UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
over certain assets. A mandatory notification requirement is triggered for share security involv - ing legal title transfer or the acquisition of vot - ing rights above defined thresholds in an entity carrying out activities in one of the 17 specified sectors subject to the mandatory notification regime under the NSIA. Without prior govern - ment clearance, these changes of control are void. The government can also issue a call-in notice if it reasonably suspects a change of con - trol may risk national security. Hardening Periods English law includes several hardening periods before insolvency: • transactions at an undervalue: two years; • preferences (preferential treatment to one creditor): six months, extending to two years for connected parties; • floating charges for insufficient value: 12 months, extending to two years for connect - ed parties; and • transactions defrauding creditors (ie, transac - tions entered into at an undervalue with the intention of putting assets beyond the reach of creditors): no time limit. Claims can be brought by any “victim” and not just adminis - trators or liquidators. 5.6 Release of Typical Forms of Security The principle of equity of redemption gives security providers the right to recover a secured asset upon satisfaction of the debt. The terms for releasing security are usually outlined in the security agreement or the intercreditor agree - ment, with the release of security documented in a deed of release executed by the security taker. Upon release, the relevant registers, such as Companies House or the Land Registry, are also updated to note the release of the relevant secu -
rity. These filings are generally straightforward and not costly. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Under English law, multiple security interests are allowed and parties can contractually agree on the order and priority of subordination. Besides contractual subordination, deal structures often involve structural subordination, where par - ent company’s creditors are subordinated to subsidiaries’ creditors. This occurs because subsidiary assets and cash flows typically sat - isfy their creditors first, leaving parent company creditors with structurally subordinated claims, with claims only on residual value after subsidi - aries’ creditors are paid. Case law supports both simple contractual and turnover subordination agreements, as neither violate the pari passu rule or anti-deprivation principle. The priority of competing security interests under English law is complex. Generally, security interests rank by creation order, with exceptions: • legal security interests (acquired for value without notice of prior equitable interests) take priority over equitable interests; • notice to the debtor/contractual counterparty determines priority in successive purported assignments of the same debt or other chose in action; • required registration at asset registries, (eg, the Land Registry), usually determines priority among competing interests by registration order, but Companies House registration does not directly affect priority; and • subsequent fixed charges have priority over earlier floating charges unless the subsequent fixed charge-holder knows the earlier floating charge includes a negative pledge.
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