Q&As

Does the practice of conferring an equitable mortgage by the mortgagor handing over possession of share certificates and signed but undated share transfer forms to the lender satisfy the control or possession requirement for purposes of the Financial Collateral Regulations?

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Produced in partnership with Robin Kingham of Gough Square Chambers
Published on LexisPSL on 20/07/2016

The following Banking & Finance Q&A produced in partnership with Robin Kingham of Gough Square Chambers provides comprehensive and up to date legal information covering:

  • Does the practice of conferring an equitable mortgage by the mortgagor handing over possession of share certificates and signed but undated share transfer forms to the lender satisfy the control or possession requirement for purposes of the Financial Collateral Regulations?
  • Summary
  • The Regulations
  • Case law
  • Analysis

Does the practice of conferring an equitable mortgage by the mortgagor handing over possession of share certificates and signed but undated share transfer forms to the lender satisfy the control or possession requirement for purposes of the Financial Collateral Regulations?

Summary

Although there is no reported authority directly considering this issue, it seems clear that handing over share certificates and transfers executed in blank will satisfy the control or possession requirements for the purposes of the Financial Collateral Arrangements (No. 2) Regulations, SI 2003/3226. Readers may find it helpful to refer to Çukurova Finance International Ltd and another v Alfa Telecom Turkey Ltd at [18] and [25] ('Alfa'), as well as the general commentary on the law of 'possession or control' provided by Briggs J in Re Lehman Brothers International (Europe) (In Administration) (Lehman Brothers) [101] – [137].

The Regulations

The Financial Collateral Arrangements (No. 2) Regulations 2003, SI 2003/3226 (‘the Regulations’) transpose Directive 2002/47/EC (‘the Directive’) into domestic law. The Directive was intended to increase market efficiency by eliminating formalities required in various Member States for the creation and enforcement of certain types of financial collateral. For example, under regulation 4 of the Regulations, certain UK legislation requiring formalities does not apply to ‘financial collateral arrangements’ within the meaning of the Regulations.

By regulation 3, there are two types of ‘financial collateral arrangement’. For the purposes of this

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