Q&As

Might a lender holding a legal mortgage (or Scottish pledge) of shares be a PSC?

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Produced in partnership with XXIV Old Buildings
Published on LexisPSL on 19/10/2016

The following Corporate Q&A produced in partnership with XXIV Old Buildings provides comprehensive and up to date legal information covering:

  • Might a lender holding a legal mortgage (or Scottish pledge) of shares be a PSC?
  • Might a lender holding a legal mortgage (or Scottish pledge) of shares be considered a PSC?
  • Relevant legislation
  • Statutory guidance
  • Non-statutory guidance

Might a lender holding a legal mortgage (or Scottish pledge) of shares be a PSC?

Might a lender holding a legal mortgage (or Scottish pledge) of shares be considered a PSC?

Based on a direct interpretation of the conditions (Conditions) set out in the Companies Act 2006 (CA 2006), Sch 1A, Pt 1 it would appear possible in certain circumstances for a lender or collateral-taker to be a PSC or relevant legal entity (RLE). While various aspects of the statutory guidance seek to provide lenders with certain protection from this conclusion (see below), such protection is by no means guaranteed in all circumstances.

Relevant legislation

The Condition for being a PSC which is most likely to apply to a lender to a company (as opposed to a shareholder) is Condition 4:

X has the right to exercise, or actually exercises, significant influence or control over company Y.

Paragraph 23 of CA 2006, Sch 1A, Pt 3, further states:

Rights attached to shares held by way of security provided by a person are to be treated for the purposes of this Schedule as held by that person—

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with that person's instructions, and

(b) where the shares are held in connection with the granting

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