of directors of the pledge.

In the event the shares are in dematerialised registered form, the share pledge is perfected (i) if the shares are held on a securities account, through registration with a central securities depository (Euroclear Sweden AB), or (ii) if the shares are held on a deposit account, through notification of pledge to the relevant account bank.

Turkey Small Flag Turkey

The security documents creating security interests over the assets located in Turkey must be subject to Turkish law in accordance with the Turkish conflict of laws rules. Accordingly, to the extent that the assets subject to the following types of security are located in Turkey, such security interest must be created under a Turkish law governed document. Further, the perfection requirements set out for each type of security below must also be complied with to establish a valid security interest.

As a general principle that applies to pledges and mortgages, any provision entitling the security holder to become the owner of the secured asset upon the occurrence of an event of default is null and void under Turkish law (the lex commissaria prohibition). This means that the security holder cannot automatically become the owner of the secured assets upon the occurrence of an event of default but it can sell (depending on whether private sale is permitted for that particular form of security) or have them sold in order to receive sale proceeds for the satisfaction of its receivables and/or it may join such sale and bid against its claims (i.e. the security holder does not have to make an actual payment for the amount of its claims). Limited exceptions apply to this general rule, for instance, in respect of the collateral arrangements where the subject matter of the form of security is dematerialised capital market instruments registered in the electronic records of the Turkish Central Registry Agency, Article 47 of the Capital Markets Law (the "CML").

Please find below a summary of the validity and perfection requirements pertaining to each type of security forming a customary Turkish law security package:

(a) Pledge over shares

Without prejudice to any further requirements in the articles of association of the relevant company, a pledge over the shares of a Turkish joint stock company (anonim şirket) can be established by entering into a written pledge agreement and delivering the share certificates (issued or temporary form) representing the pledged shares to the pledgee (bearing pledge or blank endorsements if they are registered shares). Although not a perfection requirement, registering the pledge in the share ledger of the company is advisable so that no one can claim good faith while conducting any transactions regarding the pledged shares.

(b) Mortgage

The perfection of a mortgage requires a mortgage agreement to be entered into by and between the mortgagor and the mortgagee at the relevant Title Deed Registry in ex officio form and thereafter registration of the mortgage with the records of the same.
In principle, the amount of the mortgage is required to be registered in Turkish Lira, however, according to Article 851/II of the Turkish Civil Code (Law No. 4721) (the "Civil Code"), a foreign currency mortgage can be created in connection with and to secure a foreign currency denominated loan made available by a (local or foreign) credit institution to a Turkish resident borrower.

(c) Pledge over movables

Under Turkish law, perfection of a pledge over movable property requires a written pledge agreement to be entered into by and between the pledgor and the pledgee and transfer of the physical possession of such movable property to the pledgee.

In respect of a pledge over movable property which is legally required to be registered with a special registry (such as vehicle registry, ship registry or aircraft registry), the pledge may be granted through registration of the pledge with the relevant special registry as a perfection requirement and, in such a case, physical possession of such movable property is not required to be transferred to the pledgee.

(d) Movables pledge in commercial transactions

The Movable Pledge Law in Commercial Transactions (Law No. 6750) (the "Movable Pledge Law") provides for the establishment of pledge over movables without any requirement to transfer the physical possession of the pledged asset to the pledgee. A movable pledge agreement subject to the Movable Pledge Law must be entered into in written form and signed before the Pledged Movables Registry or the signatures of the parties thereof must be approved by a notary public in Turkey. Also note that the Movables Pledge Law also provides for the pledge agreements to be signed electronically with secure electronic signatures (in the sense as defined under the Electronic Signature Law (Law No. 5070)). As a perfection requirement, the pledge must be registered with the Pledged Movables Registry.

A pledge can be established on the existing or future assets of a pledgor (or revenues thereof). The assets which can be pledged as per the Movable Pledge Law include (i) receivables; (ii) intellectual property and industrial rights; (iii) raw materials; (iv) all types of revenue and income; (v) licenses and permits (save for administrative authorisations) that are not required to be registered with other registries; (vi) movable equipment of the enterprise such as machinery, vehicles, equipment, tools, construction equipment, all kinds of electronic devices including electronic communication devices; (vii) inventories; (viii) agricultural products; (ix) trade names and/or business names; (x) commercial enterprises and/or craftsmen enterprises; (xi) commercial plates, commercial lines and commercial projects; (xii) carriages and (xiii) all similar assets. In addition, it is also possible under the Movable Pledge Law to create a pledge over a commercial enterprise as a whole which would cover any and all kinds of assets that are allocated to the operations of such enterprise .

(e) Assignment (transfer)

An assignment (transfer) of receivables over receivables is perfected by entering into a written assignment (transfer agreement). Present or future receivables (including insurance proceeds) can be assigned for security to the extent that they are ascertainable. Although notifying the underlying debtor(s) is not a perfection condition, in the absence of such a notification, the underlying debtor(s) will be released from its/their obligation once the relevant payment under the underlying agreement to the assignor has been made. Acknowledgement from the underlying debtor(s) would also be advisable to ensure that there are no prior claims or encumbrances over such receivables and ideally a waiver from the debtor from exercising its right of set-off can also be potentially obtained. An assignment (transfer) of receivables is the preferred form of security because it transfers the title of such receivables to the assignee unlike a pledge.

