Security Assignment of Contractual Rights

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Security assignment of contractual rights

Resource type: Standard document
Status: Maintained
Jurisdictions: England, Wales
A standard form security assignment of contractual rights, created by a company incorporated in

England and Wales in favour of a single corporate lender.
This standard document is to be used when taking security, being a mortgage by way
of assignment, over the benefit of specified contracts entered into by the company and over the
benefit of specified insurance policies taken out by the company. It does not create fixed or floating
charges over contractual rights.
This standard document contains integrated drafting notes and negotiating tips.
PLC Finance
Contents
1. Definitions and interpretation
2. Covenant to pay
3. Grant of Security
4. Liability of the Borrower
5. Representations and warranties
6. Covenants
7. Powers of the Lender
8. When security becomes enforceable
9. Enforcement of security
10. Receiver
11. Powers of Receiver
12. Delegation
13. Application of proceeds
14. Costs and indemnity
15. Further assurance
16. Power of attorney
17. Release
18. Assignment and transfer
19. Further provisions
http://ld.practicallaw.com/9-508-0695?utm_source=PLC&utm_medium=PLCmailer... 2012-02-14
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20. Notices
21. Governing law and jurisdiction
Schedules
1. Relevant Agreements
2. Relevant Policies
3. Notice and acknowledgement of assignment of Relevant Agreement
4. Notice and acknowledgement of assignment of Relevant Policy
Hide Note
Drafting assumptions and legal issues

Security created by the standard document
The standard document creates a mortgage (www.practicallaw.com/8-107-6863) over the
benefit of certain specified contracts entered into, and specified insurance policies taken out,
by a corporate borrower, including rights and proceeds under those contracts and policies. A
mortgage of such assets (known as choses in action (www.practicallaw.com/2-107-5828))
is most commonly effected by an assignment (www.practicallaw.com/1-107-6442) by way
of security (see Drafting note, Drafting assumptions and legal issues: Assignment).
The standard document does not create fixed (www.practicallaw.com/0-107-5768) or

floating charges (www.practicallaw.com/0-107-5773) over contractual rights.
For more information on the types of security that may be taken over contractual rights and
other choses in action, see Practice notes, Taking security over choses in
action (www.practicallaw.com/4-201-9675) and Taking security: Mortgages of choses in
action: legal or equitable assignment (www.practicallaw.com/2-107-4032).
If the lender requires security over other assets, or fixed or floating charges or other forms of
mortgages, consider using Standard document, Debenture (www.practicallaw.com/3-202-
3055).
For more information on types of security and the underlying principles of the law of security,
see Practice note, Taking security (www.practicallaw.com/2-107-4032).
For a checklist of key issues for lawyers advising a lender taking security from an English
company, see Checklist, Taking security from an English company (www.practicallaw.com/0-
502-2898).
For a guide to PLC Finance's security and quasi security resources, including links to other
security and quasi security standard documents, see Practice note, A guide to PLC Finance's
security and quasi security resources (www.practicallaw.com/1-386-3269).
Drafting assumptions
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The standard document is drafted on the basis of the following assumptions:
The security is created by a private company (www.practicallaw.com/5-107-7048)

(limited by shares) incorporated in England and Wales.
The security is granted in favour of a single lender, which is a bank.
It secures amounts due by the Borrower under a bilateral

facility (www.practicallaw.com/8-386-5533) agreement between a single lender and a
single borrower.
The facility agreement (www.practicallaw.com/8-200-1386) sets out:
the terms relating to the financing, such as the amount of the facility, payment dates
for interest and principal; and
the general representations, warranties, covenants and events of

default (www.practicallaw.com/9-107-6565) governing the Lender's relationship
with the Borrower.
The assets subject to the security are current contractual rights or choses in action arising
under agreements, deeds or other contracts or insurance policies entered into or taken
out by the Borrower and governed by the laws of England and Wales (secured property).
The standard document does not take security over rights under future contracts.
The underlying finance transaction is not reliant on the continued operation of, or income
deriving from the secured property to support the payment of interest, fees or
amortisation of principal (www.practicallaw.com/5-107-6398) (debt service) or
discharge the debt in full. However, if such income is required for debt service or
repayment in full (that is, pre-enforcement), it may be necessary for the Lender to:
enter into further direct agreements with the relevant contract counterparty including,
for example, cure and step-in rights for the Lender to ensure the continuation of the
assigned contract in the event of the Borrower's default (see Drafting note, Drafting
assumptions and legal issues: Step-in and cure rights); and
consider creating a controlled account into which that income must be paid, and
requiring the Borrower to create security over that account in its favour (see Drafting
note, Drafting assumptions and legal issues: Control accounts).
The rights under the contracts and insurance policies being secured are capable of being
assigned.
The secured property is appropriate for the form of security being taken. Certain rights
may be more effectively secured by way of a more bespoke mortgage or charge (or may
be incapable of assignment altogether), for example:
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interests under leases, including rent, or other rights in real property;
intellectual property (www.practicallaw.com/9-107-7541);
a partner's interest in a partnership or partnership property (see Practice note, Taking

security from partnerships (www.practicallaw.com/0-504-6352));
a beneficiary's interest in a trust fund;
financial instruments (www.practicallaw.com/4-200-9252) including any rights or

claims attaching to them such as uncalled capital contributions;
certain life insurance policies (see Drafting note, Drafting assumptions and legal
issues: Insurance policies);
a right to a cash deposit made with a bank;
receivables (www.practicallaw.com/3-107-7110), including book

debts (www.practicallaw.com/6-107-7533);
choses in action that are essentially personal in nature; and
a bare cause of action or other right in litigation.
For more information on the most appropriate form of security for different classes of
assets, see Checklist, Taking security from an English company: Asset-specific
issues (www.practicallaw.com/0-502-2898).
The secured property is not separately insured (for example, loss of rent insurance).
The assignment is not a partial assignment.
Practical considerations
Tailor the standard document to:
Suit the specific borrower and assets over which the security is being granted.
Specify the degree of control to be vested in the Lender before and after enforcement of
the security created by the standard document.
The Lender (or its lawyers) normally drafts the standard document.
Unless stated otherwise, references to clauses, paragraphs and schedules in the drafting
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notes are to the clauses, paragraphs and schedules in the standard document.
Legal issues
Legal mortgage or equitable mortgage

Most mortgages over choses in action are equitable mortgages, rather than legal mortgages.
This is because the common law does not generally recognise the transferability of title to
intangible assets (with the exception of certain securities and negotiable
instruments (www.practicallaw.com/1-201-7574)). The mortgage created by the standard
document over the Secured Property will therefore be an equitable mortgage.
For more information on mortgages generally, see Practice note, Taking security:
Mortgage (www.practicallaw.com/2-107-4032).
Assignment
Except where a particular method of disposal or transfer is specified by statute, a mortgage of
a chose in action is effected by an assignment (Falcon Chambers and Sir Paul Morgan,
Fisher and Lightwood's Law of Mortgage (Butterworths, 13th ed, 2010), 225). A mortgage
involves the transfer of title to an asset by way of security together with an express (or
implied) condition that it will be re-transferred when the secured liabilities are discharged.
Essentially, this is what is achieved when a lender takes an absolute assignment by way of
security over a chose in action.
By contrast, a charge is simply an encumbrance (www.practicallaw.com/2-500-5888),

where ownership of the secured property remains with the chargor, and (other than in the
case of land) is a creation of equity only.
A mortgage of a chose in action may also be effected by novation (www.practicallaw.com/1-

107-5796), although it is comparatively rare since it produces a change in parties and a new
contract between the counterparty and the Lender (Professor Roy Goode and Louise Gullifer,
Goode on Legal Problems of Credit and Security (Sweet & Maxwell, 4th ed, 2008), 97).
An assignment is a means of transferring a party's (assignor's) rights under a contract with a

third party, to another person (the assignee). The benefit of a contract is a right (that is, a
chose in action) and, in principle, can be freely assigned by the benefiting party (the
obligations of a contract cannot be assigned, only novated).
An assignment may be a legal assignment (www.practicallaw.com/9-107-6754) (also

known as a disclosed assignment or statutory assignment). For an assignment to take effect
as a legal assignment (and be effective against third parties):
The assignment must be in writing and signed by the assignor.
The assignment must be absolute (that is, unconditional and irrevocable).
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Notice must be given to the other contracting party or parties against whom the assignor
could enforce the assigned rights (in this case, the borrower and any third party guarantor
or security provider).
If one or more of these conditions is not met, the assignment will take effect as an equitable
assignment (www.practicallaw.com/2-107-6540) (section 136, Law of Property Act 1925
(LPA 1925)).
The main difference between a legal assignment and an equitable assignment is in the
assignee's ability to bring an action in its own name. Under a legal assignment, the assignee
is able to bring an action in its own name against the relevant third party, without reference to
the assignor. Under an equitable assignment the assignee is unable to bring an action in its
own name and would need to join the assignor as party to the proceedings.
Assignment "by way of charge" is expressly excluded from section 136 of the LPA 1925.
Therefore, an assignment by way of security (or charge) is, on the face of it, an equitable
assignment only (see Tancred v Delagoa Bay and East Africa Railway Co (1889) 23 QBD
239, Denman J at 242).
An assignment by way of security will only be a legal assignment if it is expressed to be an

absolute assignment with a proviso for reassignment on satisfaction of the debt and that
notice is given to the appropriate third parties (see Hughes v Pump House Hotel Co Ltd [1902]
2 KB 190 and Drafting note, Drafting assumptions and legal issues: Perfection: Notice). Under
an absolute assignment by way of security, all the rights of the assignor (Borrower) regarding
moneys payable under the assigned contract are intended to pass to the assignee (Lender).
A security assignment will meet the statutory requirement in section 136 of the LPA 1925 that
the assignment is absolute, if the assignee has the entire right to the benefit of the chose in
action concerned, and the relevant third party is entitled to deal with the assignee alone. This
will be the case even if the assignor has an equity of redemption (www.practicallaw.com/5-
107-6223) because, until the third party receives notice of a reassignment to the assignor
after the secured liabilities have been repaid, he is entitled to deal with the assignee alone. If
the assignor automatically becomes entitled to the chose in action once the debt has been
satisfied, the assignment is not absolute and will, therefore, only take effect in equity.
For more on the distinction between legal and equitable assignments, particularly in the
context of security over choses in action, see Practice note, Taking security over choses in
action: Assignment (www.practicallaw.com/4-201-9675).
For more on the assignment of contracts generally, see Practice note, Contracts:
Assignment (www.practicallaw.com/7-381-7509).
Restrictions and prohibitions on assignment

Restrictions in the contracts to be assigned
Some contracts contain restrictions or prohibitions on parties assigning their rights. This may
be an absolute prohibition, or an assignment may only be permitted with the consent of the
contract counterparty (which is usually not to be unreasonably withheld or delayed). Some
agreements may contain clauses that allow assignments to particular persons (for example,
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group companies), or in particular circumstances (for example, the sale of the company). If
drafted clearly, restrictions on assignment will generally be effective.
Accordingly, before entering into the standard document, both the Lender and the Borrower
should review each underlying contract and insurance policy, the Borrower's rights under
which are to be assigned, to see if there are any limits or prohibitions (a non-assignment
provision) on the Borrower assigning its rights under that contract or policy to the Lender. If
there are, the Borrower should contact the relevant contract counterparty (or counterparties)
to request their express written consent to the security assignment.
Where an agreement cannot be assigned, it may be preferable to take a fixed charge over
that agreement. This is because a charge may not transfer a proprietary interest (Helstan
Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262 (QB)), although this view is
not universally held.
The risks to a lender in receiving an assignment by way of security without any necessary
consent having been obtained under the underlying contract are such that the lender will
typically insist on the counterparty's prior consent (see Drafting note, Drafting assumptions
and legal issues: Restrictions and prohibitions on assignment: Assignment without consent).
Unreasonably withholding consent to assignment

There are no clear legal authorities or reported cases that provide direct guidance as to when
a party's refusal of consent (in relation to an assignment or transfer) is reasonable or
unreasonable. On the basis of general principles, it is likely that the question of
reasonableness will be one of fact to be decided by the court objectively in each individual
circumstance. For example, it is probable that different considerations will apply depending on
the identity and bargaining position of the contract parties and the nature of the transaction.
Where an assignment is made without the assignor attempting to get its counterparty's
consent, the courts have held that there cannot be a valid assignment until written consent is
granted or the courts have determined that consent was unreasonably withheld (see Legal
updates, Assignment of contract (www.practicallaw.com/1-100-8863) and High Court
considers meaning of all reasonable endeavours and if distribution agreement validly novated
or assigned (www.practicallaw.com/6-500-4636)).
In a commercial context, the High Court has recently held that the party requesting consent
must show that the other party's refusal is unreasonable, which is a question of fact. Although
not in the context of a transfer of debt, because there are few cases that deal with whether or
not a party to a commercial contract has been reasonable in refusing consent to a transfer
(where the agreement provides that such consent should not be unreasonably withheld), the
judgment may provide useful guidance on the practical application to commercial situations of
the principle, see Legal update, High Court applies law on unreasonable withholding of
consent in commercial situations (www.practicallaw.com/9-511-4370).
Assignment without consent

