In brief: guarantees and collateral for acquisition financing in the UK

Guarantees and sureties

Related corporate guarantees

Are there any restrictions on the provision of guarantees from related undertakings? Are there any limitations on the ability of affiliated companies registered overseas to post guarantees?

There are no UK charges or taxes applicable to the provision of security in respect of the obligations of another company in the same group.

Subject to financial assistance restrictions and, if the business operates in a regulated industry, any regulatory controls that may exist, any guarantee provided by an English business must be in the best interests of that business and promote the success of that business. for the benefit of its members. This will usually be recorded in board or shareholder resolutions. Another consideration is whether or not the guarantee would reduce the net assets of the company providing the guarantee and therefore potentially constitute an illegal distribution, as an English company must have sufficient distributable reserves to be able to make a distribution to shareholders.

There are no restrictions in English law on related companies registered overseas providing guarantees on both a secured and unsecured basis, but local legal restrictions may apply.

Assistance by the target

Are there any specific restrictions on the target providing guarantees or guarantees or financial assistance in connection with an acquisition of its shares? What measures can be taken to enable such actions?

Subject to limited exceptions, the Companies Act 2006 prohibits financial assistance in connection with the acquisition of shares in a public company and in connection with the acquisition of shares in a private company whether the private company has a public company subsidiary that is providing financial assistance.

Financial assistance includes the granting of guarantees or securities, grants or loans from the target company to help with the acquisition. In the UK, financial assistance from an English company for the acquisition of shares in a foreign holding company would not be subject to financial assistance rules.

The financial assistance restrictions apply only to businesses that are public companies at the time such assistance is provided. It is therefore possible and common to re-register a public company as a private company to enable it and its subsidiaries to provide financial assistance for the acquisition of its shares.

Types of security

What types of security are available? Are floating and fixed charges allowed? Can a general lien be granted on all of a company’s assets? What are typical exceptions to an all-assets grant?

English law authorizes the conclusion of all asset collateral agreements commonly referred to as debentures. An English law debenture will generally contain a mix of security: mortgages (on immovable property), assignments of security (on receivables and certain contracts), fixed charges (on certain specified classes of assets) and a floating charge on all assets and liabilities of the shipper. An English law debenture will be in place to cover future assets acquired and will include perfection milestones for such future assets such as notices, delivery of title deeds and similar requirements. In the case of the acquisition of real estate, if a legal hypothec must be granted on these assets, a new mortgage will have to be granted because it is not possible to create a legal hypothec on a property acquired subsequently.

It is common practice to exclude from the guarantee of all assets certain assets over which the grantor is unable or not authorized to grant a guarantee. There may be other exclusions to reflect what is commercially agreed to be the security package.

Requirements for perfecting a security interest

Are there specific bodies of law governing the perfection of certain types of warranties? What types of notices or other steps must be taken to perfect a security right in an encumbered asset?

In England, there is (for example) no equivalent of the Uniform Commercial Code in the United States. Rather, perfection of security occurs, depending on the type of security and asset, through registration in applicable registries and delivery of notices and acknowledgments. In general, most charges and mortgages created by an English company must be registered with Companies House within 21 days of the date the security was created. Failure to register results in the cancellation of the guarantee vis-à-vis other creditors in a liquidation or administration and also results in the immediate payment of the debt it guarantees. Security interests in certain classes of assets (such as land, intellectual property rights, ships or aircraft) must be registered in specific title registries. Otherwise, the counterparties and other legal owners of the affected assets must be notified of the guarantee in order to maintain priority over subsequent guarantees.

Renewal of security

Once a lien is perfected, are there renewal procedures to keep the lien valid and registered?

In general, once a security is registered in the applicable registry (and provided the registration is done correctly), there is no need to renew the registration for the particular asset or creditor in respect of from which the recording was made.

Stakeholder Consent for Safeguards

Is there a “works council” or other similar authorizations necessary to approve the provision of guarantees or security by a company?

No – unless a company has entered into contractual agreements which would require it (which would be unusual), there would be no obligation to obtain consents or to consult a works council, union or another employee representative body or equivalent for the provision of guarantees or sureties by an English company.

Granting of guarantee through an agent

Can a guarantee be given to one agent for the benefit of all lenders or must a guarantee be given to the lenders individually and then changes must be executed on any assignment?

Under English law, a security officer can hold security over a borrower’s assets on behalf of multiple lenders. The security agent will generally be appointed to hold the benefit of the security in trust for the lenders. Thus, existing lenders can assign or transfer their interest under the facility, and the incoming lender, subject to compliance with the required transfer formalities, should be able to benefit from the existing securities and guarantees without modifying the underlying documents.

Protection of creditors before the release of the guarantee

What protection is generally afforded to creditors before the security can be released? Are there ways to structure around such protection?

There is no special protection against creditors before the security can be released under English law. Release of English law collateral will usually be documented by a deed of release. The underlying security document may provide that if the payment that was made to discharge the debt is subsequently recovered, the released security will be reinstated.

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

Under section 423 of the Insolvency Act 1986, certain transactions may be voided if they have the effect and purpose of defrauding creditors: this may be either (1) by placing assets beyond the reach of a person who may at any time have the right to bring an action against the person transferring the property; or (2) otherwise adversely affecting the interests of such person in connection with the claim which he is entitled to make. Section 423 has broad application and it is not necessary that the company be insolvent or in formal insolvency proceedings for relief to be sought.

Whether the “purpose” test has been met is a subjective matter and the burden of proof rests with the claimant. There is no prescribed time limit for bringing an action under this section (apart from the usual statutory limitation periods) and certain bodies (including the Financial Conduct Authority) are also permitted to bring an action under of this section.