(f) Bank account pledge

The perfection of a bank account pledge (which is a type of pledge over the receivables of the deposit holder vis-a-vis the account bank) requires execution of a written pledge agreement between the pledgor and the pledgee and a notification to the account bank (unless the pledgee is also the account bank). It is also advisable to obtain an acknowledgement from the account bank to ensure that the pledge is duly registered with its records, it waives any set-off rights it may have in respect of the pledged accounts and it does not have any counterclaims as at the date of the acknowledgement.

Although not a perfection requirement, the pledged accounts may be blocked by the bank holding the pledged accounts or the pledgor may be allowed to operate the pledged accounts until the occurrence of the enforcement conditions.

United States Small Flag United States

i. real property (land), plants and machinery;

Security can be taken over real property, including land and anything attached or erected on such land, including a plant or any fixtures present on such land. The extent of what constitutes real property and the precise method for taking security is determined by the law of the state in which such real property is located. The most common methods for taking security over real property are with a mortgage, deed of trust or assignment of leases and rents.

ii. equipment;

Equipment is generally considered to be personal property and the creation of a security interest in equipment is governed by the Uniform Commercial Code. For a security interest in any personal property, including equipment, to be enforceable, there must be attachment or creation and perfection. For attachment or creation to occur the secured party must have given value to the debtor, the debtor must have a legal interest in the collateral and the debtor must sign a security agreement that describes the collateral and grants a security interest in such collateral. To perfect a security interest in equipment the secured party must file a UCC-1. While the UCC-1 need not be specific in describing such equipment, the granting language in the security interest should specify that the company is providing a security interest in “equipment.”

iii. inventory;

Security can be granted over inventory in the same manner that it is granted over equipment. The language in the security agreement should state that “inventory” is to be covered by the granting clause. A security interest in inventory can also be perfected through the filing of a UCC-1 financing statement.

iv. receivables;

The most common type of receivables over which security can be granted are accounts, chattel paper, commercial tort claims, general intangibles and letter of credit rights. Security interest can be granted over each of these types of receivables in a security agreement by listing each of these categories in the granting clause. In addition, commercial tort claims, or a claim in which the claimant is either an entity or individual, and the claim arose in the course of the claimant’s business or profession, must be described in the granting clause of the security agreement with specificity. It is not enough to say “all commercial tort claims” of the company.

Perfection of a security interest in a company’s accounts, chattel paper, general intangibles or commercial tort claims can be accomplished through the filing of a UCC-1 financing statement. A security interest in chattel paper can also be perfected by possession or control. A security interest in a letter of credit right must be perfected by control through a tri-party agreement, where the issuer of such letter of credit consents to the assignment of the proceeds of such letter of credit to the secured party.

v. shares in companies incorporated in your jurisdiction.

Security can be granted over the shares of companies incorporated or organized in the United States. Shares can be issued in certificated or uncertificated form. Such shares are considered personal property and more specifically, investment property, for purposes of the Uniform Commercial Code. The granting of a lien by the company’s parent or owner in the “investment property” should be sufficient to provide a security interest in the shares of the company. Perfection can be achieved by either the filing of a UCC-1 financing statement or by possession and/or control. Where a secured party has perfected its security interest by control, such secured party will generally be deemed to have priority over any secured party who has not perfected by control.

If such shares are represented by physical share certificates, control can be obtained by possession of the applicable share certificates along with a signed stock power, which stock power should be blank and undated. Where such shares are not certificated, control can be obtained by either delivering such uncertificated security to the lender or by the issuer of such uncertificated security agreeing that it will comply with instructions originated by the secured party without further consent of the grantor/registered owner of such uncertificated security. Delivery of an uncertificated security to a secured party typically occurs when the secured party becomes the registered owner or when another person (other than a securities intermediary) becomes the registered owner on behalf of such secured party.

If so, what is the procedure – and can such security be created under a foreign-law-governed document?

Security can be created by a foreign-law-governed document. However, one must consider choices of law concerns with respect to the enforceability of such foreign-law-governed security agreement. With respect to issues of perfection and priority over personal property, the Uniform Commercial Code for the state in which such assets are located should be consulted. As mentioned above, state law will govern with respect to taking a security interest in any real property.

Switzerland Small Flag Switzerland

Although Swiss conflict of laws rules generally allow for the parties to choose the law to govern an agreement, including a security document, such choice of law may not be enforced against third parties, or under certain conditions only. Accordingly, in order to limit obstacles to the enforcement of a security interest over Swiss assets, it is market practice for such security interest to be governed by Swiss law.

(a) real property (land), plant and machinery

Under Swiss law, real estate is defined as immovable property (Grundstücke) which includes in particular (i) land and the buildings thereon (if any), (ii) distinct and permanent rights recorded in the land register (e.g. rights to build (Baurecht)) and (iii) co-ownership shares in immovable properties (condominiums).

Security interest over real estate located in Switzerland usually takes the form of (i) a mortgage (Grundpfandverschreibung) or (ii) a mortgage note (Schuldbrief).

A mortgage (Grundpfandverschreibung) can secure any kind of debt and must be created pursuant to a notarised deed and filed with and recorded by the relevant land register.