Whether a security assignment that is made contrary to a prohibition is effective, will depend
on the terms of the restrictive clause but an assignment made for a contract that absolutely
prohibits assignment is ineffective as between the underlying contract counterparty and the
assignee (see Helstan Securities Ltd). However, the assignment would be effective between
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the Borrower (as assignor) and the Lender (as assignee), entitling the Lender to sue the
Borrower for breach of contract (or activate other rights or remedies under the security
assignment) (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL)).
In Barbados Trust Company Ltd (formerly known as CI Trustees (Asia Pacific) Ltd) v Bank of
Zambia and another [2007] EWCA Civ 148, the court held that where the assignment of a
debt was subject to borrower consent, an assignment made before consent had been given
by the borrower, was not an effective assignment. This was held even though consent was
deemed to be given by the borrower shortly after the assignment had been made (see Legal
update, Can I trust you? (www.practicallaw.com/6-227-3953)).
For more information on non-assignment provisions, including how notice of assignment and
a course of dealing with an assignee may override a non-assignment provision, see Practice
note, Contracts: assignment: Non-assignable contracts (www.practicallaw.com/7-381-7509).
For an example of a letter requesting consent to an assignment, see PLC Commercial,
Standard document, Request for consent to assignment (www.practicallaw.com/5-383-9475).
Certain rights not transferred by assignment

Personal rights cannot be assigned (that is, rights under an agreement can only be assigned
in "cases where it can make no difference to the person on whom the obligation lies to which
of two persons he is to discharge it" (Tolhurst v Associated Portland Cement Manufacturers
Ltd [1902] 2 KB 660, at 668)).
Questions can arise as to whether particular clauses in a contract are personal to the
assignor. Such issues typically arise in the context of assignments of insurance policies,
where the identity of the insured party is material to the risk taken by the insurer (see Drafting
note, Drafting assumptions and legal issues: Insurance policies). The test is objective and has
no regard to the character of the assignee. For example, certain clauses could be construed
as personal to the assignor (particularly if the underlying contract does not specifically
contemplate assignment) because the effect of the relevant clause may have different
consequences should the identity of one or other counterparty change.
The Lender should, therefore, identify any potentially problematic personal rights in its due
diligence on the contracts, the rights under which are to be secured, before any purported
assignment.
Where a contract does not specifically contemplate assignment by the Borrower, the Lender
should seek an express acknowledgement from the relevant counterparty (or counterparties)
that the Lender will take the benefit of any specific clauses following any assignment. A form
of acknowledgement is included in Part 2 of Schedule 3.
Generally, an assignee cannot recover more than the assignor could have recovered if there
had been no assignment (see Dawson v Great Northern and City Rly Co [1905] 1 KB 260 and
Sinclair v British Telecommunications plc [2000] 2 All ER 461). For example, unless the
underlying contract specifically contemplates an assignment (or there is an express
acknowledgement by the relevant counterparty), certain "personal" clauses may not be
capable of being relied on by the Lender as against the relevant contract counterparty after an
assignment. This is because the change in the other party (that is from the Borrower to the
Lender) and perhaps more specifically, the jurisdiction, may increase obligations or the
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amounts payable by that counterparty.
Practically, from a counterparty's perspective, it will prefer not to allow or acknowledge the
assignment of these personal rights to the Lender because of the potential increase in liability.
Lender may be subject to equities

Any rights under a contract that are assigned will be subject to all equities, that is any
remedies or defences that the underlying contract counterparty might have against the
Borrower (whether the assignee has notice of them or not), unless the contract expressly (or
impliedly) provides that an assignee takes free of any such equities (Re Blakely Ordinance Co
(1867) 3 Ch App 154).
The most common remedies or defences in this context are rights of set-
off (www.practicallaw.com/4-107-7242) or counterclaim. In an equitable assignment, the
Lender (as assignee) will still be subject to any rights of mutual set-off, even after the
underlying contract is assigned (for a legal assignment the Lender (as assignee) is only
subject to equities that arise after the assignment but before the contract counterparty has
notice of the assignment (see Drafting notes, Drafting assumptions and legal issues:
Perfection and Priorities)). Some contracts will expressly exclude these rights or provide that
the parties waive any rights of set-off or counterclaim.
The existence of any such rights, remedies or defences may be ascertained by due diligence
or disclosed in response to representations or warranties to be given by the Borrower (see
Drafting note, Drafting assumptions and legal issues: Representations and warranties). The
Lender may also include, in the standard document, an indemnity from the Borrower for any
resulting losses (see Clause 14.2 and Drafting note, Costs and indemnity).
Identifying the Relevant Agreements

If the Lender is taking security over contractual rights, whether a contract is chosen to be part
of the security package will depend on, among other things:
The type of transaction.
The nature of the Borrower's business.
The value of the Borrower's interest in that contract.
The Lender's credit support requirements.
Examples of contracts that are typically secured by way of assignment include:
Acquisition documents.
Intra-group loans.
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Construction or development documents including collateral warranties.
Management agreements.
Property sale agreements or agreements for lease.
Hedging (www.practicallaw.com/8-107-6684) agreements.
Keyman insurance (www.practicallaw.com/0-107-6211) and other insurance policies

(see Drafting note, Drafting assumptions and legal issues: Insurance policies).
Other contracts or arrangements that are material to the Borrower's business such as
licences or supply contracts.
In ascertaining which contracts or arrangements to take security over, the Lender may also
need to consider which type of security is best suited to securing those particular choses in
action as taking security by way of assignment may not be the most appropriate way of taking
security in all cases. For example, it may be better to take a fixed or floating charge or another
more bespoke form of mortgage (see Drafting note, Drafting assumptions and legal issues:
Drafting assumptions).
Material contracts are usually specified in the loan documents to which the security relates,
and may be the subject of specific representations, warranties, covenants and events of
default under those agreements. In particular, the facility agreement may specify certain
material contracts as being condition precedent (www.practicallaw.com/7-200-1382) items
that are required before funding. From a Lender's perspective, they will typically also require,
as a condition precedent to first drawdown (www.practicallaw.com/7-107-6156), a signed
acknowledgment by the contract counterparty (see Standard document, Facility agreement:
management buyouts: Schedule 2: paragraph 2.6 (www.practicallaw.com/8-101-6044)).
The standard document does not take security over future choses in action. For a mortgage to
be effective over property, that property must be ascertainable (Tailby v Official Receiver
(1888) 13 App Cas 523), which is not generally the case with rights under future contracts. If
the Borrower tries to assign a future right that does not yet exist (such as sums that the
Borrower hopes to receive under a contract that has not yet been made), there is no
assignment, only an agreement to assign requiring consideration (E Pfeiffer Weinkellerei
GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150).
The distinction between an existing right and a future right is not always straightforward and
the case law on this point is confusing. A purported assignment of an existing right at some
point in the future is also treated as an agreement to assign (Re McArdle [1951] Ch 699). To
the extent the Borrower assigns (or purports to assign) future contractual rights, the Lender
may continue to have certain rights against the Borrower under the assignment agreement (at
that stage being an agreement to assign concerning those future rights), but the future
contract counterparty will not be liable to the Lender (as assignor) until the chose in action is
acquired (that is, the expectant chose in action under the future contract develops into an
actuality).
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Insurance policies
A lender may require the benefit of an insurance policy to be assigned to it, by way of security,
as part of its security package. However, contracts of insurance may be incapable of being
transferred by assignment to a new insured party, where the identity of the insured is material
to the risk undertaken by the insurer (Peters v General Accident Fire & Life Assurance
Corporation Ltd [1938] 2 All ER 267). Express acknowledgement (that is, acceptance) of the
assignment by the insurer is, therefore, required. However, an equitable charge may be taken
over an insurance policy (for example, by taking mere possession of the insurance policy, or
obtaining a memorandum of deposit with notice to the insurers), but it would rank behind any
prior equitable interest in the policy (for example, that of the beneficiaries under a trust).
As for security interests for other types of contractual rights, the priority of competing security
interests over rights under an insurance policy is generally determined by the order in which
each of the security interests is notified to the insurer (Dearle v Hall (1828) 3 Russ 1). For
more on the priority of various parties' interest in the secured property, see Drafting note,
Drafting assumptions and legal issues: Priorities.
The acceptance by an insurer of an assignment, and its acknowledgement of the Lender's

interests, may make certain assignments more akin to a novation. By accepting the Lender's
status as an insured party, agreeing that proceeds of insurance claims may be paid to the
Lender and where the Lender assumes responsibility (if not, liability) for the payment of any
premiums (that is, in the event of a Borrower default), the insurance policy is effectively
novated.
When taking an assignment of the benefit of an insurance policy, the Lender will typically want
to ensure the assignment includes:
Covenants on the Borrower not to allow the assigned policy to become void, and that the
Borrower will continue to pay (and produce evidence of its payment of) all premiums.
A power (but not an obligation) for the Lender to pay any premiums in the event the
Borrower fails to do so.
An acknowledgement that the policy can be sold, surrendered or exchanged by the

Lender.
For more on the Lender's protections relating to its interest in a Relevant Policy, such as non-
vitiation clauses, see Drafting note, Insurance.
Life insurance policies

Mortgages of life insurance policies (including some keyman insurance policies) are, however,
subject to certain additional statutory formalities, where a legal assignment is required to give
the Lender the ability to sue the relevant insurer in its own name (section 1, Policies of
Assurance Act 1867 (PAA 1867)).
To obtain a first ranking legal assignment of a life policy, the following requirements must be
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met:
The assignment must be in writing.
The assignment must be endorsed on the policy or by a separate instrument in a form

governed by the PAA 1867 (section 5, PAA 1867).
Written notice must be given to the insurer (at their principal place of business) of the date
of the purported assignment (section 3, PAA 1867).
The insurer must acknowledge receipt of the notice, if requested, and on payment of a fee
not exceeding £0.25. An acknowledgement of receipt is conclusive evidence against the
insurer of such receipt (section 6, PAA 1867).
The insurer has confirmed that it has received no prior notice of any assignment or prior
charge or encumbrance.
The Lender obtains physical possession of the insurance policy (Spencer v Clarke (1878)
9 Ch D 137). The Lender's priority may be lost if it negligently fails to retain physical
possession (Clarke v Palmer (1882) 21 ChD 124).
Without notice of the Lender's interest, an insurer may validly discharge its obligation by
paying out, under a life policy, to personal representatives (www.practicallaw.com/1-382-
6088) of the person entitled to the policy.
While insurers under life policies were previously reluctant to acknowledge a security
assignment unless it conformed to the statutory (and common law) requirements derived from
the PAA 1867, it has also been possible to legally assign, by way of security, the benefit of an
insurance policy, under section 136 of the LPA 1925 (Raiffeisen Zentralbank Osterreich AG v
Five Star Trading LLC [2001] QB 825, Mance LJ at 855).
Step-in and cure rights

