Q&As

What is the position of a security holder if the company that created the security is dissolved?

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Published on LexisPSL on 01/08/2017

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What is the position of a security holder if the company that created the security is dissolved?
  • Summary
  • Circumstances where this issue commonly arises
  • The legal effect of dissolution
  • Trust property—company trustee
  • Restoring the company to the register
  • Position of the security holder where the company is not restored to the register
  • Right to sue for the secured debt
  • Mortgagor's power of sale
  • Appointing a receiver
  • More...

What is the position of a security holder if the company that created the security is dissolved?

This Q&A focuses on the impact the dissolution of a security provider can have on the ability of a security holder to effectively enforce its security. It also considers the position of a receiver appointed by the security holder prior to the dissolution of the relevant company.

Summary

If a security provider is dissolved as a matter of English law it is normally still possible for the security holder to enforce the security it holds by exercising the mortgagee’s power of sale. There may be circumstances in any particular case that make an application to restore the dissolved company to the register desirable to protect the security holder’s position.

Circumstances where this issue commonly arises

The problems associated with a security provider being dissolved while security is in force occur most often in real estate finance and other asset finance transactions. Typically, these issues arise where a special purpose vehicle (SPV) or a series of SPVs are used to hold particular assets which are mortgaged as security for a loan. For example, in real estate finance land is often held for a considerable period of time by an SPV. For one reason or another (usually financial distress and a wish to cut company secretarial costs) the officers of the company do not

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