A mortgage note (Schuldbrief) creates a personal, non-accessory claim against the debtor, secured by a property. It is a negotiable instrument which can be pledged or transferred for security purposes (the transfer of which makes it bankruptcy remote in case of bankruptcy of the security provider and thus its transfer for security purposes is favoured in practice). Whereas the creation of a mortgage note requires a notarial deed and the recording of the mortgage note in the relevant land register, its pledge or transfer for security purposes requires a written agreement only. Mortgage notes exist either in the form of bearer notes (Inhaberschuldbriefe)(delivery of which is a perfection requirement), registered notes (Namenschuldbriefe) (delivery and endorsement by the secured party are perfection requirements) or paperless mortgage notes (Registerschuldbriefe) note (the registration of the secured parties in the land register is a perfection requirement).

With regard to plants and machinery (being tangible moveable property), the principles set forth under 4(b)below apply.

(b) equipment

Equipment and inventory being qualified as tangible moveable property (i.e. as opposed to immoveable property such as real estate property), security interest thereover could in theory be granted in the form of a pledge. However, in reality such security interest is generally rare. Indeed, floating charges are neither available nor recognised under Swiss law. A Swiss law governed pledge requires the transfer of possession of the pledged assets to the secured parties, which would not only deprive the security provider from its ability to operate its business but also be too burdensome (including in terms of costs for the mere transfer of possession and the maintenance and management of the equipment inventory or tangible moveable property). There are exceptions where there are specific assets (such as raw materials with substantial value, larger car fleets, aircraft parts, or the like).

(c) inventory

See 4(b) above.

(d) receivables

Security interest is commonly granted in the form of either a pledge or an assignment for security purposes over existing and future trade receivables, intercompany receivables, bank account claims and insurance claims.

Both forms of security interests require written security agreement and, with respect to:

1. the assignment of claims and receivables, such claims and receivables must be assignable (therefore, during the pre-signing phase the parties must ensure that all relevant documents do not contain any restrictions on assignments (e.g. share purchase agreement, insurance policies, etc.));

2. claims or receivables evidenced by an acknowledgement of debt (Schuldschein), the delivery of the original thereof;

3. insurance claims, the delivery of the original insurance policies and notification of the security interest to the insurance company; and

4. the pledge of bank account claims, the notification of such pledge to the relevant account bank.

Although the requirement to notify third-party debtors is not a perfection requirement under Swiss law, it is strongly recommended to notify any parties of the assignment for security purposes since prior to such notification third party debtors can validly discharge their obligations by paying to the security provider.

(e) shares in companies incorporated in your jurisdiction

Security interest over shares of a Swiss company (either in the form of a corporation limited by shares or a limited liability company) can be taken by means of a pledge, which requires (i) a written agreement and (ii) delivery of the share certificates to the pledgee. Furthermore, it is customary to have the share certificates endorsed (for a corporation limited by shares) or assigned (for a limited liability company) in blank by the pledgor for purposes of the enforcement of the pledge.

Should the Swiss company’s shares exist in the form of book-entry securities (Bucheffekten) within the meaning of the Swiss Federal Act on Intermediated Securities (Bucheffektengesetz, BEG), a pledge would require the bank holding the pledged shares in custody to enter into a written control agreement with the pledgor and the pledgee, whereby the bank is irrevocably instructed to act for the benefit and upon instruction of the pledgee solely (i.e. without instruction or confirmation of instruction by the pledgor).

United Kingdom Small Flag United Kingdom

Yes, security can be taken relatively easily and quickly over all of those assets in England and Wales. What type of security can be taken depends on the type of asset over which it is being taken.

The main categories of security usually taken by funders under English law are;

(1) a “mortgage” under which legal or equitable title is taken to the relevant asset and which involves a transfer of some ownership rights. That transfer of ownership is on condition that the asset will be transferred back to the mortgagor upon discharge of the secured obligations. Possession of the asset secured by the mortgage is not required and mortgages can apply to tangible or intangible assets. A mortgage can be either legal or equitable. A legal mortgage will transfer the legal title to the asset to the mortgagee and prevents the borrower dealing with the asset, which may not be commercially viable for some assets. An equitable mortgage will only transfer the beneficial interest in the asset to the mortgagee, the legal title remaining with the mortgagor which means the mortgagee will have less control over the asset than would be the case with a legal mortgage. A legal mortgage and an equitable mortgage are fixed charges and both create a similar type of security. Both entitle the mortgagee to take possession of the asset and dispose of it by private sale with priority over unsecured creditors. Where a mortgage is categorised as a "legal" mortgage it gives certain benefits in terms of enforcement and rights against third parties compared to an "equitable" mortgage;

(2) a “charge” which can be used for most types of asset. No transfer of title is involved. A charge gives the lender a right to appropriate the charged asset to pay off particular obligations. A charge does not transfer ownership of the asset to the lender and the lender need not take possession of the asset (in contrast to a pledge - see below). There are no general limitations on taking a charge over assets, but it is relevant whether the charge is "fixed" or "floating" at the time it is created as that will determine the priority of the creditor on enforcement (fixed charge creditors ranking ahead of floating charge creditors generally). In order to retain sufficient control over an asset for a fixed charge, the borrower's right to deal with the asset will be severely (if not, totally) restricted. Floating charges "hover" over what can be a changing group of assets. The ability of the chargor to deal with the assets charged by a floating charge provides the chargor with the ability to dispose of the charged assets or acquire further assets of that class in the ordinary course of its business. That is the advantage of a floating charge to the chargor, but it presents a potential problem to the lender in that the chargor could potentially dispose of all the assets within that class unless and until the floating charge has crystallised (following a specified event). For example, a fixed charge over a bank account requires the bank account to be blocked, and in practice only a floating charge can generally be taken over a security provider’s stock in trade.