If a transaction is a project finance or financing a single asset business, or is otherwise reliant
on the continued operation of (or receipt of income from) an underlying contract to service the
debt incurred or to repay the debt, the Lender may want to enter into a separate direct
agreement with the counterparty (or counterparties) to that underlying contract.
A direct agreement is used to provide a direct contractual relationship between the Lender,
the Borrower and the contract counterparty. It may allow the Lender to exercise step-in or
cure rights. These rights are typically included to ensure the continuation (at the Lender's
option) of the underlying contract in the case of the Borrower's default (whether a default
under the underlying contract or under the finance documents), and to obtain the
counterparty's assistance in the exercise of a power of sale by the Lender over the secured
property.
Step-in or cure provisions typically set out the circumstances in which the Lender may "step
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in" under the underlying contract to remedy any remediable default or "step into the shoes" of
the Borrower if the default is non-remediable. Other security concerns of the Lender may also
be addressed, for example, by an undertaking from the contract counterparty that the terms of
the underlying contract will not be amended without the Lender's consent (the Borrower will
typically be restricted, under the standard document, from making amendments to the
underlying contract, see Clause 6.3(b)).
The contract counterparty is not included as a party to the standard document and,
accordingly, it does not include so-called step in or cure rights. However, the standard
document does include some protections for the Lender permitting the appointment of a
receiver to manage or sell the underlying contract (asset) and in the form of the
acknowledgement required from the contract counterparty to the assignment (see Part 2 of
Schedule 3).
In the absence of a direct contractual relationship with the contract counterparty, the only
comfort the Lender can take is to include a procuring obligation on the part of the Borrower in
the standard document. Examples of such provisions include requiring the Borrower to
procure that the Lender:
Receives confirmation from the contract counterparty that it consents to the Lender taking
security over the relevant contract.
Is notified (by the contract counterparty) directly of any defaults by the Borrower under the
relevant contract, to enable the Lender to enforce its security (or to exercise any step-in
rights, should they arise, to remedy the breach).
Has sufficient notice to enable it to remedy any breach by the Borrower. In some cases,
the Lender will insist on extended cure periods over and above the cure period available
under the underlying contract.
Receives an acknowledgment from the contract counterparty that the appointment of a

receiver, or other exercise of enforcement powers, by the Lender (or its affiliates) is not a
default under the relevant contract, and that the receiver may continue the Borrower's
performance under the contract, despite the insolvency or otherwise of the Borrower.
Is not prejudiced under any terms and conditions on which the Lender (or its receiver and
manager, agent or attorney) may transfer the Borrower's entitlements under the relevant
contract (that is, should it need to sell the asset).
Typically, these confirmations and acknowledgements would be included in the form of

acknowledgement that a lender would require a borrower to procure from its counterparties.
Note that these enhanced acknowledgements are not included in the form of notice and
acknowledgement included in the standard document (see Schedule 3) because the standard
document is drafted on the assumption that they are not required.
However, since the circumstances where the Lender is likely to require such action from the
Borrower are also likely to be those circumstances where the Borrower is in default, the
-
effectiveness of such procuring obligations may be limited (this is particularly the case if
acknowledgements of the assignment have not been received by the Lender). Therefore, if
such remedies are essential to the Lender, the Lender should enter into a direct agreement or
side deed with each relevant contract counterparty (and such direct agreement or side deed
should be a condition precedent to the financing).
Control accounts
The standard document does not include specific provisions that set up or govern a blocked
account (www.practicallaw.com/6-107-7566) (or control account) into which monies
payable under the Relevant Agreements and the Relevant Policies must be paid. Such an
account is typically required by a Lender where the monies payable under the Relevant
Agreements and Relevant Policies are material to the debt service or repayment of the
Secured Liabilities pre-enforcement or when taking security over either:
Rental income (see Practice note, Property finance (investment): overview: Bank
accounts (www.practicallaw.com/1-502-7032)).
Shares (see Standard document, Mortgage of shares and securities (certificated): 5.5.
Income account (www.practicallaw.com/3-322-7952) and its accompanying drafting
note (www.practicallaw.com/6-325-7952)).
If a control account is required, the Lender will typically also take separate security over that
account. For more information on taking security over bank accounts, see Practice note,
Taking security over cash deposits (www.practicallaw.com/8-201-9254).
Perfection
Once created, security must be perfected by ensuring that certain procedural requirements
are satisfied to make the security valid against any third parties. The way in which security is
perfected depends on:
The type of security taken by the Lender.
The type of asset secured.
The identity of the security provider.
Broadly, when taking a security assignment of choses in action from a company, perfection is
effected by both:
Giving notice to the assigned contract counterparty.
Registration of the security interest.
Notice of assignment
-
An assignment by way of security is perfected by serving notice of the assignment on the

debtor or counterparty to the contract (as envisaged by Clause 6.10). If notice is given and
provided certain other criteria are fulfilled, including those in section 136 of the LPA 1925, the
assignment will be a legal assignment.
If no notice is served, or the requirements of section 136 of the LPA 1925 are not fulfilled, the
security interest is an equitable assignment.
If the assignment is a legal assignment, the Lender gets day-to-day control of the relevant
debt or contract. There is also a priority benefit for the Lender in protecting an assignment by
giving notice to the debtor or other counterparty (see Drafting note, Drafting assumptions and
legal issues: Priorities).
For more information on the consequences of failing to give notice when assigning by way of
security, see Practice note, Taking security over choses in action:
Notice (www.practicallaw.com/4-201-9675).
Practical considerations
Where an assignment by way of security is taken to secure lending under a facility agreement,
it is market practice to require notices of any assignments to be executed, issued (and
preferably acknowledged) before drawdown of the facilities. Each notice (and preferably the
acknowledgement) should be listed as a condition precedent in the relevant facility agreement
and the parties should start negotiating their terms at the early stages of the transaction.
It may be difficult to obtain an acknowledgement from a third party immediately, so, depending
on the materiality of the assigned contracts, the receipt of acknowledgements may be subject
to grace periods or conditions subsequent (www.practicallaw.com/4-382-3093). It may be
the case, for example, that the Borrower's hedging arrangements (which may be assigned to
the Lender) are not put in place until after drawdown. Consequently, the relevant
counterparties could not be notified until those agreements are finalised.
Although the standard document assumes all counterparties are incorporated or established
in England and Wales, if a counterparty is incorporated or established overseas, the Lender
should take local legal advice to establish what needs to be done for the Lender to sue the
counterparty and for the assigned chose in action to be made available to the Lender, in
priority to other creditors of the counterparty.
The Borrower may not always want third parties to be notified of the existence of the security,
for commercial reasons, and may, therefore, prefer an equitable assignment, at least at the
outset. The Borrower will often try to negotiate that no notice of the security is given to any
third parties until an event of default under the facility agreement has occurred. The Lender
may agree that notice is not required to be given up front, if it considers that there is minimal
risk of the Borrower creating a later legal assignment that will rank ahead of its own earlier
equitable assignment of the same asset (see Drafting note, Drafting assumptions and legal
issues: Priorities). The Lender is more likely to agree to this where the standard document
contains a negative pledge (www.practicallaw.com/2-107-6875) (see Clause 6.1).
Note that the standard document does not contain an assignment of rental income. If the
Borrower derives income from property (for example because it is a property investment
company), the assignment will need to include an assignment of rental income and
-
incorporate provisions (either in the standard document, another security document or the
facility agreement) requiring rental income to be paid into a blocked account. For more
information on blocked accounts, see Drafting note, Drafting assumptions and legal issues:
Control accounts.
There are also perfection issues that are specific to assignments of insurance policies. For
more on the assignment of the benefit of insurance policies, see Drafting note, Drafting
assumptions and legal issues: Insurance policies.
For more information on the practicalities of the Borrower giving notice and the Lender
receiving acknowledgements of an assignment, see Drafting note, Notices to be given by
Borrower.
Registration
As the security created by the standard document is created by an English company, the
security registration regime under section 860 of the CA 2006 needs to be considered. Under
section 860, a registrable charge created by a company incorporated in England and Wales
must be registered at Companies House.
The list of registrable charges (which also includes "mortgages" (section 861(5), CA 2006)) in
section 860(7) of the CA 2006 does not expressly include (or exclude) security over choses in
action. However, charges created by a company over receivables that constitute book debts
are registrable under section 860(7)(f). The cautious view is that a mortgage (or assignment
by way of security) over contractual rights may constitute a charge over book debts, which
would, therefore, require registration under section 860(7)(f) (see Orion Finance Ltd v Crown
Financial Management Ltd [1996] BCC 621; Legal update, Unregistered assignment of
rights (www.practicallaw.com/7-100-2354)). In addition, an assignment "by way of charge
only" (that is, not a mortgage being an absolute assignment with a provision for reassignment)
may be a registrable charge to the extent it takes security over a book debt or otherwise falls
within the category of registrable security interests under section 860(7). (Note that section
860 applies only to charges that are created by a company and not charges that arise by
operation of law (Capital Finance Co Ltd v Stokes [1969] Ch 261).)
A further issue to consider is whether the Financial Collateral Arrangements (No 2)

Regulations 2003 (SI 2003/3226) (Financial Collateral Regulations) apply to the security
created by the standard document because, if they do, the security will not need to be
registered at Companies House. Note that the standard document is drafted on the
assumption that it will not be used to take security over receivables or financial instruments.
However, even if the Financial Collateral Regulations do apply to a particular arrangement, in
practice, many practitioners will still take a cautious view and register the security at
Companies House. Often, the time and cost of registration is usually far less than the potential
ramifications if the security is void or unenforceable for lack of registration. In addition,
registration of the security may be effected as a means of giving notice of the security to any
subsequent creditor.
For more information on the Financial Collateral Regulations, see Practice note, Financial
collateral arrangements: Modifications to statutory formalities made by the FCA Regulations
2003 (www.practicallaw.com/8-212-1954).
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For more information on registering security under the CA 2006, see Practice note,
Registration of charges created by companies and limited liability partnerships on or after 1
October 2009 (www.practicallaw.com/7-385-5619).
For more information on perfecting security, see Practice note, Perfection and priority of
security (www.practicallaw.com/6-107-5015).
Priorities
The priority of assignments is determined by the date on which notice of each assignment is
given to third parties (section 137(1), LPA 1925 and Dearle v Hall [1828] 3 Russ 1), unless a
subsequent mortgagee had actual or constructive notice of prior security at the time he lent
his money or obtained his security (Mutual Life Assurance Society v Langley (1886) 32 Ch D
460). Where there are multiple assignments, the priority of those assignments will be
regulated by the order in which notice of each relevant assignment is given.
A subsequent encumbrancer or purchaser without notice of the assignment may be able to

gain priority over a prior assignment (Rhodes v Allied Dunbar Pension Services Ltd [1988] 1
All ER 524).
Until notice of an assignment is given:
The contract counterparty may validly discharge its obligations to the Borrower, without
reference to the Lender. However the Borrower must hold all sums received on trust for
the Lender (GE Crane Sales Pty Ltd v Commissioner of Taxation (1971) 46 ALJR 15).
The contract counterparty may raise against the Lender any defence, set-off or
counterclaim that he could have raised against the Borrower, provided that the matter on
which that defence or counterclaim is based arose before notice of the assignment was
received (see Drafting note, Drafting assumptions and legal issues: Lender may be
subject to equities).
The contract counterparty and the Borrower can amend the terms of the assigned
contract without the Lender's consent (Brice v Bannister (1878) 3 QBD 569).
For more information on the need to notify third parties to protect the Lender's priority, see
Practice note, Perfection and priority of security: Notice (www.practicallaw.com/6-107-5015).
There are also priority issues that are specific to assignments of insurance policies, for more
on the assignment of the benefit of insurance policies, see Drafting note, Drafting
Challenges to security
The security may be open to challenge if it is given in certain circumstances. The most
common instances are where there is financial assistance (www.practicallaw.com/6-107-
5751) or the transaction is reviewable in the event of a company's insolvency.
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Financial assistance
Under sections 678 and 679 of the Companies Act 2006, unless certain exemptions apply, it
is unlawful for:
A public company to give financial assistance directly or indirectly for the purpose of the
acquisition of its own shares or those of a parent company.
A private company to give financial assistance directly or indirectly for the purpose of the
acquisition of shares in its public parent company.
Financial assistance includes the provision of guarantees, security or indemnities and any
form of assistance whereby the net assets of the assisting company are reduced to a material
extent or where the assisting company has no net assets.
If security constitutes unlawful financial assistance, it will be void and unenforceable.
For more information on financial assistance, see Practice note, Financial assistance: 1
October 2009 (www.practicallaw.com/8-382-5504).
Reviewable transactions
After new security has been granted, it is vulnerable to being set aside within certain time
limits (hardening periods (www.practicallaw.com/9-500-8666)) under the Insolvency Act
1986. Transactions that may be reviewed include:
Transactions at an undervalue (www.practicallaw.com/7-107-7405).
Preferences (www.practicallaw.com/9-107-7027).
For more information on reviewable transactions, see Practice note, Reviewable transactions
in corporate insolvency (www.practicallaw.com/5-107-3979).
Enforcement
The main remedies that a lender (as holder of a security assignment) has are:
The right to take action in the Borrower's name and sue (and pursue other legal remedies
against) the assigned contract counterparty without joining the Borrower in to that action
(assuming section 136 of the LPA 1925 has been complied with and a legal assignment
has been perfected, see Drafting note, Drafting assumptions and legal issues: Perfection).
The power to appoint a receiver (www.practicallaw.com/1-107-7111) and for that

receiver to take possession of and sell the specified property.
A power of sale without requiring permission of the court (www.practicallaw.com/4-

