LEGAL PRACTICE COURSE
Commercial Law and Practice
Large Group 6
Topic(s):
Security
Quasi-security (guarantees and indemnities)
Learning Outcomes:
By the end of this session you will be able to:
Explain why security may be taken and the advantages and disadvantages of different
types of security
Outline the key characteristics of an equitable charge, a mortgage, a pledge and a lien
(all types of security)
Outline the difference between a guarantee and indemnity (both types of quasi-security)
Session Activities:
As set out in the session outline
Materials Attached:
Session outline
Preparation for Session:
Read Chapters 12 (“Common Forms of Security”) and 13 (“Quasi-Security”) of the
Banking and Capital Markets manual
Review the attached session outline
Complete the Pre-Session Task on page 4
Post-Session:
Review your notes of the session in order to consolidate your understanding
Re-visit Chapters 12 and 13 of the Banking and Capital Markets manual as necessary
Complete the Post-Session Task on page 7 (a suggested answer will be available on
Moodle after the session)
docs_826445219.docx 1/10 © City, University of London 2020
, LEGAL PRACTICE COURSE
Commercial Law and Practice
Large Group 6: Session Outline
1. Introduction to Security
Security
■ Over assets
■ Gives lender (i) rights over, (ii) ownership of or (iii) possession of the asset until debt
repaid
Starting point at taking security, from a lenders point of view, it gives it comfort that it will be
repaid, look at the assets the borrower has starting point is list of assets borrower owns,
the borrower gives the lender a right over the asset or ownership or possession until debt
repaid (together with interests + costs), then asset reverts to borrower and the lender loses
rightm ownership or possession granting security is giving right or right in relation to an
asset
2. The Commercial Background (eg Seramica Ltd and Westfare Bank plc – see page
10)
The Borrower(s): why give security?
■ Lender may demand it as condition of lending
■ Lower interest rate?
-Providing security helps reduce cost of borrowing when a company wants to borrow, want
to do as low cost as possible (interest rate)
-Unsecured borrowing is more expensive e.g. overdrafts higher rate of interest expensive
-May not be able to borrow without security, reduce costs, and borrow more
The Bank(s): why take security?
■ Decreases risk of non-repayment if borrower defaults
■ Including higher priority ranking in insolvency rank ahead of creditors that do not
have security
■ Increases negotiating power of lender even if borrower does not become insolvent,
then can dictate way business runs as can enforce security (gives bargaining power)
■ Appointment of administrator out of court if the borrower becomes insolvent
Insolvency-related reasons?
What sort of asset might be available as security?
docs_826445219.docx 2/10 © City, University of London 2020
Commercial Law and Practice
Large Group 6
Topic(s):
Security
Quasi-security (guarantees and indemnities)
Learning Outcomes:
By the end of this session you will be able to:
Explain why security may be taken and the advantages and disadvantages of different
types of security
Outline the key characteristics of an equitable charge, a mortgage, a pledge and a lien
(all types of security)
Outline the difference between a guarantee and indemnity (both types of quasi-security)
Session Activities:
As set out in the session outline
Materials Attached:
Session outline
Preparation for Session:
Read Chapters 12 (“Common Forms of Security”) and 13 (“Quasi-Security”) of the
Banking and Capital Markets manual
Review the attached session outline
Complete the Pre-Session Task on page 4
Post-Session:
Review your notes of the session in order to consolidate your understanding
Re-visit Chapters 12 and 13 of the Banking and Capital Markets manual as necessary
Complete the Post-Session Task on page 7 (a suggested answer will be available on
Moodle after the session)
docs_826445219.docx 1/10 © City, University of London 2020
, LEGAL PRACTICE COURSE
Commercial Law and Practice
Large Group 6: Session Outline
1. Introduction to Security
Security
■ Over assets
■ Gives lender (i) rights over, (ii) ownership of or (iii) possession of the asset until debt
repaid
Starting point at taking security, from a lenders point of view, it gives it comfort that it will be
repaid, look at the assets the borrower has starting point is list of assets borrower owns,
the borrower gives the lender a right over the asset or ownership or possession until debt
repaid (together with interests + costs), then asset reverts to borrower and the lender loses
rightm ownership or possession granting security is giving right or right in relation to an
asset
2. The Commercial Background (eg Seramica Ltd and Westfare Bank plc – see page
10)
The Borrower(s): why give security?
■ Lender may demand it as condition of lending
■ Lower interest rate?
-Providing security helps reduce cost of borrowing when a company wants to borrow, want
to do as low cost as possible (interest rate)
-Unsecured borrowing is more expensive e.g. overdrafts higher rate of interest expensive
-May not be able to borrow without security, reduce costs, and borrow more
The Bank(s): why take security?
■ Decreases risk of non-repayment if borrower defaults
■ Including higher priority ranking in insolvency rank ahead of creditors that do not
have security
■ Increases negotiating power of lender even if borrower does not become insolvent,
then can dictate way business runs as can enforce security (gives bargaining power)
■ Appointment of administrator out of court if the borrower becomes insolvent
Insolvency-related reasons?
What sort of asset might be available as security?
docs_826445219.docx 2/10 © City, University of London 2020