Where the security provider is a limited company or a limited liability partnership, a general floating charge will usually be taken over all of the assets of the security provider, in conjunction with fixed charges over selected assets. This gives the lender additional rights on the insolvency of the security provider as, if the lender has a floating charge, or such combined fixed and floating charges, over the whole or substantially the whole of the assets of the security provider, the lender has the right to appoint an administrator over the security provider on insolvency. That can have certain advantages for the lender. See paragraph 22 below for more information on the administration process;

(3) an “assignment” is the transfer of one person's rights to another person. Assignments can be legal or equitable, the latter only passing an equitable right in the asset (e.g. the rights under a contract) transferred. A legal assignment provides certain enhanced rights to the lender. An "assignment by way of security" is an assignment which has an express or implied right that, if the debt in relation to which the assignment is made is repaid in full, the security provider can require its asset to be transferred back to it.

It is typically used for an asset which includes future rights, e.g. an assignment of rental income under a lease or of the benefit of a contract: and

(4) “possessory” security, i.e. a pledge, where a lender takes security over the relevant asset by taking possession of the asset or of the documents of title to the asset, for example, goods in a warehouse. The pledge will include a right to sell the asset on default by the security provider. This is much more rarely used in England and Wales than mortgages and charges.

In England and Wales mortgages, charges, assignments and floating charges are often incorporated into one overarching security document called a “debenture”, although that can often be supplemented by additional specific security over a specific discrete asset, such as an assignment of a keyman insurance policy.

While it is possible to take security over certain assets situated in England and Wales under documents governed by the law of another jurisdiction, best practice is always to secure these assets by way of English security documents rather than by way of the law of any other jurisdiction as the lender would usually be seeking to enforce such security before the English courts and would want the judge to apply English law, rather than evidence having to be led on another law. Security over land in England and Wales can only be created by an England and Wales law governed security document, as can security over British ships and aircraft.

Security over particular asset classes:

I. Real property (land), plant and machinery

The most common forms of security over real estate in England and Wales are:

  • a legal mortgage (commonly referred to as a “legal charge”);
  • an equitable mortgage; and
  • a floating charge.

Most borrowing is secured by a legal mortgage. The difference between a legal mortgage and an equitable mortgage lies largely in the extent to which the mortgage is perfected by registration at the England & Wales Land Registry, and legal and equitable mortgages are treated differently in terms of the rules of priority as against other creditors.

It is also common for security to be granted over the rental income from a property. This usually takes the form of an assignment whereby the tenants are directed to pay the rental income to the lender (usually via a managing agent) so that the rental income does not pass through the hands of the borrower. This assignment can be created by a separate security document but it is more usually contained within the mortgage (or a debenture if one is granted).

A corporate security provider can also create a floating charge. This type of charge is sometimes taken with very large and complicated property portfolios where the security provider requires maximum flexibility and the lender is not too concerned over control. However, it is more normal for a lender to take both a floating charge and a legal or equitable mortgage.

A fixed charge over property can be granted by anyone, including companies, limited liability partnerships, English limited partnerships acting through their General Partners, traditional partnerships and individuals. A floating charge cannot be granted by an individual or a limited partnership.

In respect of plant and machinery, it is also possible to take security and this is usually done by way of a mortgage or, more usually, a fixed charge as part of an all assets debenture. Care has to be taken with large items of plant and machinery which may become fixtures, attached to the land, and so may instead be covered by a legal charge over the land which may be granted to another creditor. Deciding whether such plant and machinery has become a fixture can be complex.

II. Equipment

Again, equipment is ordinarily secured by way of fixed charge under an all assets debenture. However, in order to have a fixed charge over equipment which is moveable property, the lender must be able to identify the equipment as subject to the charge (e.g. by having a list of the serial numbers of items of equipment) and be able to exert sufficient control over it – which can be a challenge. If the lender cannot identify the equipment or have sufficient control over it to ensure where the equipment is located, the lender may, in fact, only have a floating, not a fixed, charge over the equipment.

III. Inventory

This again is usually purported to be secured pursuant to an all assets debenture. However, given that the nature of inventory is, in most companies, that it is fluctuating from time to time, it is more difficult to establish a fixed charge than would be the case in relation to assets such as plant and machinery. For this reason, inventory is usually only secured by the floating charge element of an all assets debenture rather than by way of a fixed charge.

