Taking security over receivables

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

  • Taking security over receivables
  • Nature of receivables
  • Types of security interest used for receivables
  • Assignment by way of security
  • Charge
  • Assignment by way of security or assignment by way of charge only?
  • Taking security over receivables by way of fixed security
  • Fixed security—exercising control over the receivables
  • Taking security over receivables by way of floating security
  • Prohibitions or restrictions on assignments by way of security
  • More...

Taking security over receivables

In commercial lending transactions receivables are typically offered as security:

  1. as part of a package of security over the whole of a company's assets (see Practice Note: Key features of debentures), and

  2. in transactions where a steady stream of receivables forms a major part of the borrower's assets and the lender wants to control that income stream (for example, where the borrower is a company which provides goods and services to third parties)

This Practice Note explains the key issues which arise when taking security over receivables.

For information on taking security over other types of intangible assets see Practice Notes:

  1. Taking security over contractual rights

  2. Taking security over insurance policies, and

  3. Taking security over intellectual property rights

Nature of receivables

In broad terms, a receivable is the right to receive the payment of money which is enforceable by legal action. Receivables are a type of intangible assets known as a 'chose in action'. A chose in action is something which is recoverable by legal action rather than something which can be physically possessed. Types of receivables include:

  1. book debts

  2. right to receive a payment under a loan agreement, and

  3. rights to payments under contracts

In a commercial context, the term receivables is often used to refer to book debts, although strictly speaking book debts is a narrower term because it refers to 'debts accruing

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