107-6997). (The statutory power of sale under section 101(1)(i) of the LPA 1925 applies
to mortgages by deed of choses in action.)
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A right to trace (www.practicallaw.com/8-107-7400) into proceeds received in exchange

for the Secured Property in circumstances where a Borrower disposes of receivables
without the Lender's authority.
Limitation periods
The standard document is in the form of a deed (www.practicallaw.com/1-107-6055). The
limitation period for an action brought on a deed is 12 years from the date on which the cause
of action accrues, except where the Limitation Act 1980 specifies a different period (section 8,
Limitation Act 1980). Section 20 of the Limitation Act 1980 provides two different limitation
periods (www.practicallaw.com/6-107-5727) for mortgages and charges:
12 years from the date the cause of action accrues for an action to recover any principal
sum secured by a mortgage or other charge over property (whether real or personal).
Six years for any action to recover arrears of interest (or damages for such arrears) on
any money secured by a mortgage or charge.
Section 20 applies if, at the time the cause of action accrued, the money was secured by a
mortgage or charge, even if, when the action is commenced, the money is no longer secured
by the mortgage or charge (for example, because the power of sale has been exercised and a
claim is being made by the Lender against the Borrower for any shortfall) (Bristol and West plc
v Bartlett [2002] EWCA Civ 1181). For more information, see Legal update, Limitation periods
for suing on mortgage debts (www.practicallaw.com/0-106-9852).
The cause of action arises when a default occurs. This is when the right to receive the money
accrues and the power of sale becomes exercisable (see Drafting note, Covenant to pay).
The exercise of the power of sale does not stop time under the limitation period from running
(West Bromwich Building Society v Wilkinson [2005] UKHL 44).
For more information, see Legal update, Time limits for recovery of money owed after
mortgaged property is sold (www.practicallaw.com/5-201-0052). For more information on
limitation periods and mortgage debts, see Practice note, Limitation periods: an overview:
Mortgage debts (www.practicallaw.com/3-107-4908).
Governing law and jurisdiction

One issue that may arise in relation to assignment of choses in action is ascertaining the
appropriate governing law that applies to determine the validity of the assignment.
For information on the situations in which an express choice of law can be modified under
Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome
I (www.practicallaw.com/3-501-0375)) (for contracts made on or after 17 December 2009)
under English law, see Practice note, Is your governing law clause
effective? (www.practicallaw.com/8-381-3544).
From 11 January 2009, Regulation (EC) 864/2007 on the law applicable to non-contractual
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obligations (Rome II (www.practicallaw.com/1-501-0376)) applies in all member states of

the EU (except Denmark). In brief, Rome II allows parties "pursuing a commercial activity" to
agree which law will govern any non-contractual dispute arising between them. For
information on Rome II, see Practice note, Rome II: implications for finance
transactions (www.practicallaw.com/5-375-8247).
The rules in Rome I (Article 14) relating to assignment and subrogation correspond largely
with the rules in Article 12 of the Rome Convention (www.practicallaw.com/6-501-0374)
except for some tidying up (Article 14 clarifies that pledges and charges count as
assignments). In summary, Rome I provides that:
Matters arising from the contractual relationship between assignor and assignee are
governed by the applicable law of the contract of assignment (Article 14(1)).
The rights and liabilities of the debtor, including the assignability of a claim and the
question of whether a claim has been discharged are governed by the governing law of
the assigned or underlying claim (Article 14(2)).
Difficulties arise because neither the Rome Convention nor Rome I deal explicitly with the
question of which law will govern the question of whether an assignment or subrogation can
be relied on against a third party or the question of the priority between assignees. Article 14
is incomplete on:
The priority of the assigned claim over the rights of another person.
The effectiveness of an assignment or subrogation of a claim against third parties.
The apparent deficiencies in Rome I had required the European Commission to produce a
report on the effectiveness of Article 14 by June 2010, together with proposals for
amendments of the rules if appropriate (Article 27(2), Rome I). As of late 2011, the timeframe
for publication of the Commission's report has been delayed. Governing law issues around
contracts that assign or subrogate are, therefore, in a state of flux and parties need to be
aware that the position could change.
For more information on the choice of law in financial instruments (including assignments by
way of security), see Is your governing law clause effective?: Choice of law in financial
instruments (www.practicallaw.com/8-381-3544).
For a guide to choosing a governing law in finance transactions generally, see Practice note,
Choosing a governing law in finance transactions (www.practicallaw.com/3-203-8721).
Execution
A mortgage or charge (whether legal or equitable) of a chose in action must be in writing and
signed by the mortgagor or chargor or its agent lawfully authorised in writing (sections 136
and 53(1)(c), LPA 1925).
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The standard document is in the form of a deed. This is for two main reasons:
To ensure the Lender (or its Receiver) has the benefit of the statutory powers conferred
by the LPA 1925.
So that the power of attorney (www.practicallaw.com/0-107-7022) granted by the

Borrower under Clause 16 is valid (section 1(1), Powers of Attorney Act 1971).
Hide Note
This deed is dated [DATE]
PARTIES
(1) [FULL BORROWER NAME] incorporated and registered in England and Wales with company
number [NUMBER] whose registered office is at [REGISTERED OFFICE ADDRESS]( Borrower).
(2) [FULL LENDER NAME] incorporated and registered in [COUNTRY OF INCORPORATION]

whose registered office is at [REGISTERED OFFICE ADDRESS]( Lender).
BACKGROUND
(A) The Lender has agreed, pursuant to the Facility Agreement, to provide the Borrower with [loan]
facilities on a secured basis.
(B) Under this deed, the Borrower provides security to the Lender for the [loan] facilities made
available under the Facility Agreement.
Hide Note
The background (often called the recitals) describes the purpose of the standard document
and the context in which it is to be used. If the statements contained in the recitals are not
true, modify them accordingly. Note, however, that the standard document has been prepared
on the basis of a number of drafting assumptions (see Drafting note, Drafting assumptions
and legal issues) and it may not be appropriate in all cases.
The term "Facility Agreement" should be defined in Clause 1.1.
Hide Note
AGREED TERMS
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
The following definitions apply in this deed:
Business Day: a day (other than a Saturday or Sunday) on which commercial banks are open for
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general business in London and deposits are dealt with in the London Interbank Market.
Counterparty: any party to a Relevant Agreement other than the Borrower.

Hide Note
Counterparty
The full details of each counterparty should be included in Schedule 1.
Hide Note
Delegate: any person appointed by the Lender or any Receiver pursuant to clause 12, and any
person appointed as attorney of the Lender, Receiver or Delegate.
Event of Default: has the meaning given to that expression in the Facility Agreement.
Hide Note
Event of Default
The standard document assumes that a full range of events of default, suitable for the
particular transaction, are set out in the Facility Agreement so they are not set out again in the
standard document.
An Event of Default triggers the Lender's ability to enforce the security (see Drafting notes,
When security becomes enforceable and Enforcement powers).
The Lender should ensure that the events of default in the Facility Agreement are drafted to
cover an incorrect or misleading representation or breach of covenant contained in the
standard document, and not just the Facility Agreement itself.
Hide Note
Facility Agreement: the facility agreement dated [DATE] between the Borrower and the Lender for
the provision of the [loan] facilities secured by this deed.
Hide Note
Facility Agreement
The standard document is drafted on the basis that the Secured Liabilities (see Drafting note,
Secured Liabilities) arise under a facility agreement. Make appropriate amendments if this is
not the case.
Hide Note
LPA 1925: the Law of Property Act 1925.
[Permitted Security Interest: has the meaning given to that expression in the Facility Agreement.]
Hide Note
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Permitted Security Interest (optional definition)

This definition is optional. It is used (if required) in Clause 5.4 and Clause 6.1(a). Delete the
definition if there are no existing encumbrances (www.practicallaw.com/2-500-5888) over
the Secured Property and the Lender is not prepared to agree in advance to any Security
Interest being created over the Secured Property.
This definition relies on there being a corresponding definition in the Facility Agreement. It
also requires a carve out in the representation that there is no other Security Interest over the
Secured Property and the negative pledge clause in the Facility Agreement. The Lender
should review any such clauses to ensure the permitted security is consistent.
See also Standard document, Facility agreement (www.practicallaw.com/3-202-3102) and its

accompanying drafting note (www.practicallaw.com/2-202-3254).
Hide Note
Receiver: a receiver, manager or receiver and manager of any or all of the Secured Property.
Relevant Agreement: each document described in Schedule 1 and each other agreement
designated as a Relevant Agreement by the Lender and the Borrower in writing.
Hide Note
Relevant Agreement
This definition is used for the purpose of specifying which documents and agreements are
subject to the security created in Clause 3.1(a). This definition should capture each document
or agreement, the Borrower's rights under which are to be secured. Include the brief
particulars of these agreements in Schedule 1. For more on the information typically included
in the definition (or the schedule), see Drafting note, Relevant Agreements.
The documents and agreements to be assigned should be identifiable at the time the standard
document is entered into. If a document is not identified (and recorded in Schedule 1) it will
only be subject to an equitable assignment. It may be possible to assign future documents
and agreements, with notice, under the further assurance clause (Clause 15) and the power
of attorney provisions (Clause 16).
For more information on which documents and agreements are typically assigned, see
Drafting note, Drafting assumptions and legal issues: Identifying the Relevant agreements.
Hide Note
Relevant Policy: each contract and policy of insurance described in Schedule 2 and each other
contract and policy of insurance effected or maintained from time to time by the Borrower, including
in respect of life, disability or critical illness put on risk after the date of this deed and in respect of
which the Borrower is the insured party, together with all moneys paid or payable in respect of that
policy.
Hide Note
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Relevant Policy
This definition is intended to cover all those policies of insurance that are assigned by way of
security to the Lender. Specific policies should be described in a separate schedule (see
Drafting note, Relevant Policies).
For more information on assigning insurance policies, see Drafting note, Drafting assumptions
and legal issues: Insurance policies.
Hide Note
Secured Liabilities: all present and future monies, obligations and liabilities owed by the Borrower
to the Lender, whether actual or contingent and whether owed jointly or severally, as principal or
surety or in any other capacity, under or in connection with the Facility Agreement or this deed
(including, without limitation, those arising under clause 19.3(b)), together with all interest
(including, without limitation, default interest) accruing in respect of such monies or liabilities.
Hide Note
Secured Liabilities
This term defines the liabilities secured by the standard document. The Lender should check it
carefully to make sure that all indebtedness intended to be secured falls within the definition.
This security is not all monies (www.practicallaw.com/6-500-5886). The liabilities secured

are limited to those under a named agreement (that is, the Facility Agreement) and the
standard document. If there are other relevant documents, amend the reference from "Facility
Agreement or this deed" (for example, to "Finance Documents" (see finance
document (www.practicallaw.com/9-501-2654))).
Hide Note
Secured Property: all the assets, property and undertaking for the time being subject to any
Security Interest created by this deed (and references to the Secured Property shall include
references to any part of it).
Hide Note
Secured Property
This definition is used to specify the full extent of the assets subject to the security created by
the standard document.
It includes the rights and agreements that are assigned by way of security (see Clause 3 and
Drafting note, Assignment).
Hide Note
Security Interest: any mortgage, charge (whether fixed or floating, legal or equitable), pledge, lien,
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assignment by way of security or other security interest securing any obligation of any person, or
any other agreement or arrangement having a similar effect.
Security Period: the period starting on the date of this deed and ending on the date on which the
Lender is satisfied that all the Secured Liabilities have been unconditionally and irrevocably paid
and discharged in full and no further Secured Liabilities are capable of being outstanding.
Hide Note
Security Period
This definition is used for the purposes of determining:
When the representations and warranties given in Clause 5 are made and repeated.
When the security is released under Clause 17.
It is fundamental that the Lender determines when the Secured Liabilities are fully discharged
and this definition is not typically negotiated.
Hide Note
1.2 Interpretation
In this deed:
(a) [terms defined in the Facility Agreement have the same meanings when used in this deed
unless otherwise defined in this deed;]
(b) reference to a statute, statutory provision or subordinate legislation is a reference to it as it

is in force for the time being, taking account of any amendment or re-enactment or extension
and includes any former statute, statutory provision or subordinate legislation which it amends
or re-enacts;
(c) unless the context otherwise requires, a reference to one gender shall include a reference
to the other genders;
(d) unless the context otherwise requires, words in the singular include the plural and in the
plural include the singular;
(e) a reference to a clause or Schedule is to a clause of, or Schedule to, this deed and
references to paragraphs are to paragraphs of the relevant Schedule, unless the context
otherwise requires;
(f) [a reference to continuing in relation to an Event of Default means an Event of Default

which has not been [remedied or] waived;]
(g) a reference to this deed (or any provision of it) or any other document shall be construed
as a reference to this deed, that provision or that document as it is in force for the time being
and as amended in accordance with its terms or with the agreement of the relevant parties;
(h) a reference to a person shall include a reference to an individual, firm, company,
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corporation, partnership, unincorporated body of persons, or any state or any agency of any
person;
(i) a reference to an amendment includes a novation, re-enactment, supplement or variation

