Priority between security interests—practical examples

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

  • Priority between security interests—practical examples
  • Priority in practice—fixed and floating charges
  • Prior to 6 April 2013 a borrower granted a floating charge to Lender A which contained a restriction on the borrower creating future charges. The borrower subsequently granted a fixed charge over many of the same assets to Lender B. Which Lender will have priority?
  • A borrower grants a floating charge to Lender A and subsequently grants a fixed charge over many of the same assets to Lender B. There is no restriction on the creation of future charges in the floating charge document but the floating charge had crystallised prior to the later fixed charge being taken. Which charge will take priority?
  • A borrower grants a debenture containing (among other charges) a fixed charge over book debts to Lender A. It grants a subsequent debenture to Lender B which contains a floating charge over the same book debts. The parties contractually agree that Lender B's debenture will rank ahead of Lender A's debenture. Given that floating charges are subject to claims of preferential creditors, does this contractual ranking mean that Lender A's fixed charge will also be subject to these claims?
  • A borrower grants a fixed charge in favour of Lender A. A few days later it grants a fixed charge over the same asset to Lender B. Prior to taking the charge, Lender B checks the register at Companies House but is not notified of Lender A's charge as the charge has not yet been registered (or the registration is not yet showing up on the Companies House website). Lender A and Lender B both register their charge within the 21-day period. Which charge will take priority?
  • Would the answer to the question above be different if Lender B had taken a legal mortgage rather than a fixed charge over the asset?
  • A borrower grants a floating charge over cash deposits to Lender A— the charge is not registered at Companies House. The borrower subsequently grants a floating charge over the same assets to Lender B. Will Lender B's charge necessarily have priority?
  • Priority in practice—shares
  • A borrower granted a fixed charge (Charge A) over shares it holds in a subsidiary to Lender A. The charge was not registered at Companies House as it was taken prior to 6 April 2013 when a charge over shares was not a registrable interest. The borrower granted a subsequent equitable mortgage (Charge B) over the same shares to Lender B. Lender B holds the share certificate and a blank signed stock transfer form. The borrower notifies Lender B of Charge A and in response Lender B upgrades its security to a legal mortgage by entering its name in the register. Will Charge A or Charge B have priority?
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Priority between security interests—practical examples

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for lending lawyers? [Archived].

STOP PRESS—Coronavirus (COVID-19) and registration of charges at Companies House: The content of this Practice Note is affected by the Companies etc (Filing Requirements) (Temporary Modifications) Regulations 2020, SI 2020/645 (the Regulations), which temporarily extend some deadlines for filing documents or notices with Companies House. In so far as it may affect the content below, the Regulations:

  1. extend the period for filing charges under section 859A of Companies Act 2006 (CA 2006) from 21 days to 31 days beginning with the day after the date of creation of the charge

  2. extend the period for registration of instruments of alteration of floating charges granted by Scottish companies under section 466 of the Companies Act 1985, and

  3. increase to 42 days the period for notification of the place where copies of instruments creating charges are kept under

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