TURKS & CAICOS Law and Practice Contributed by: Christopher Smith, Dentons Turks and Caicos
3.5 Legal Requirements Before an Entity Can Give Valid Security There are no legal rules or requirements that must be complied with before an entity can give valid secu - rity. They must, however, be empowered to do so or not restricted from doing so by their constitutional documents. Often, only board approval is necessary although the entity’s constitutional documents should be checked for any further requirements or approvals. It would be prudent to obtain shareholder approval in any case where an entity is guaranteeing or pledging assets as security for another party’s liabilities. 3.6 Formalities When a Borrower Is in Default In terms of charges registered against Turks and Cai - cos real estate, the security is enforceable pursuant to its terms in conjunction with the provisions of the Registered Land Act. The Registered Land Act provides a statutory power of sale by public auction, power to lease and power to appoint receivers. Commonly, a legal charge will vary and extend the statutory provisions to give the lender wider powers. To the extent that the powers contained in the legal charge vary or are in addition to those created by the Registered Land Act, they may not be acted on without the order of the court, and a court order is required to exercise a power of sale by private treaty. If a court order is required, this can typically take up to three months to obtain. Where a lender has entered into a facility with a com - pany, as opposed to an individual borrower, a sepa - rate fixed and floating charge, known as a debenture, is taken over all assets of the borrower company and contains wide-ranging powers, including the appoint - ment of a receiver. This provides a lender with a quick - er route to gaining control in the event of default. A share pledge agreement entered into between the parties so that, if the borrower defaults, the lender can enforce the provisions of the share pledge agree - ment and have the shares in the borrower company transferred to it, is also typically seen. The lender then becomes the legal holder of the shares in the compa - ny that owns the property and circumvents the need to obtain a court-ordered power of sale if they wish to sell the property by private treaty. This route is seldom used as a transfer duty of 8% of the market value of
the underlying real estate assets would be payable on the transfer of the shares. Priority of legal land charges is determined by registra - tion at the Land Registry. The lender’s ability to foreclose or realise on collateral on real estate lending is not recognised under local law. A foreclosure can be achieved in effect where the debt equals or exceeds the market value of the under - lying assets, but as with a share transfer, the transfer of real estate attracts a duty (of 10%) and is rarely used as it is not an efficient route to enforcement. There is no noticeably active market for the sale of non-performing notes given the small size of the juris - diction. 3.7 Subordinating Existing Debt to Newly Created Debt Generally, a debt secured by a legal charge properly stamped and registered at the Land Registry will, in respect of the proceeds of realising such asset, rank in priority to any subsequently registered legal charge, any floating charge or any unsecured debt. It is pos - sible for lenders to subordinate debt contractually, although this is not common. 3.8 Lenders’ Liability Under Environmental Laws There are no statutory provisions in relation to envi - ronmental liability in the Islands. However, once the lender has taken possession of the premises, a civil action for environmental harm can be brought. A lend - er can also seek an environmental indemnity from the borrower. Because of the Islands’ lack of heavy indus - try, however, environmental issues have not, thus far, been a major legal concern in real estate transactions. 3.9 Effects of a Borrower Becoming Insolvent Security interests created by a borrower in favour of a lender will not be rendered void if the borrower becomes insolvent. Security may, however, be set aside – eg, where it constitutes a preference or a transaction at an undervalue.
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