(and amended shall be construed accordingly);
(j) a reference to assets includes present and future properties, undertakings, revenues, rights
and benefits of every description;
(k) a reference to an authorisation includes an approval, authorisation, consent, exemption,

filing, licence, notarisation, registration and resolution;
(l) a reference to a regulation includes any regulation, rule, official directive, request or
guideline (whether or not having the force of law) of any governmental, intergovernmental or
supranational body, agency, department or regulatory, self-regulatory or other authority or
organisation;
(m) a reference to determines or determined means, unless the contrary is indicated, a

determination made at the discretion of the person making it;
(n) a reference to the Borrower or the Lender shall include its successors, permitted
transferees and permitted assigns;
(o) clause, schedule and paragraph headings shall not affect the interpretation of this deed; and
(p) where any statement is qualified by the expression so far as [PARTY] is aware or to
[PARTY]'s knowledge or any similar expression, that statement shall be deemed to include
an additional statement that it has been made after due and careful enquiry.
Hide Note
Interpretation
These clauses direct how certain provisions and terms in the standard document are to be
interpreted.
This clause should reflect the corresponding interpretation provisions in the Facility
Agreement.
Clause 1.2(a) is optional. It is only required if defined terms that are used in the Facility
Agreement are also used in the standard document but are not separately defined (for
example, Finance Documents in Clause 6.5).
For a general discussion on the interpretation of terms within an agreement, see Drafting
note, Interpretation (www.practicallaw.com/3-107-3796).
Hide Note
1.3 Clawback
If the Lender considers that an amount paid by the Borrower in respect of the Secured Liabilities is
capable of being avoided or otherwise set aside on the liquidation or administration of the Borrower
or otherwise, then that amount shall not be considered to have been irrevocably paid for the
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purposes of this deed.
Hide Note
Clawback
This clause confirms that any payment or repayment of the Secured Liabilities will not be
considered irrevocably paid unless the Lender is satisfied that there is no potential for the
payment being avoided or set aside (for example, as a preference or a transaction at an
undervalue).
This protects the Lender from having to release the security (under Clause 17) where there is
a likelihood that any repayment of the Secured Liabilities could be clawed back by the
Borrower (or other party, such as a liquidator (www.practicallaw.com/3-107-6771)).
For information on clawback (www.practicallaw.com/3-107-5917), see Practice note,

Reviewable transactions in corporate insolvency (www.practicallaw.com/5-107-3979).
Hide Note
1.4 Third-party rights

A third party (being any person other than the Borrower, the Lender and its permitted successors
and assigns, any Receiver and any Delegate) has no right under the Contracts (Rights of Third
Parties) Act 1999 to enforce, or enjoy the benefit of, any term of this deed.
Hide Note
Third-party rights
The Contracts (Rights of Third Parties) Act 1999 enables the parties to a contract to confer
enforceable rights on parties who are not party to that contract and, in doing so, provides an
exception to the rule of privity of contract (www.practicallaw.com/8-107-7056). This clause
excludes the ability of third parties, including insurers under the Relevant Policies or any
Counterparty (except in limited circumstances) to enforce any rights relating to the standard
document under the Act.
For information on negotiating and drafting issues relevant to the exclusion of third-party
rights, see Drafting note, Third party rights: Negotiating and drafting
issues (www.practicallaw.com/2-107-3848).
Hide Note
1.5 Perpetuity period

If the rule against perpetuities applies to any trust created by this deed, the perpetuity period shall
be 125 years (as specified by section 5(1) of the Perpetuities and Accumulations Act 2009).
Hide Note
Perpetuity period
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The rule against perpetuities (www.practicallaw.com/3-383-5143) applies to future

interests. Trusts usually create future interests and those future interests must be certain to
vest within the perpetuity period (www.practicallaw.com/0-383-4017), otherwise, they may
be void. Before 6 April 2010, under the Perpetuities and Accumulations Act 1964, a period of
up to 80 years could be selected as the perpetuity period. If this fixed period was not specified
in the document creating the trust interest, common law rules determined the duration of the
perpetuity period. (For more on the rule against perpetuities, see Practice note, Perpetuities
and trusts: overview (www.practicallaw.com/5-383-8796).)
Under the Perpetuities and Accumulations Act 2009 (PAA 2009), which came into force on 6
April 2010, the rule against perpetuities only applies to the types of interest specified in
section 1(1) of the PAA 2009 in instruments that take effect on or after 6 April 2010 (subject to
certain exceptions). These are generally trust interests, and a fixed 125-year perpetuity period
will apply to these types of interest, even if the document creating such an interest specifies a
different period or does not specify a period at all (see PLC Private Client, Practice note,
Perpetuities and Accumulations Act 2009: how the law has changed (www.practicallaw.com/6-
386-6091)).
The rule against perpetuities may not apply to any trusts created by the standard document
(either before or after the PAA 2009 came into effect), because if it creates trusts at all, they
are likely to be bare trusts (www.practicallaw.com/0-107-6471). However, practitioners
drafting documents of this type have tended to err on the side of caution and specify a
perpetuity period in case they create any trusts to which the rule against perpetuities applies.
For a trust to which the PAA 2009 applies, while there is no need to include a perpetuity
period in the document creating that trust, it is helpful to specify the 125-year period in the
document itself, to make clear what perpetuity period applies (if at all) and save future users
having to check when the PAA 2009 came into force.
For more on the use of trusts in commercial transactions, see Practice note, Trusts in
commercial transactions (www.practicallaw.com/4-107-4432).
For an example of a trust created by the standard document, see Clause 6.17(b).
Hide Note
1.6 Schedules
The schedules form part of this deed and shall have effect as if set out in full in the body of this
deed. Any reference to this deed includes the schedules.
2. COVENANT TO PAY
Hide Note
Covenant to pay
A document creating security should include a covenant to pay as this assists in determining
when the Lender may exercise its rights to enforce the security.
Typically, payment of the Secured Liabilities is expressed to be "on demand" by the Lender.
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The Lender should not accept the deletion of the words "on demand" in the covenant to pay.
The failure to pay after demand has been made gives the Lender the right to commence
enforcement proceedings under the standard document. Demand also starts time running for
the purposes of any limitation periods (see Bradford Old Bank v Sutcliffe [1917] 2 KB 833 CA).
There is little authority on the meaning of on demand, but demand should be served during
normal banking hours to allow the Borrower sufficient time to transfer money. It does not allow
the Borrower the time to negotiate a facility to raise the required money (see Cripps
(Pharmaceuticals) Ltd v Wickenden [1973] 2 All ER 606). Where the Borrower is clearly
unable to pay, the time allowed for payment may be short (for instance, as limited as an hour
or two).
The Borrower may insist that the covenant to pay limits payment of the Secured Liabilities
expressed to be on demand to "when they become due". This is to avoid a committed facility
becoming an on demand facility. However, it is arguable that the words "when they become
due" are not strictly necessary because demand is only validly made when the loan is due
under the terms of the facility agreement (see Cryne v Barclays Bank plc [1987] BCLC 548
CA). For this reason, this wording is included as an option in Clause 2.
The Lender may wish to include an interest clause in the standard document under which the
Borrower agrees to pay interest on any overdue Secured Liabilities at a prescribed rate of
interest before as well as after judgment. Using the words "before as well as after judgment" in
such a clause is important as it ensures that the Lender will continue to be entitled to interest
at the contractual rate after any judgment has been awarded by a court in its favour. If these
words are not included, any interest will be awarded at the court's discretion at the statutory
rate of judgment interest.
An interest clause is not strictly necessary where the standard document secures the
obligations owing under another agreement (such as a facility agreement) if that other
agreement already includes an appropriate default interest clause that covers the defaults in
payment under the standard document (for example, by including the standard document as
one of the defined Finance Documents covered by the default interest clause). For an
example of a default interest clause in a facility agreement, see Standard document, Facility
agreement: clause 7 (www.practicallaw.com/3-202-3102) and its accompanying drafting
note (www.practicallaw.com/2-202-3254).
Hide Note
The Borrower shall, on demand, pay to the Lender and discharge the Secured Liabilities [when
they become due].
3. GRANT OF SECURITY
3.1 Assignment
As a continuing security for the payment and discharge of the Secured Liabilities, the Borrower with
full title guarantee assigns to the Lender absolutely, subject to a proviso for reassignment on
irrevocable discharge in full of the Secured Liabilities:
(a) the benefit of each Relevant Agreement;
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(b) all its rights in each Relevant Policy, including the proceeds of any claims under any
Relevant Policy;
(c) the benefit of all other contracts, guarantees, appointments, warranties and other
documents to which the Borrower is a party, which are in its favour or of which it has the
benefit (including, in each case, but without limitation, the right to demand and receive all
monies whatsoever payable to or for its benefit under or arising from any of them, all remedies
provided for in any of them or available at law or in equity in relation to any of them, the right to
compel performance of any of them and all other rights, interests and benefits whatsoever
accruing to or for its benefit arising from any of them), to the extent not effectively assigned
under clause 3.1(a) or clause 3.1(b); and
(d) all authorisations (statutory or otherwise) held or required in connection with the use of any
Secured Property, and all rights in connection with them,
provided that nothing in this clause 3.1 shall constitute the Lender as a mortgagee in possession.
Hide Note
Assignment
This clause creates the security over the Borrower's Secured Property.
The clause provides for an absolute assignment by way of security to be taken over certain
benefits, rights and agreements. In addition to an assignment, some security documents, such
as all-assets debentures, purport to take fixed or floating charges over any rights that are not
effectively assigned (see, for example Standard document, Debenture: clause 3.1
(d) (www.practicallaw.com/3-202-3055) and 3.1(e) (www.practicallaw.com/3-202-3055))
because in some cases it may be more appropriate (or as a fall-back position) to take security
by way of charge. However, the standard document does not purport to create fixed or floating
charges.
The standard document will only create a legal mortgage over those benefits, rights or
agreements to the extent the requirements for perfecting the security are met following
execution and delivery of the standard document, by transferring title to the relevant choses in
action (see Drafting note, Drafting assumptions and legal issues: Perfection). However, the
law does not generally recognise the transferability of title to intangible assets (such as rights
under contracts or insurance policies) except in certain limited circumstances (see Drafting
note, Drafting assumptions and legal issues: Assignment). In most instances the mortgage will
be equitable in nature only. For more information on the types of security that may be taken
over choses in action, see Drafting note, Drafting assumptions and legal issues: Security
created by the standard document.
Any specific or material agreements that the Lender wishes to take security over should be
specified in Schedule 1 and defined as a Relevant Agreement or specified in Schedule 2 and
defined as a Relevant Policy, depending on the type of agreement it is.
For more on the types of agreements that might fall within these definitions, see Drafting
notes, Relevant Agreement and Relevant Policy.
The assignment is subject to a proviso for reassignment. This is an essential characteristic of
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a legal assignment by way of security and does not invalidate an absolute assignment under
section 136 of the LPA 1925 (see Clause 17(b) and Drafting notes, Release and Drafting
assumptions and legal issues: Assignment).
The use of the words "with full title guarantee (www.practicallaw.com/8-107-6622)" is

important as the covenants under sections 2 and 3 of the Law of Property (Miscellaneous
Provisions) Act 1994 are deemed to be made under the standard document if those words are
included. The Lender should not agree to amend this to limited title guarantee. Any
qualifications about the Borrower's title to the assigned agreements should be made by
amending the representations and warranties in the standard document (see Clause 5).
For more information on sections 2 and 3 of the Law of Property (Miscellaneous Provisions)
Act 1994, see Drafting note, Legal mortgage over property from a company securing specific
monies (own liabilities): Grant of security: clause 3 (www.practicallaw.com/7-382-5359).
Hide Note
3.2 Borrower entitled to exercise rights

Until [the security constituted by this deed has become enforceable OR the Lender serves a notice
on the Borrower to the contrary], the Borrower shall be entitled to exercise all its rights in the
Secured Property, subject to the other provisions of this deed.
Hide Note
Borrower entitled to exercise rights

This clause contains optional wording. The first option does not require any action from the
Lender as its effect is automatic. The second option requires the Lender to serve notice on the
Borrower if it wishes to restrict the Borrower's rights under the Secured Property in an
enforcement (or pre-enforcement, although this would be unlikely) scenario.
Hide Note
4. LIABILITY OF THE BORROWER
Hide Note
Liability of the Borrower

Clause 4 is intended to negate the effect of certain events that may otherwise discharge the
rights of the Lender under the standard document.
Hide Note
4.1 Liability not discharged

The Borrower's liability under this deed in respect of any of the Secured Liabilities shall not be
discharged, prejudiced or affected by:
(a) any security, guarantee, indemnity, remedy or other right held by, or available to, the
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Lender that is or becomes wholly or partially illegal, void or unenforceable on any ground;
(b) the Lender renewing, determining, varying or increasing any facility or other transaction in
any manner or concurring in, accepting or varying any compromise, arrangement or
settlement, or omitting to claim or enforce payment from any other person; or
(c) any other act or omission, which but for this clause 4.1 might have discharged, or otherwise
prejudiced or affected, the liability of the Borrower.
4.2 Immediate recourse