IV. Receivables

Receivables can be secured by way of an assignment in security granted by the borrower in favour of the lender. The assignment will identify the relevant contracts (or the proceeds of them) being assigned. Assignments can be legal or equitable, but the more significant differentiating factor between the two is whether notification is given by the borrower of that assignment of the counterparty debtor under the relevant contract. Once notice is given to the counterparty debtor, the debtor must pay the lender in accordance with the provisions of the notice in order to satisfy the debt. If the counterparty debtor instead pays the borrower who has provided the security, the debt will not be satisfied and the counterparty debtor will have to pay again to the lender. However, it is often not commercially acceptable to the borrower that notice is given to the counterparty debtor. Both legal and equitable assignments will be enforceable if the borrower becomes insolvent.

V. Shares

Shares are usually charged by way of an equitable fixed charge (often referred to as a “share charge”) in terms of which the relevant shares are charged in favour of the lender. The lender would usually receive signed, but undated, stock transfer forms accompanied by original share certificates. This allows the lender to transfer the shares should it ever need to sell the shares in enforcement of its security.

Another way to obtain security over shares in England is by way of a legal mortgage whereby the lender takes title to the relevant shares when the security is granted (i.e. becomes registered in the share register as the legal owner of the shares), subject to an undertaking to retransfer the shares to the borrower when the secured obligations have been repaid. This method is less prevalent in England and Wales than taking an equitable charge over the shares.

All security granted by a UK limited company or limited liability partnership must be registered at the relevant Companies House within 21 days of the date of its creation (see paragraph 8 below for further details on registration requirements).

Jersey Small Flag Jersey

Land. Security over Jersey immovable property (land but also leases of a term exceeding 9 years where the landlord consents to the lease being hypothecated and ‘flying freehold’) will be created pursuant to a hypothec. A hypothec is a supporting right available to secure a debt where title of the real estate remains with the debtor. The hypothecary creditor enjoys rights in priority to the other creditors of that debtor in respect of that real estate which has been hypothecated. There are various forms of hypothec but a lender will invariably seek to register a judicial hypothec at the Public Registry in Jersey.

It is not possible to hypothecate the interest of a joint owner (although an owner in common can secure their individual share).

The 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 and stamp duty is payable on registration.

Some real property in Jersey that are split into flats with different ownership is owned by property holding companies. Security over the individual flats will be created by taking security over the shares in the property holding company which owns such property rather than by way of a hypothec over the property.

An ‘opposition’, although not a hypothec, is another potential way to safeguard the position of creditors. A creditor can ‘oppose’ the passing of a conveyance by a debtor if the debtor is intending to sell the land. A creditor can ‘oppose’ if he has asked the debtor to repay or provide adequate security for the debt, is acting in good faith and is not abusing his right to oppose the passing of the contract of sale. An opposition is obtained by application to the Bailiff in Chambers.

Plant and machinery; equipment; inventory. Plant and machinery, equipment and inventory classed as tangible movable property can only be dealt with by way of a pledge. Under Jersey law, property can only be pledged if there has been actual physical delivery, rather than constructive delivery, of the property to the creditor.

Jersey law does not have a concept of a floating charge.

Receivables. Security can be created over contractual rights arising under Jersey law governed contracts (including Jersey law lease agreements) by way of description with security attaching when a security agreement in writing signed by or on behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

Security can also be created in respect of custody accounts by:

a) control – where (i) the account is transferred into the name of the secured party; (ii) the grantor, intermediary maintaining the account and the secured party agree in writing that the intermediary will act on the secured party’s instructions; or (iii) the secured party is the intermediary; and
b) description – security attaches when a security agreement in writing signed on or behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

Where the intermediary and the secured party are the same legal entity, no further steps are required to create or perfect security by control over the relevant custody account.

See comments below in relation to formalities necessary to perfect security by way of registration of contractual rights generally.

Shares in Jersey companies. Security can be created over shares in a Jersey company by:

a) possession – a secured party will have a security interest by possession when it (or someone on its behalf other than the grantor) takes possession of the certificates representing the shares;
b) control – a secured party will have control over the investment securities if (i) the secured party is the registered holder of the shares or (ii) the secured party is in possession of the certificates of title to the shares;
c) description – security attached when a security agreement in writing signed by or on behalf of the grantor contains a description of the collateral sufficient to enable it to be identified.

See comments below in relation to formalities necessary to perfect security over shares.

Foreign Law Security Document. A foreign law security agreement over Jersey assets would unlikely be enforceable in Jersey due to, amongst other things, the lack of compliance with formal validity requirements.

Hong Kong Small Flag Hong Kong

Security can be taken over all of the following types of assets. The type of security applicable to the relevant asset type is elaborated below.

The general rule is that the taking of security is governed by (in the case of intangible assets) the governing law of the relevant security document or (otherwise) the law of the place where the asset which is subject to security is situated (the lex situs rule) at the time of creation of the security.

Hence, security over real property (land), plant, machinery, equipment, inventory and receivables situated in Hong Kong and shares in Hong Kong company will typically be governed by Hong Kong law.

i. real property (land), plant and machinery;

Real Property: The majority of land in Hong Kong is held on a leasehold tenure under leases granted by the Hong Kong Government. Government leases can (but do not necessarily) restrict dealings relating to the land granted under those leases without the Government's consent and subject to compliance of certain requirements set out therein.

Security can be taken over real property by way of a legal mortgage or equitable mortgage.

