Priority between security interests
Priority between security interests

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Priority between security interests
  • Why is it important to determine priority between competing security interests?
  • The 'first in time' principle and exceptions
  • Priority between legal versus equitable interests
  • Equities must be equal
  • Security over contractual rights and debts—the rule in Dearle v Hall
  • Priority between fixed and floating charges
  • Effect of registration on priority of security interests
  • Does registration at Companies House affect priority?
  • How does registering security at Companies House affect a third party's knowledge about the existence of a negative pledge?
  • more

In addition to ensuring its security has been validity created and perfected, a secured party will want to ensure its security ranks as it expects against any other competing security interests. Disputes as to priority arise less commonly than might be expected due to the use of deeds of priority and intercreditor agreements. However, these are only of use if the creditors are aware of each others' security interests and agree on whose interest should take priority. Where there is no contractual agreement, the general law as to priority will apply.

This Practice Note examines the rules which determine the priority of competing security interests where the holders of those interests have not specifically agreed an order of priority among themselves by contract. Practice Note: Priority between security interests—practical examples sets out some common situations and suggests how priority rules may work in practice.

It is important to note that English law priority rules are complex and are generally accepted not to be clear in every respect. The rules can also be affected by the actions of the parties meaning that law firms will often not give an opinion on the priority of security and expert advice will need to be sought if there is a dispute.

This Practice Note covers priority rules where security is granted by a company or LLP.