The Borrower waives any right it may have to require the Lender to enforce any security or other
right, or claim any payment from, or otherwise proceed against, any other person before enforcing
this deed against the Borrower.
5. REPRESENTATIONS AND WARRANTIES
Hide Note
Representations and warranties

Clause 5 sets out the representations (www.practicallaw.com/4-501-4472) and
warranties (www.practicallaw.com/6-107-7496) given by the Borrower.
There is a technical distinction between a representation and warranty. A representation is a

statement made before the execution of a document that induces the other party to enter into
that document. In contrast, a warranty is a term of the contract. The significance of the
distinction lies in the remedies available for misrepresentation (www.practicallaw.com/9-
107-6848) and for breach of contract (for further details, see Practice notes,
Misrepresentation: Remedies for misrepresentation (www.practicallaw.com/4-107-4724) and
Contracts: conditions, warranties and intermediate terms (www.practicallaw.com/3-503-
2711)). However, these differences are often blurred in most finance documents (as is the
case in the standard document) as:
Representations are upgraded into warranties, for example, by using the

expression "represents and warrants", so that every representation is classed as a
warranty and vice versa.
Express remedies are conferred by the document (for example, the lender has the right to
accelerate the facilities), which are the same whether the statement is a representation or
a warranty.
Representations and warranties (collectively, representations) in a security document set out

a suggested set of factual circumstances about the assets (and sometimes the relevant
obligor (www.practicallaw.com/7-500-5895) if these are not covered in a related facility
agreement) on which the Lender has based its decision to make available the facilities to the
Borrower, secured by those assets.
By requiring the Borrower to make representations, the Lender is able to flush out full
disclosure of factors that might affect its decision to lend or take security. To achieve the best
possible disclosure, a Lender will want to draft the representations in general terms.
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From the Borrower's perspective, the representations should be considered carefully because
if any representation is incorrect or misleading when made or deemed to be repeated, this
may:
Entitle the Lender to enforce the security.
Give rise to a drawstop (www.practicallaw.com/6-202-1229) under the Facility

Agreement.
The Borrower should qualify a representation if it is incorrect, usually in the representation

itself or, sometimes, in a separate letter if the qualification is complex.
Generally, the Lender should not permit the Borrower to qualify a representation about a legal
matter (such as the avoidance of security representation in Clause 5.8) by reference to the
qualifications in any relevant legal opinion. This is because the legal opinion will be highly
qualified as to matters of fact that the Borrower (but not the lawyers providing the opinion)
should be able to confirm. Also, the Lender will argue that the Borrower should take the risk
that the representation is incorrect.
Common negotiating points on representations about factual matters include:
Qualifying by materiality.
Qualifying a matter by the Borrower's awareness after due enquiry.
The representations in Clause 5 relate only to the assets mortgaged or assigned by the
standard document, as it is assumed that more general representations (such as legal status
of the Borrower) are contained in the Facility Agreement.
The parties should make sure there is no inconsistency between the representations in the
standard document and those in the Facility Agreement.
For a more detailed discussion of the representations and warranties typically found in finance
documents, see Drafting note, Facility agreement: Representations and warranties: Schedule
6 (www.practicallaw.com/2-202-3254).
Hide Note
5.1 Representations and warranties

The Borrower makes the representations and warranties set out in this clause 5 to the Lender.
5.2 Ownership of Secured Property

The Borrower is the legal and beneficial owner of, and has good, valid and marketable title to the
Secured Property.
Hide Note
Ownership of Secured Property
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The Borrower will need to think about whether it can make this warranty. In practice, it is likely
that the Borrower will not have good, valid and marketable title to all of the property included
in the definition of Secured Property. This is because it may be difficult to ascertain what
good, valid and marketable title or ownership means in the context of choses in action.
From the Borrower's perspective, the following situations should only be of concern to the
Lender where this will be material to the Borrower's ability to repay the Lender:
The Borrower does not have (or is unable to confirm that it has) good, valid and
marketable title to certain assets.
Security exists for certain assets that may also be secured by the standard document.
As such, the borrower is likely to request that this warranty is qualified to some extent.
From the Lender's perspective it should resist any qualification. Any assets that the Borrower
cannot warrant in these terms should be expressly excluded from the Secured Property (see
Drafting note, Permitted Security Interest (optional definition)).
Hide Note
5.3 Secured Property

(a) The counterparts and instruments comprising the Relevant Agreements, Relevant Policies
or other document, agreement or arrangement comprising the Secured Property as provided to
the Lender before the date of this deed, evidence all terms of the relevant Secured Property,
and there are no other documents, agreements or arrangements that may affect the operation
or enforceability of any Secured Property.
(b) No Relevant Agreement, Relevant Policy or other document, agreement or arrangement

comprising the Secured Property is void, voidable or otherwise unenforceable.
(c) No variation of any Relevant Agreement, Relevant Policy or other document, agreement or
arrangement comprising the Secured Property is contemplated.
(d) The Borrower is not in breach of its obligations under any Relevant Agreement, Relevant
Policy or other document, agreement or arrangement comprising the Secured Property and
nothing has occurred:
(i) which is, or would constitute (with the giving of notice or passage of time or both), an
event of default (however described) under any Relevant Agreement, Relevant Policy or
other document, agreement or arrangement comprising the Secured Property; or
(ii) which would entitle a person to terminate or rescind a Relevant Agreement, Relevant
Policy or other document, agreement or arrangement comprising the Secured Property.
Hide Note
Secured Property
This representation is specific to the Secured Property. The Borrower should think carefully
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about whether it can make this representation without qualification, particularly in the context
of contracts or agreements that may have a large number of counterparties or where there
may have been minor or technical breaches of those agreements (of which it may not be
aware). In addition, the parties to those agreements may contemplate future variations to their
arrangements as a matter of normal commercial practice. The Lender should consider any
requests for amendments to this representation having regard to the materiality of any
breaches or variations and their possible effect on the value of the Secured Property.
Note that the Borrower will typically be restricted from allowing any further variations or
breaches under the covenants in the standard document (see Clause 6.3 and Drafting note,
Relevant Agreements in relation to the Relevant Agreements, and Clause 6.14(b) and
Drafting note, Insurance in relation to the Relevant Policies).
Hide Note
5.4 No Security Interest

The Secured Property is free from any Security Interest other than [Permitted Security Interests
and] the Security Interests created by this deed.
Hide Note
No Security Interest
This representation includes an optional carve out for Permitted Security Interests. Typically,
this is not included in a first draft prepared by a lender as this is a negotiating point for a
borrower. For more information, see Drafting note, Permitted Security Interest (optional
definition).
Hide Note
5.5 No adverse claims

The Borrower has not received, or acknowledged notice of, any adverse claim by any person in
respect of the Secured Property or any interest in it.
5.6 No adverse covenants

There are no covenants, agreements, reservations, conditions, interests, rights or other matters
whatever, which materially and adversely affect the Secured Property.
5.7 No breach of laws

There is no breach of any law or regulation, which materially and adversely affects the Secured
Property.
5.8 Avoidance of security

No Security Interest expressed to be created under this deed is liable to be avoided, or otherwise
set aside, on the liquidation or administration of the Borrower or otherwise.
5.9 No prohibitions
There is no prohibition on assignment in any Relevant Policy or Relevant Agreement, and the entry
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into this deed by the Borrower does not and will not constitute a breach of any Relevant Policy or
Relevant Agreement or any other agreement, instrument or obligation binding on the Borrower or
its assets.
5.10 Enforceable security

This deed constitutes and will constitute the legal, valid, binding and enforceable obligations of the
Borrower and is, and will continue to be, effective security over all and every part of the Secured
Property in accordance with its terms.
5.11 Times for making representations and warranties

The representations and warranties set out in clause 5.2 to clause 5.10 are made by the Borrower
on the date of this deed [and the representations and warranties contained in [CLAUSE
NUMBERS] are deemed to be repeated on each day of the Security Period with reference to the
facts and circumstances existing at the time of repetition].
Hide Note
Times for making representations and warranties

Clause 5.11 allows the parties to nominate which representations and warranties under
Clause 5 are made and repeated during the Security Period.
Unless a nomination is made to repeat any representation and warranty, the standard
document provides that the representations and warranties will only be made on the date of
the standard document.
By requiring the Borrower to repeat a representation, the Lender is able to refresh its due
diligence. This enables it to take early action if there is an adverse change from the initial
position on which it made its lending (and security) decisions. In this sense, the repeating
representations complement the Borrower's undertakings.
Given the consequences of an incorrect or misleading representation (see Drafting note,

Representations and warranties), the Borrower must be comfortable that it will be able to
make the repeating representations at each future date. In some cases, this will not be a
concern but in others (particularly where a representation is about factual circumstances that
are outside the Borrower's control (for example, material adverse
change (www.practicallaw.com/0-107-6824))), this is likely to be more difficult.
Practically, a Borrower will not actually make a formal representation to the Lender on each
repeating date. Instead, if the Borrower is aware of anything that may be contrary to a
representation that is being repeated, it must disclose it to the Lender on or before the date on
which the representation is deemed to be made. Such a disclosure will not stop an Event of
Default occurring because of a misrepresentation.
Borrowers normally seek to amend this clause so that the representations are repeated only
on those dates on which representations given in the Facility Agreement are repeated. This is
usually acceptable to a lender.
Hide Note
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6. COVENANTS
Hide Note
Covenants
This clause contains the covenants to be given by the Borrower. A covenant (or undertaking)
is a promise to do or refrain from doing something.
The covenants in Clause 6 relate to the Secured Property over which the security is created. It
is assumed that the more general covenants (for example, ranking of obligations and
obtaining necessary authorisations to ensure the security is valid and enforceable) are
contained in the Facility Agreement.
There should be no inconsistency between the covenants in the standard document and
those in the Facility Agreement (or any other finance document).
Broadly, the covenants require that the Secured Property remains unaltered from the form it is
in when the Lender agrees to make the facilities available. They also require that the Borrower
does not take or allow actions that may jeopardise the security created by the standard
document or the value of the Secured Property. This way, the Lender can realise the
expected value from the Secured Property if it has to enforce its security. There is inevitably a
conflict between the Lender's interest in protecting the repayment of the facilities and the
Borrower's desire to deal with the Secured Property and conduct its business as it sees fit. A
balance must be achieved between protecting the Lender and imposing a regime on the
Borrower that is administratively unworkable because the Borrower is unable to carry on its
business without continually requiring consents, waivers and amendments from the Lender.
The Borrower must consider the covenants carefully because a breach may give rise to an
Event of Default (a lender will normally specify in the facility agreement that a breach of
covenant contained in any security document, as well as the facility agreement, is an event of
default), which will in turn entitle the Lender to enforce its security. A breach is also typically a
drawstop.
Note that while certain covenants may not be immediately applicable, because the standard
document creates security over present and certain future property, the covenant may
nevertheless become relevant at a later date.
Where a Borrower's business means it has the benefit of a specialist contract or agreement,
the Lender should consider including more detailed and extensive covenants appropriate to
that particular contract or agreement.
Hide Note
6.1 Negative pledge and disposal restrictions

The Borrower shall not at any time, except with the prior written consent of the Lender:
(a) create, purport to create or permit to subsist any Security Interest on, or in relation to, any
Secured Property other than any Security Interest created by this deed [or any Permitted
Security Interest];
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(b) sell, assign, transfer, part with possession of or otherwise dispose of in any manner (or
purport to do so) all or any part of, or any interest in, the Secured Property; or
(c) create or grant (or purport to create or grant) any interest in any Secured Property in favour
of a third party.
Hide Note
Negative pledge and disposal restrictions

This clause prevents the Borrower, without the Lender's prior written consent:
Creating any other security over the Secured Property (or allowing any to subsist (this
covers security in existence at the time the standard document is entered into)).
Disposing of the Secured Property.
Creating an interest in the Secured Property in favour of a third party.
The Borrower's entitlement under the standard document to continue to use the Secured
Property for its business (subject to the covenants in Clause 6), does not extend to an
entitlement to sell it subject to the security.
Where the Facility Agreement contains an appropriate restriction on the Borrower (such as a
negative pledge and restriction on disposal), this covenant may be omitted, although it may be
useful to include this restriction in the standard document as it acts as a reminder to include
details of the negative pledge in any Form MG01 used to register the security at Companies
House. This is important because including the negative pledge in Form MG01 may give
actual notice of that restriction to anyone who carries out a company search on the Borrower.
For more information on the need to register an assignment by way of security, see Drafting
note, Drafting assumptions and legal issues: Perfection: Registration. For more information on
preparing a Form MG01, see Drafting note, Form MG01 (www.practicallaw.com/3-386-4574).
If no other Security Interest is permitted, then delete the optional reference to Permitted
Security Interest in Clause 6.1(a). If other Security Interest is permitted, then consider
intercreditor (that is, priority (www.practicallaw.com/3-202-2763)) issues (see Practice note,
Intercreditor deeds: overview (www.practicallaw.com/5-107-4035)).
For more information on negative pledges, see Practice note, Perfection and priority of
security: Negative pledges (www.practicallaw.com/6-107-5015).
Hide Note
6.2 Preservation of Secured Property

