Q&As

How does a lender with share security appropriate those shares?

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Produced in partnership with Brian Cain
Published on LexisPSL on 22/05/2018

The following Banking & Finance Q&A produced in partnership with Brian Cain provides comprehensive and up to date legal information covering:

  • How does a lender with share security appropriate those shares?
  • Summary
  • Circumstances where appropriation may be desirable
  • Conditions that must be satisfied before appropriation is available
  • Steps to be taken to appropriate shares
  • Steps taken after appropriation

How does a lender with share security appropriate those shares?

This Q&A describes the remedy of appropriation conferred upon a security holder of shares by the Financial Collateral Arrangements (No 2) Regulations 2003, (SI 2003/3226) (FCAR) and how that remedy can be used in practice.

For information on taking security over shares, see Practice Notes: Types of security and Taking security over shares.

If the holder of security over shares wants to enforce that security, it has a number of options available to it. These are described in Practice Note: Enforcing share security.

Summary

Exercising the power of sale allows a security holder to sell shares and apply to the proceeds against the secured liabilities. There may, however, be circumstances where the security holder does not wish to sell the shares immediately on enforcement of the security. In these circumstances, the remedy of appropriation allows the security holder to take outright title to the shares (in a manner similar to foreclosure under a mortgage) without the need to obtain any court order.

Circumstances where appropriation may be desirable

There are several situations where appropriation rather than sale may be desirable. These include:

  1. the value of the shares is depressed for some reason and any sale is to be delayed until the market recovers

  2. the shares are uniquely valuable to the security holder more so than any proceeds it may realise eg

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