Legal mortgage: A legal mortgage over real estate is created by way of a legal charge, in writing and executed as a deed. It gives the protection, powers and remedies traditionally given to a mortgagee, including foreclosure and the equity of redemption. However, the mortgagee cannot take possession before default.

Equitable mortgage: An equitable mortgage can be created by depositing title deeds of the real estate with the mortgagee. Where an equitable mortgage is executed as a deed, the equitable mortgagee enjoys the same powers and remedies as a legal mortgagee on the mortgagor's default, except that the mortgagee has no power to sell the real estate because an equitable mortgagee cannot execute an legal assignment of the mortgaged assets.

Plant and Machinery: The common forms of security over plant and machinery are fixed charge (provided the chargee exerts sufficient control over the secured asset) and/or floating charge.

The ability to take effective control will depend, to an extent, on the size, type and location of the assets. Hence, in practice, the security is often in the form of a floating charge, except in the case of a very large/fixed piece of machinery. In order to successfully establish control, it may be wise to affix notification plaques clearly to such assets over a certain value, and to notify third parties that such assets have been charged.

ii. equipment:

Please refer to "Plant and Machinery" sub-section of our response to Question 4 i. above.

iii. inventory:

Security can be taken over inventory by way of floating charge or fixed charge (provided the chargee exerts sufficient control over the secured asset (which rarely happens in practice)).

Security over inventory poses certain practical issues. Control is often difficult to effect if the assets are required in the chargor's day to day business. There are also other issues, for example where goods are stored on leased premises, a consent from the landlord to access the premises may be required. In addition, it may be difficult to enforce a charge upon goods in transit, particularly if shipped internationally.

In the event that inventory subject to a charge is mixed with (for example, stored together with) unsecured inventory, care should be taken to ensure that the inventory subject to the charge is identifiable and can be distinguished from unsecured inventory (such as physically securing the goods, placing stickers on goods and/or notifying the borrower's customers, trading partners and warehouse owners/managers of the security).

iv. receivables:

Security can be taken over receivables through assignment by way of security, fixed charge (provided the chargee exerts sufficient control over the secured asset) or floating charge.

Receivables are typically secured in favour of a chargee by way of charge (as it may sometimes be difficult to obtain consent for assignment where restrictions exist in the documentation creating them) or, where no restrictions exist in the documentation creating them, assignment Security would usually be coupled with a restriction on the chargor stipulating that it can only collect its receivables in the ordinary course of its business and it must pay the proceeds of such collection into a specified (blocked, segregated) collection account.

Provided that the receivables are sufficiently identifiable at the time the security is entered into, there is no need to enter into updated security or submit lists of receivables on an ongoing basis prior to enforcement.

Unless the requirements for a legal assignment have been fulfilled (being (a) the assignment is in writing under the hand of the assignor; (b) the assignment is absolute; (c) the assignment is notified in writing to the person against whom the assignor could enforce the assigned rights; (d) the assignment must not purport to be by way of charge only and (e) the intention of the assignor to transfer ownership rights to the assignee must be clear), an assignment by way of security will only take effect as an equitable assignment. Absent of notification of either an assignment or charge, an underlying debtor may discharge its debt by payment to the assignor/chargor rather than to the secured party. From a practical perspective, this means that the notices will need to be served as early as possible after execution of the assignment (thus perfecting the legal assignment pursuant to s9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23).

Following a series of cases culminating in National Westminster Bank plc v Spectrum Plus Limited and others [2005] UKHL 41 (and confirmed in Re Harmony Care Homes Limited (in administrative receivership) [2009] EWCH 1961 (Ch)) it has been held that a fixed charge may be obtained over receivables (and the proceeds of those receivables paid into a bank account) only if the secured party has sufficient control over those proceeds. Even though UK cases are not binding in Hong Kong, they are considered as persuasive authorities and they are treated with “great respect” as decided by the Hong Kong Court of Final Appeal in Solicitor v Law Society of Hong Kong [2008] 2 HKC 1.

The "sufficiency" of control will be determined by the courts on a case by case basis, but the current view is that sufficient control will be obtained by blocking the account into which the proceeds of the receivables are paid from day one so that the chargor will not have the authority to withdraw funds from the account without first obtaining the chargee's consent for withdrawal. The secured party will be the sole authorised signatory with rights to direct activities in relation to the account and the account bank should agree to only take instructions from the secured party with respect to the account.

v. shares in companies incorporated in your jurisdiction:

Directly held shares/securities, where a chargor (or its nominee) is the registered holder: Security can be taken over such shares by way of a fixed charge (provided the chargee exerts sufficient control over the secured asset) and/or floating charge. Legal mortgages (whereby the title to the shares is transferred to the mortgagee) over shares may also be taken, but due to certain responsibilities and commercial implications linked with the mortgagee becoming the owner of such shares, this form of security is not often used.

In practice, chargees take an equitable mortgage and reserve the ability to perfect their share charge by (a) holding the original share certificates, (b) obtaining pre-executed blank instrument of transfer and contract notes from the shareholder and (c) (if required) amending the constitutional documents of the company whose shares are being charged to: (i) remove any right that the directors of the relevant company have to refuse to register a transfer in an enforcement scenario; (ii) remove any rights of pre-emption on a sale/transfer of the shares; and (iii) (less commonly) disapply any liens over fully paid shares. The pre-executed blank instrument of transfer and contract notes and original share certificate(s) would be retained by the chargee who could, on enforcement, complete the transferee section of the instrument of transfer and contract notes and deliver these to the company for registration.