The Borrower shall not do, or permit to be done, any act or thing that would or might depreciate,
jeopardise or otherwise prejudice the security held by the Lender or diminish the value of any of the
Secured Property or the effectiveness of the security created by this deed.
Hide Note
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Preservation of Secured Property

A Lender typically makes facilities available on the basis that (among other things):
The Secured Property is worth a certain amount.
The Lender will have valid security over that Secured Property.
Clause 6.2 requires the Borrower not to do anything (or permit anything to be done) that either
materially reduces the value of the Secured Property or prejudices the validity of the security.
The Facility Agreement may include a similar covenant in more general terms; however, the
Lender should resist any attempt to delete the clause in the standard document because this
clause specifically covers the Secured Property.
Hide Note
6.3 Relevant Agreements

The Borrower shall, unless the Lender agrees otherwise in writing:
(a) comply with the terms of;
(b) not amend or vary or agree to any change in, or waive any requirement of;
(c) not settle, compromise, terminate, rescind or discharge (except by performance); and
(d) not abandon, waive, dismiss, release or discharge any action, claim or proceedings against
any Counterparty or other person in connection with,
any Relevant Agreement and any other document, agreement or arrangement comprising the
Secured Property (other than the Relevant Policies).
Hide Note
Relevant Agreements
The Lender will want to ensure that each Relevant Agreement and any other agreement, the
benefit of which is assigned by way of security, is not amended in any way that could be
detrimental to the Lender's interests or security. Likewise, the Lender will not want the
Borrower to terminate any of the assigned choses in action (or fail to pursue any claims
relating to them) as this will diminish the value of the Lender's security. (The Relevant Policies
are separately protected by the provisions of Clause 6.14 to Clause 6.16.)
Because this clause may be administratively burdensome for the Borrower, it might seek to
introduce a materiality threshold (for example, that the Borrower may make non-material
amendments to the agreements without obtaining the Lender's consent, provided it notifies
the Lender afterwards of these amendments). Any carve outs (if agreed by the Lender) must
be mirrored in any notice and acknowledgement given under Clause 6.10.
Note also that service of a notice of assignment prevents the relevant Counterparty (or
insurer) and the Borrower from varying the underlying contract so as to diminish the rights of
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the Lender (Walter and Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584).
Hide Note
6.4 Rights
The Borrower shall:
(a) not waive any of the Lender's rights or release any person from its obligations in connection
with the Secured Property; and
(b) take all necessary or appropriate action against any person (including as reasonably
required by the Lender) to protect and enforce its rights, and recover money or receive other
property in connection with, the Secured Property.
6.5 Payment of money

The Borrower shall, [if the Lender directs OR if an Event of Default subsists], ensure that all money
payable to, or other property receivable by, the Borrower under or in relation to any Secured
Property is paid or delivered to the Lender (or that the Borrower pays over or delivers such
amounts to the Lender) to be applied [in accordance with the Finance Documents OR [INSERT
DETAILS]].
Hide Note
Payment of money
The Lender should consider to what extent monies received under the Secured Property are
to be paid to it. The Lender will need to consider:
Whether such monies are payable before an Event of Default or only while one subsists.
The mechanism by which such monies are received and applied in payment of the
Secured Liabilities.
Note the standard document does not include provisions for setting up a control account (see
Drafting note, Drafting assumptions and legal issues: Control accounts). The standard
document assumes the application of monies received by the Lender is dealt with in the
Finance Documents (as defined in the Facility Agreement (in which case the optional Clause
1.2(a) should be included)). If this is not the case, the Lender will need to include details of
how such monies are to be applied.
This clause should not conflict with the provisions of the standard document relating to the
application of insurance proceeds or the treatment of monies received by the Lender or its
Receiver (see, for example, Clause 6.17 and Clause 13).
Hide Note
6.6 Borrower's waiver of set-off

The Borrower waives any present or future right of set-off it may have in respect of the Secured
-
Liabilities (including sums payable by the Borrower under this deed).
Hide Note
Borrower's waiver of set- off

Under this clause, the Borrower waives its right of set-off relating to the Secured Liabilities.
Where the legislation against unfair contract terms (for example, the Unfair Contract Terms
Act 1977 (www.practicallaw.com/5-107-7449) (UCTA)) applies, a one-sided clause such as
this one, excluding set-off for one party while allowing it for another, may be unenforceable if it
fails to meet the UCTA reasonableness test. There have been a number of cases on whether
such a restriction is reasonable, with findings both ways:
In Axa Sun Life Services plc v Campbell Martin Ltd and others [2011] EWCA Civ 133, a
one-sided set-off clause was found to fail the requirement of reasonableness because it
was not mutual and there was no explanation by Axa to justify the clause (see Legal
update, Court of Appeal puts entire agreement clauses under the
microscope (www.practicallaw.com/4-504-9264)).
However, in Röhlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18, the Court of Appeal
held that industry-standard terms excluding set-off were reasonable under UCTA (see
Legal update, Court of Appeal confirms industry-standard exclusions reasonable under
UCTA (www.practicallaw.com/5-504-5802)) and in Barclays Bank plc v Alfons Kufner
[2008] EWHC 2319 (Comm), a one-sided set-off clause in a loan agreement was found to
be reasonable (see Legal update, Contract: Experienced businessman could not rely on
unfair terms legislation to avoid honouring a bank guarantee (www.practicallaw.com/0-
383-7935)).
Whether a clause meets the UCTA reasonableness requirements will depend on the facts in
each case. Where UCTA applies, it is worth considering the guidelines (for application of the
reasonableness test) set out in Schedule 2 to UCTA.
For information on Re Kaupthing Singer & Friedlander Ltd [2009] EWHC 740 (Ch), a case that
confirmed that legal set-off can be excluded by contract, see Legal update, Seeing off legal
set-off (www.practicallaw.com/3-386-2301).
For more information on set-off generally, see Practice note, Set-off and
netting (www.practicallaw.com/5-264-7953) and Drafting note, Set-
off (www.practicallaw.com/1-107-3801).
Unless, and to the extent, the Financial Collateral Regulations apply to the standard document
(see Drafting note, Drafting assumptions and legal issues: Perfection: Registration), this
clause will not override the mandatory insolvency set-off rules under the Insolvency Rules
1986 (which apply if a party is subject to liquidation (www.practicallaw.com/5-107-6770) or
administration (www.practicallaw.com/9-107-6363) proceedings). For more information on
insolvency set-off, see Practice note, Set-off and netting: Insolvency set-
off (www.practicallaw.com/5-264-7953) and for more information on the Financial Collateral
Regulations and set-off, see Practice note, Financial collateral arrangements: Close-out
-
netting provisions preserved (www.practicallaw.com/8-212-1954).
Hide Note
6.7 Compliance with laws and regulations

The Borrower:
(a) shall not, without the Lender's prior written consent, use or permit the Secured Property to
be used in any way contrary to law; and
(b) shall:
(i) comply with the requirements of any law and regulation relating to or affecting the
Secured Property or the use of it or any part of it; and
(ii) obtain, and promptly renew from time to time, and comply with the terms of all
authorisations that are required in connection with the Secured Property or its use or that
are necessary to preserve, maintain or renew any Secured Property.
Hide Note
Compliance with laws and regulations

This clause seeks to ensure that no liabilities attach to the Secured Property, the Borrower or
the Lender because of a breach of law. Like the majority of the covenants, it aims to preserve
the value of the Secured Property and ensure there are no issues if the security has to be
enforced and Secured Property sold or managed by a receiver (or a receiver or manager).
The Borrower might seek to negotiate a degree of materiality so that minor breaches of laws
or regulations (or those that are remedied within an agreed grace period) do not automatically
amount to a breach.
Hide Note
6.8 Enforcement of rights

The Borrower shall use its best endeavours to:
(a) procure the prompt observance and performance of the covenants and other obligations
imposed on the Borrower's counterparties (including each Counterparty in respect of a
Relevant Agreement and each insurer in respect of a Relevant Policy); and
(b) enforce any rights and institute, continue or defend any proceedings relating to any of the
Secured Property that the Lender may require from time to time.
Hide Note
Enforcement of rights
This clause requires the Borrower to use its best endeavours to:
Make sure that counterparties to the Relevant Agreements and Relevant Policies perform
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their obligations under those agreements or arrangements.
Enforce its rights under those agreements or arrangements.
Defend any proceedings relating to the Secured Property.
The Borrower might seek to negotiate a reasonable endeavours obligation rather than a best
endeavours obligation. The Borrower might also seek to limit the effect of the covenant so that
it only applies to the material obligations of the relevant Counterparty.
For more on the difference between best and reasonable endeavours, see Practice note, Best
or reasonable endeavours? (www.practicallaw.com/6-380-0482).
Hide Note
6.9 Notice of misrepresentations and breaches

The Borrower shall, promptly on becoming aware of any of the same, notify the Lender in writing of:
(a) any representation or warranty set out in clause 5 which is incorrect or misleading in any
material respect when made or deemed to be repeated; and
(b) any breach of any covenant set out in this deed.
Hide Note
Notice of misrepresentations and breaches

The Borrower must give notice to the Lender if either:
Any representation or warranty is incorrect or misleading in any material respect.
Any covenant is breached.
If the Borrower does not give notice, the Lender may be unaware that circumstances giving
rise to a misrepresentation or breach have occurred.
If the Lender is unaware of a misrepresentation or breach, it will not be able to decide whether
an event of default has arisen (taking into account any grace periods) and, if so, what action
to take.
While the effectiveness of this provision depends on the co-operation of the Borrower, the
Borrower should be aware that any failure to notify the Lender of any incorrect or misleading
representation or breach of covenant could give rise to an Event of Default because its failure
to notify is itself a breach of covenant.
Hide Note
6.10 Notices to be given by Borrower
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The Borrower shall:
(a) immediately on the execution of this deed:
(i) give notice to each Counterparty to a Relevant Agreement, in the form set out in Part 1
of Schedule 3, of the assignment of the Borrower's rights and interest in and under that
Relevant Agreement pursuant to clause 3.1(a); and
(ii) procure that each Counterparty will promptly provide to the Lender [within five Business
Days] an acknowledgement of the notice, in the form set out in Part 2 of Schedule 3, of the
Lender's interest;
(b) immediately on the execution of this deed:
(i) give notice to the relevant insurers, in the form set out in Part 1 of Schedule 4, of the
assignment of the Borrower's rights and interest in, and under, each Relevant Policy
(including the proceeds of any claims under that Relevant Policy) pursuant to clause 3.1
(b); and
(ii) procure that each insurer will promptly provide to the Lender [within five Business
Days] an acknowledgement of the notice, in the form set out in Part 2 of Schedule 4, of the
Lender's interest;
(c) immediately on the execution of this deed:
(i) give notice to the other parties to each other contract, guarantee, appointment, warranty
or authorisation relating to the Secured Property and any other document to which the
Borrower is a party, substantially in the form set out in Part 1 of Schedule 3 (and except
only to the extent the Lender agrees otherwise in writing), of the assignment of the
Borrower's rights and interest in and under it pursuant to clause 3.1(c) or clause 3.1(d);
and
(ii) procure that each addressee of such notice will promptly provide to the Lender [within
five Business Days] an acknowledgement of the notice, substantially in the form set out in
Part 2 of Schedule 3 (and except only to the extent the Lender agrees otherwise in
writing), of the Lender's interest; and
(d) in the case of each Relevant Agreement, Relevant Policy or other document, agreement or
arrangement designated as Secured Property after the date of this deed, the Borrower shall,
give the relevant notices and procure each relevant acknowledgement referred to in clause
6.10(a) to clause 6.10(c) on the later of that Relevant Agreement, document, agreement or
arrangement coming into existence or, in the case of a Relevant Policy, being put on risk, or
being designated Secured Property.
Hide Note
Notices to be given by Borrower

