LEGAL PRACTICE COURSE
Commercial Law and Practice
Workshop 13
Topic(s):
Security:
o Types of security
o Perfection and priority
Learning Outcomes:
By the end of this session you will be able to:
Advise on the most appropriate type of security to be taken in relation to a particular
asset
Advise as to the steps which a secured party should take to protect/perfect its security
interest
Session Activities:
Review the Pre-session Task, in which you are asked to apply your knowledge of types
of security to a particular factual scenario
Carry out the In-Session Task, in which you are asked to advise a bank as to the
perfection of its security interests
Materials Attached:
Pre-session Task
In-session Tasks 1 and 2
Materials Provided in the Session:
Draft Security Agreement (d2)
Preparation for Session:
Review your notes from Large Group 6 and re-read Chapter 12 of the Banking and
Capital Markets manual
Read Chapter 14 (excluding paragraphs 14.4 to 14.6) and Chapter 15 of the Banking and
Capital Markets manual
Post-Session:
Review your notes of the session and the draft security agreement provided in the
session
docs_249914679.docx 1/7 © City, University of London 2020
, LEGAL PRACTICE COURSE
Commercial Law and Practice
Workshop 13: Pre-session Task
To: Trainee
From: Supervisor
Date: [Date of Workshop]
Subject: Pegasus group - Security
You will remember that our client, Borli Bank plc (“Borli”), is proposing to lend up to
£5,500,000 to the Pegasus group pursuant to a facilities agreement incorporating a term loan
and a revolving credit facility. Borli has now asked us to prepare a draft security agreement
in relation to the proposed facilities and the assets of the Pegasus group.
Please advise as to what type of security should be taken by Borli Bank plc in respect
of each of the assets listed below, explaining your answer:
Assets of Pegasus Dreams plc (“Dreams”)
Shares in Services and Promotions
Freehold land, buildings and fixtures located in Windsor, Solihull and Caerphilly (the “Old
Sites”). The land in Windsor is subject to a pre-existing security interest in favour of TRM
Bank plc.
Freehold land, expected to be purchased with the proceeds of the term loan, in Norfolk
Cornwall and Conwy (the “New Sites”)
Buildings and fixtures which are to be built on, or affixed on, the New Sites. These will be
funded by the term loan.
Shares= Equitable mortgage
‘Dreams’ owns shares in ‘Services’ and ‘Promotions’ Ltd, need to decide what kind of
security is over these shares see 15.2.2.6 in manual, it states the most obvious suitable
would be a legal or equitable mortgage legal are less common as would transfer title in the
shares to the bank (which the Bank would not want title) and equitable would be sufficient
so Bank does not have the inconvenience of owning the shares before they need to do so
best to take an equitable mortgage the way the mortgage will be ‘perfected’ will be
considered after
Freehold land – old sites= charge by deed expressed to be the way of legal mortgage
■ Possible to discharge the TRM obligations and security?
■ Is there a negative pledge?
■ Borli’s concerns in relation to negative pledge:
o tort of inducing breach of contract
o argument Borli would hold benefit of security for TRM
-They already own these rights, one site is subject to a pre-existing security interest (one
issue here) bank will be taking a charge by way of legal mortgage, which is under s.87 LPA
1925.
-Difficult issue is the pre-existing security interests, which are registered over the land in
Windsor for Borli Bank need to find out more about this security by doing a Land Registry
search i.e. the loan/amount, can Dreams pay this off to get rid of their security interest and
clear title if not, if we take a charge by deed expressed by way of legal mortgage, then
clients interest will rank behind the first security interest
-Negative pledge: is an undertaking given by a borrower to the effect they wont grant any
more securities over the asset there is a negative pledge in the facilities agreement under
docs_249914679.docx 2/7 © City, University of London 2020
Commercial Law and Practice
Workshop 13
Topic(s):
Security:
o Types of security
o Perfection and priority
Learning Outcomes:
By the end of this session you will be able to:
Advise on the most appropriate type of security to be taken in relation to a particular
asset
Advise as to the steps which a secured party should take to protect/perfect its security
interest
Session Activities:
Review the Pre-session Task, in which you are asked to apply your knowledge of types
of security to a particular factual scenario
Carry out the In-Session Task, in which you are asked to advise a bank as to the
perfection of its security interests
Materials Attached:
Pre-session Task
In-session Tasks 1 and 2
Materials Provided in the Session:
Draft Security Agreement (d2)
Preparation for Session:
Review your notes from Large Group 6 and re-read Chapter 12 of the Banking and
Capital Markets manual
Read Chapter 14 (excluding paragraphs 14.4 to 14.6) and Chapter 15 of the Banking and
Capital Markets manual
Post-Session:
Review your notes of the session and the draft security agreement provided in the
session
docs_249914679.docx 1/7 © City, University of London 2020
, LEGAL PRACTICE COURSE
Commercial Law and Practice
Workshop 13: Pre-session Task
To: Trainee
From: Supervisor
Date: [Date of Workshop]
Subject: Pegasus group - Security
You will remember that our client, Borli Bank plc (“Borli”), is proposing to lend up to
£5,500,000 to the Pegasus group pursuant to a facilities agreement incorporating a term loan
and a revolving credit facility. Borli has now asked us to prepare a draft security agreement
in relation to the proposed facilities and the assets of the Pegasus group.
Please advise as to what type of security should be taken by Borli Bank plc in respect
of each of the assets listed below, explaining your answer:
Assets of Pegasus Dreams plc (“Dreams”)
Shares in Services and Promotions
Freehold land, buildings and fixtures located in Windsor, Solihull and Caerphilly (the “Old
Sites”). The land in Windsor is subject to a pre-existing security interest in favour of TRM
Bank plc.
Freehold land, expected to be purchased with the proceeds of the term loan, in Norfolk
Cornwall and Conwy (the “New Sites”)
Buildings and fixtures which are to be built on, or affixed on, the New Sites. These will be
funded by the term loan.
Shares= Equitable mortgage
‘Dreams’ owns shares in ‘Services’ and ‘Promotions’ Ltd, need to decide what kind of
security is over these shares see 15.2.2.6 in manual, it states the most obvious suitable
would be a legal or equitable mortgage legal are less common as would transfer title in the
shares to the bank (which the Bank would not want title) and equitable would be sufficient
so Bank does not have the inconvenience of owning the shares before they need to do so
best to take an equitable mortgage the way the mortgage will be ‘perfected’ will be
considered after
Freehold land – old sites= charge by deed expressed to be the way of legal mortgage
■ Possible to discharge the TRM obligations and security?
■ Is there a negative pledge?
■ Borli’s concerns in relation to negative pledge:
o tort of inducing breach of contract
o argument Borli would hold benefit of security for TRM
-They already own these rights, one site is subject to a pre-existing security interest (one
issue here) bank will be taking a charge by way of legal mortgage, which is under s.87 LPA
1925.
-Difficult issue is the pre-existing security interests, which are registered over the land in
Windsor for Borli Bank need to find out more about this security by doing a Land Registry
search i.e. the loan/amount, can Dreams pay this off to get rid of their security interest and
clear title if not, if we take a charge by deed expressed by way of legal mortgage, then
clients interest will rank behind the first security interest
-Negative pledge: is an undertaking given by a borrower to the effect they wont grant any
more securities over the asset there is a negative pledge in the facilities agreement under
docs_249914679.docx 2/7 © City, University of London 2020