Indirectly held shares/securities: shares/securities listed in Hong Kong can be held in the Central Clearing and Settlement System ("CCASS"), administered by the Hong Kong Securities Clearing Company Limited ("HKSCC"). Shares held with CCASS are registered in the name of a HKSCC nominee company and recorded by the HKSCC as being held in a CCASS participant's account.

For shares/securities listed in Hong Kong, a depositor has proprietary rights over securities held by a CCASS participant within CCASS. As such, the security interest most commonly granted over securities held within CCASS will be an equitable mortgage/charge over the security collateral provider's proprietary interest in those securities. In addition, the mortgage/charge usually includes an assignment by way of security of its rights against CCASS or the CCASS participant (including the rights in respect of the underlying securities account) and a charge over the related securities account. To perfect the assignment/charge, notice of the assignment/charge must be given to the CCASS participant.

Austria Small Flag Austria

In general the granting of security requires a (i) title (a pledge agreement) and (ii) a certain mode (Modus, depending on the type of pledge) for the security to become valid.

4.1. Real property (land), plant and machinery

Real property (land) and plant can serve as security under Austrian law. This form of security is called mortgage (Hypothek). As outlined above for the establishment of a mortgage a (i) pledge agreement (which needs to be notarised) as title and (ii) a corresponding mode is required. Based on the notarised pledge agreement, the mortgage needs to be registered in the Austrian land register (Grundbuch) as mode, thus the mortgage becomes valid.

The same general principles apply to the pledge of machinery. However, in case of machinery the pledge agreement does not need to be notarised and the relevant mode is the physical delivery (Faustpfandprinzip). According to the Faustpfandprinzip, the pledger must transfer the equipment to the pledgee by physical delivery (transfer of possession) if possible. This principle is applicable for every kind of pledge of a tangible and moveable object in Austria. If a physical delivery of the machinery is not possible, the pledge can be perfected by symbolic delivery, i.e. attaching signs on the equipment, in such way that the public will recognize the pledge. Further, the pledger is limited regarding the disposal of the pledged object.

Under Austrian law it is possible to have multiple pledges (mortgages) over one property. The ranking of the mortgages depends on the time when the land register court receives the respective application for registration.

4.2. Equipment

As equipment is considered as tangible moveable property, the above-mentioned rules regarding machinery apply.

4.3. Inventory

In general, the above-mentioned principles regarding pledge of equipment also apply to the pledge of inventory.

However, in case of the pledge of inventory as a whole (Gesamtsache) the mode is usually limited to a symbolic delivery by handing the keys to the rooms (e.g. warehouses), where the pledged inventory is stored. As court rulings in Austria are strict in this regard, it is recommended to establish a list of all the goods in stock and to mark the warehouse in such a way that everyone can clearly recognize that they have been pledged.

4.4. Receivables

Receivables can serve as security under Austrian law; they can either be (i) pledged or (ii) assigned:

The assignment of receivables as security (Sicherungsabtretung) requires a title (assignment agreement which does not need to be notarised) and as corresponding mode either (i) the notification of the obligor (Drittschuldnerverständigung) or (ii) a record in the creditor’s/assignor’s books and records (Buchvermerk).

The creation and perfection of a pledge over receivables requires a pledge agreement as title and, as mode, the same publicity requirements as the assignment of receivables (i.e. notification of the obligor or a record in the creditor’s/pledgor’s books and records) are applicable.

4.5. Shares in companies incorporated in your jurisdiction

In principle, shares in companies can serve as security under Austrian law, either by way of a pledge of shares or by a full transfer of rights for security purposes (full transfer of rights, Sicherungsübereignung). The major difference between a pledge and a full transfer of rights is that a pledge does not change the ownership of the secured asset, whereas a full transfer of security provides the creditor with full ownership (with the obligation to retransfer the assets as soon as the debt is fully repaid). In practice, the pledge over shares is more common as the full transfer of rights offers no substantial benefit over the pledge but usually requires the fulfilment of stricter formal requirements (in particular with respect to the mode).

Before considering the pledge or full transfer of shares, it is highly recommended to check the articles of association of the respective company as the articles of associations can require that the shareholders have to approve the pledge. In case the articles of association require the consent of the shareholders, a pledge would be void, if the prior consent is missing.

Regarding the formal requirements for the pledge of shares or full transfer of rights, the general principles apply, i.e. a title (pledge agreement) and mode (depending on the type of company - Partnerships, Limited Liability Companies, Joint Stock Companies) is required:

4.5.1. Partnerships (Kommanditgesellschaft - limited partnership; Offene Gesellschaft - unlimited partnership)

The pledging of shares with respect to limited and unlimited partnerships is only possible, if the articles of partnership (Gesellschaftsvertrag) explicitly provide for this possibility or if the consent of all shareholders is provided. In addition to the pledge agreement (which does not need to be notarised), the company (its partners) must be notified of the pledge (as corresponding mode) in order for the pledge to become valid.

