UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
5. Guarantees and Security 5.1 Assets and Forms of Security
• Registration – All charges by an English company or limited liability partnership must be registered at Companies House within 21 days. For certain assets, registration at specific UK asset registries, like the Land Registry for real estate, is necessary. • Notice – Providing notice of the security interest to third-party debtors or account banks is essential, as the notice timing often determines the security’s priority. For security over English real estate, specific proce - dural steps and regulatory conditions must be met. An overseas entity granting security over a qualify - ing estate in England and Wales must be registered in the register of overseas entities at UK Companies House and comply with the requirements under the Economic Crime (Transparency and Enforcement) Act 2022 to register a mortgage at the Land Registry. Once validly created and perfected, security under English law does not typically require ongoing main - tenance. However, risks exist, such as a fixed charge being re-characterised as a floating charge if the chargee does not exercise control. 5.2 Floating Charges and/or Similar Security Interests Floating charges over all current and future assets of an English company are commonly granted. Private credit lenders typically require a robust security pack - age with “fixed” security over several asset classes and “floating” security over all or substantially all assets. 5.3 Downstream, Upstream and Cross- Stream Guarantees Downstream, upstream and cross-stream guarantees may be provided by English companies, subject to having the necessary power, capacity and corporate benefit. For upstream and cross-stream guarantees, directors must assess the corporate benefit of granting these guarantees and the guarantors’ financial standing. They will often seek shareholder approval to ensure alignment with company interests.
Under English law, taking security is a relatively straightforward process, allowing security over a wide range of asset classes through charges, mortgages or pledges. Commonly secured assets in sponsor- backed private credit financings include shares, bank accounts and intercompany receivables, with a float - ing charge often granted over other company assets. The security package’s scope depends on the trans - action’s nature, guided by “agreed security princi - ples”. For instance, loans to groups with valuable intellectual property or real estate may secure these assets to enhance the lender’s position. Loan agreements typically require material subsidiar - ies to provide security and guarantees similar to those of the borrower. The material subsidiary definition is negotiable but generally includes entities representing a certain percentage of the group’s EBITDA or assets, which is typically 5%. Holding companies of mate - rial subsidiaries are usually expected to provide share security over the material subsidiaries’ shares and any intercompany receivables they owe. In leveraged financings, a charge is commonly grant - ed by a chargor in favour of the lender (the “chargee”), allocating specific assets to satisfy debt obligations. Charges can be fixed, attaching immediately to defined assets with the chargee exercising control, or floating, covering a fluctuating pool of assets and “crystallising” into a fixed charge upon certain events. Importantly, the title and possession of the asset remain with the chargor, unlike mortgages or assign - ments by way of security, which transfer the security provider’s title conditionally on release of the security or discharge of secured obligations. Pledges, creating possessory security, are rare in leveraged financings. Perfection of security interests is crucial for validity and priority over other creditors. Perfection steps depend on the secured asset and the nature of the security interest but are generally straightforward and not costly. They include the following.
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