A full transfer of rights of shares is possible if this is stipulated in the articles of partnership (Gesellschaftsvertrag) or if the consent of all shareholders is provided. In addition, the full transfer of rights of shares has to be incorporated in the company register in order to be perfected.

4.5.2. Limited Liability Company

As written above, the pledge of shares require a title (simple written form is sufficient) and the notification of the company (the managing director of the company needs to be informed).

The full transfer of shares for security purposes on the other hand require a notarial deed as title and the incorporation of the transfer into the respective companies register as corresponding mode.

4.5.3. Joint Stock Company

Regarding the relevant title for the pledge of shares the same requirements as for limited liability companies apply, i.e. the establishment of a pledge agreement (simple written form is sufficient). The respective mode for the pledge of shares depend on the type of shares. Under Austrian law shares in joint stock companies are certificated as securities (verbriefte Wertpapiere), either as bearer share (Inhaberaktie) or as registered shares (Namensaktie): (i) Bearer shares, which are certificated in the form of a global share certificate, deposited by a central depository. A possible mode for the perfection of the pledge would be to instruct the central depository to store the pledged shares for the pledgee (Besitzanweisung) and eventually to provide a record in the pledgor’s books and records (Buchvermerk). (ii) The pledge over registered shares is perfected by way of endorsement (Indossament) and the transfer of the respective registered share. However, despite the transfer of the registered share, the pledgee is not entitled to exercise the shareholder ‘s rights, only the shareholder who is entered into the share register is entitle to exercise his rights.

4.6. Applicable law

In general it is possible to choose foreign law as the governing law of an agreement (choice of law, freie Rechtswahl) under Austrian law. Hence, the title for the establishment of a security (assignment agreement) can generally be created under a foreign law governed document.

However, due to the stringent formal requirements for the granting and perfection of certain security rights, it is often not possible to create a security under a foreign law governed document, e.g. the mortgage agreement for the incorporation of a mortgage into the land register has to be governed by Austrian law. As the mode for the perfection of securities has to be governed by Austrian law it is highly recommended to establish Austrian law governed documents regarding all security rights over assets, which are located in Austria.

Please also see question 20. With respect to the exemption regarding consumers.

Mexico Small Flag Mexico

Yes. Mexican law permits creation of security interests and collateral over any type of rights and asset, provided that such rights and assets are in commerce. Security over real estate property is usually formalized in public deeds and registered in state registries of property and commerce. Security interests created over movable assets are registered with the Registry of Movable Security Interests section (RUG) of the federal Public Registry of Commerce.

The procedure, formalities and registration requirements vary depending on the security interest or guarantee and it can be agreed by the parties that such agreements are governed by a foreign law.

The standard procedure for creating a security interest or guarantee and its registration is as follows: 1) lender determines the security interests or guarantees to be created by borrower and/or guarantors, 2) counsel conducts due diligence and confirms existence if liens, formalities and registration requirements, 3) borrower and/or guarantors produce evidence that the underlying assets are free of liens and that, upon execution, formalization and/or perfection of security documents, security interest or guarantee would constitute a first priority lien or security interest in favor of lender, enforceable in its terms, 4) negotiation and drafting of financing and security documents, 5) execution of financing and security documents, formalization and satisfaction of conditions precedent, and 6) registration of security interests or guarantees with applicable public registries.

In addition to the above, below please see an overview of the most used legal instruments in order to create security interests and guarantees and their formalities:

a) Pledge

A pledge may be created on movable assets. A standard pledge may be created on a specific type of asset or a specific category or class of assets, provided such assets are determinable (similar to a floating pledge). A pledge agreement must be in writing and depending on the pledges assets, additional actions or formalities may be required to perfect the creation of first priority pledge (i.e., registration of pledge in corporate books and delivery of stock certificates if a pledge is created on shares or other equity interests).

A pledge agreement is usually registered with the RUG.

b) Nonpossessory Pledge

A pledge created on movable assets where the pledgor or a third person maintains possession of the pledge asset. A nonpossessory pledge agreement must be in writing, ratified before a Mexican notary public and registered with the RUG.

c) Trust Agreement (Fideicomiso)

A trust agreement creates a trust estate with an authorized financial entity called trustee. Under Mexican law, trust agreements are one of the preferred collateral and security mechanisms of lending institutions. Depending on the structure of a given transaction, trust agreements may serve to capture, regulate and manage cash flows (typically the funds that constitute the source of repayment of a facility) and to keep and maintain secured assets, ranging from shares, collection rights, equipment and real estate property.

There are two types of trusts: an administration trust and a security trust. Typically, the following formalities apply to the execution of trust agreements: 1) in writing; 2) know-your-customer (KYC) approval according with trustee's internal policies; 3) formalized in a public deed when the trust estate includes real estate property; and 4) registration with local Public Property Registry (RPP) and with RUG.

d) Mortgage

A mortgage on real estate property is one of the preferred guarantee of lending institutions in Mexico. A mortgage agreement must be in writing and formalized in a public deed before a Mexican notary public. There a number of documents that a notary public will review before granting a mortgage in a public deed, including property title background documentation and documentation regarding payment of local taxes and fees for local services.

Real estate property is governed by state law in Mexico. Thus, registration requirements of a mortgage in a local RPP vary depending on the location of the property.

Updated: April 18, 2019