Clause 6.10 requires the Borrower to give notice of the existence of the security interests
created by the standard document to:
Counterparties to any Relevant Agreement.
-
Insurers under the Relevant Policies.
Any other counterparty to a contract, document, agreement or arrangement otherwise

assigned under Clause 3.1.
It is market practice to require notices to be executed, issued (and preferably acknowledged)

before drawdown. Each notice (and preferably the acknowledgement too) should be listed as
a condition precedent in the Facility Agreement. For example, in acquisition finance, the
service of notice and receipt of an acknowledgement for the following are typically conditions
precedent:
The acquisition agreements.
Any keyman policies (assuming cover is in place at completion).
However, it may not be commercially acceptable to give notices in all cases. The Lender must
balance any practical issues arising from the Borrower giving the notice, against the legal
risks of not giving notice. For example, the Lender may insist that the Borrower deposit with it
pre-signed but undated notices to the relevant third parties when the standard document is
signed. The Lender can then date the notices and send them to the relevant third parties
should an Event of Default occur. For more on the need (or otherwise) to give notice of an
assignment, see Drafting note, Drafting assumptions and legal issues: Perfection: Notice of
assignment.
Although it may not be necessary for priority purposes that, if notice of assignment is given,
such notice is acknowledged, an acknowledgement is nevertheless useful for evidential
purposes and can be used to obtain additional confirmations in favour of the Lender. Such
confirmations will commonly include:
An agreement by the counterparty that it will not terminate the relevant contract without
first informing the Lender.
In the case of an assignment of rights under an insurance policy, the insurer agreeing to
note the Lender as "first loss payee" on the policy. This ensures that the proceeds of the
policy will be paid direct to the Lender (see Clause 6.17 and Drafting note, Drafting
assumptions and legal issues: Insurance policies).
A Borrower should not definitively covenant that the counterparty will give an
acknowledgement unless the Borrower is confident the signing of the acknowledgement is
within its control.
In practical terms it can be difficult to obtain an acknowledgement from a third party

immediately, so the standard document includes an optional time limit of five Business Days.
However it may be time-consuming to obtain the necessary acknowledgements from third
parties (such as insurers) as they may require amendments to the proposed form of
acknowledgement. Accordingly, the proposed forms of notices and acknowledgements should
-
be sent to relevant third parties as early as possible in a transaction (before the standard
document is signed), to ensure that these forms will be agreed and signed for drawdown, or
otherwise, within the required time period.
If the notices (and any acknowledgements) are included either as conditions precedent or
conditions subsequent, take care to ensure any relevant time limits or grace periods in the
Facility Agreement match those in the standard document.
For more information on the practical considerations of giving notices and negotiating and
drafting issues as to their form, see Drafting note, Notice and acknowledgement of
assignment of Relevant Agreement.
Hide Note
6.11 [Appointment of accountants

(a) The Borrower shall:
(i) at its own cost, if at any time so required by the Lender, appoint an accountant or firm of
accountants nominated by the Lender to investigate the financial affairs of the Borrower
[and those of its subsidiaries] and report to the Lender; and
(ii) co-operate fully with any accountants so appointed and immediately provide such
accountants with all information requested.
(b) The Borrower authorises the Lender to make an appointment as it shall think fit at any time,
without further authority from the Borrower. In every case, the Borrower shall pay, or reimburse
the Lender for, the fees and expenses of those accountants.]
Hide Note
Appointment of accountants (optional clause)

This clause is optional and provides for the appointment, at the Lender's request (and the
Borrower's expense), of reporting accountants to investigate the Borrower's financial affairs.
The Borrower may wish to delete this clause or negotiate it to restrict it to those circumstances
where:
The Lender is acting reasonably in suspecting a potential event of default.
An event of default has occurred, which is continuing.
In any case, the Borrower may want to ensure that the Lender meets the cost of any
investigating accountants should no event of default arise.
You may delete this clause if an equivalent clause exists in the underlying Facility Agreement.
Hide Note
6.12 Documents
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The Borrower shall, [on the execution of this deed OR if so required by the Lender], deposit with
the Lender and the Lender shall, for the duration of [this deed OR the Security Period], be entitled
to hold all the Borrower's original counterparts of, and instruments comprising, each Relevant
Agreement and Relevant Policy [and each other document, instrument or agreement comprising
the Secured Property].
Hide Note
Documents
This clause requires the Borrower to deposit the documents comprising the Secured Property
with the Lender. Usually, these documents will be the named agreements and policies that
are defined as Relevant Agreements or Relevant Policies. However, the clause contains
optional wording to capture non-specific agreements that may also fall within the definition of
Secured Property.
The Borrower may not be willing (or able) to transfer all documents and so the clause also
contains optional wording to the effect that any deposit of documents should be as required by
the Lender.
However, the deposit of any documents of title is particularly important in the case of those
assets that are to be subject to a legal mortgage because there must be a clear transfer of
title to property to create a valid legal mortgage. If title is not transferred, the mortgage would
only be equitable (see Drafting note, Drafting assumptions and legal issues: Perfection).
The difficulty with intangible property is that often "documents of title" (which are generally
characterised as documents that are essential for possession of assets) do not exist.
However, the Lender should seek to obtain all documents that evidence or comprise the
Borrower's ownership of the choses in action comprising the Secured Property. The Lender
may also require physical possession of certain agreements, such as policies of insurance, to
achieve a specific form of security interest such as a legal assignment (see Drafting note,
Drafting assumptions and legal issues: Insurance policies).
Transferring such documents to the Lender has the dual purpose of:
Restricting the Borrower's ability to dispose of the Secured Property to a third party (who,
acting in good faith and without notice of the Lender's security, may be able to obtain title
to or gain an interest in the Secured Property contrary to the Lender's security (Clarke v
Palmer (1882) 21 Ch D 124)).
Assisting the Lender should it need to exercise its powers of sale.
The Borrower may request that certain original documents that are required by the Borrower
on an ongoing basis and that are used in the ordinary course of its business (for example,
scheduled maintenance or servicing agreements) are carved out of this clause, and that a
copy or certified copy (www.practicallaw.com/7-382-4307) may be provided instead. The
Lender should carefully consider any such request, having regard to:
Its ability to enforce its rights under the standard document in the absence of physical
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possession of the excluded document.
Whether to include a specific requirement that the excluded documents are immediately
provided to the Lender (or its Receiver) in an event of default.
The Borrower should also consider the period for which the Secured Property will remain in
the Lender's possession. If documents are held for the duration of the deed, they may remain
in the Lender's possession after such time as the Secured Liabilities are irrevocably
discharged in full (that is the end of the Security Period) (in accordance with the optional
wording in the clause). However, the Lender may require this extended period to account for
any potential clawback or challenge to the security that may extend beyond discharge of the
debt.
Hide Note
6.13 Information
The Borrower shall:
(a) give the Lender such information concerning the Secured Property as the Lender may
require; and
(b) promptly notify the Lender in writing of any action, claim, notice or demand made by or
against it in connection with all or any part of the Secured Property or of any fact, matter or
circumstance which may, with the passage of time, give rise to such an action, claim, notice or
demand, together with, in each case, the Borrower's proposals for settling, liquidating,
compounding or contesting any such action, claim or demand and shall, subject to the
Lender's prior approval, implement those proposals at its own expense.
Hide Note
Information
This clause requires the Borrower to supply the Lender with all relevant information relating to
the Secured Property.
This is particularly relevant in the case of security over choses in action, where any claims or
demands against the Borrower under a Relevant Agreement or Relevant Policy may prejudice
the Lender's security over that Secured Property.
Hide Note
6.14 Insurance
The Borrower shall:
(a) [comply with [INSERT CLAUSE NUMBER OF INSURANCE COVENANT] of the Facility
Agreement;]
(b) not amend, waive or release any rights or interests in a Relevant Policy;
-
(c) if requested by the Lender, deliver to the Lender the policy, certificate or cover note relating
to any Relevant Policy; and
(d) if requested by the Lender, procure that [a note of the Lender's interest is endorsed upon
OR the Lender is named as co-insured with the Borrower on] each Relevant Policy maintained
by it or any person on its behalf [in accordance with clause 6.14(a)], and procure that the terms
of each Relevant Policy require the relevant insurer not to invalidate that Relevant Policy as
against the Lender by reason of the act or default of any other joint or named insured and not
to cancel it without giving at least 30 days' prior written notice to the Lender.
Hide Note
Insurance
Rather than just noting the Lender's name on the Borrower's insurance policy (that is, as "first
loss payee" such that the proceeds of the policy may be paid directly to the Lender), it is
preferable to have the policy reissued so that the Borrower and the Lender are co-insured
(Clause 6.14(d)). For details of the difference between co-insurance and noting of a party's
interest on an insurance policy, see Practice note, General principles of insurance
law (www.practicallaw.com/3-203-9754).
The extent to which the insurance provisions are effective may also depend on notice of the
assignment being served on the insurer and the terms of any acknowledgement received from
that insurer (see Schedule 4 and its accompanying drafting notes).
Note the standard document assigns the benefit of certain Relevant Policies (as defined). It
does not include any requirements for separately insuring the Secured Property (for example,
loss of rent insurance, see PLC Property, Practice note, Leases: Insurance: What is
insured? (www.practicallaw.com/6-500-1845)).
This clause (and Clause 6.15 to Clause 6.17) should not conflict with the insurance covenants
(if any) contained in the Facility Agreement. Any amendments to the insurance provisions in
the standard document (or the Facility Agreement) should be carefully considered, having
regard to the distinction between Relevant Policies comprising the Secured Property and any
separate insurance cover over the Secured Property.
Clause 6.14(a) is an optional clause. It should only be included if there are insurance
covenants in the Facility Agreement (the optional cross-reference to that clause in Clause 6.14
(d) should also be amended accordingly).
For more on the security assignment of insurance policies, see Drafting note, Drafting
Hide Note
6.15 Insurance premiums

The Borrower shall:
(a) promptly pay all premiums in respect of each Relevant Policy and do all other things
necessary to keep that Relevant Policy in full force and effect; and
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(b) (if the Lender so requires) give to the Lender copies of the receipts for all premiums and
other payments necessary for effecting and keeping up each Relevant Policy.
Hide Note
Insurance premiums
Despite the assignment, the Borrower is entirely responsible for the payment of insurance
premiums. This is a standard position. The Lender may require copies of receipts (or other
evidence of payment) to ensure that the premiums are paid and that the insurance cover does
not lapse.
Hide Note
6.16 No invalidation of insurance

The Borrower shall not do, or permit to be done, or omit or permit to be omitted, any thing that if
done or not done as the case may be, may invalidate or otherwise prejudice any Relevant Policy.
Hide Note
No invalidation of insurance
As with the payment of insurance premiums, the Lender should ensure that the Borrower
does not do anything (or fail to do anything) that might jeopardise the ability of either the
Lender or the Borrower to claim under a Relevant Policy and recover any insurance proceeds.
This clause is intended to work alongside the representations and warranties, as well as the
more general covenants in Clause 6, to monitor the Secured Property and ensure it is
protected.
Hide Note
6.17 Proceeds from Relevant Policies

All monies received or receivable under any Relevant Policy at any time (whether or not the
security constituted by this deed has become enforceable) shall:
(a) immediately be paid to the Lender;
(b) (if they are not paid directly to the Lender by the insurers) be held by the Borrower as
trustee of the same for the benefit of the Lender (and the Borrower shall account for them to
the Lender); and
(c) [at the option of the Lender, be applied in making good or recouping expenditure in respect
of the loss or damage for which such monies are received, or in or towards discharge or
reduction of the Secured Liabilities OR be applied in making good or recouping expenditure in
respect of the loss or damage for which such monies are received or, after the security
constituted by this deed has become enforceable and if the Lender so directs, in or towards
discharge or reduction of the Secured Liabilities].
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Hide Note
Proceeds from Relevant Policies

The starting position is that any proceeds from any insurance claim are either immediately
paid to the Lender or held on trust by the Borrower for the Lender. For the insurer's
acknowledgement of the Lender's right to the proceeds of the insurance, see Part 2 of
Schedule 4 and its accompanying drafting note.
This is because the Lender will argue that, if an insurable event occurs, it should have the
option of walking away from the deal with the debt paid off from the insurance proceeds. A
borrower may resist this, particularly if the security is not enforceable (for example, if the debt
is not in default) at the time the relevant insurable event occurs.
The Relevant Policy may require the Borrower to reinstate property from insurance proceeds.
If this is the case, the Borrower should amend Clause 6.17(c) so that it will not be in breach of
any obligations as a result of the Lender being entitled to opt to repay the Secured Liabilities
from insurance proceeds.
Note the standard document does not include provisions for a control account. Depending on
its other security arrangements (and any credit committee (www.practicallaw.com/7-504-
4203) requirements), the Lender may want to include protections that require insurance
proceeds to be paid into a blocked or controlled account rather than relying on the position
that insurance proceeds received by the Borrower are simply held on trust for the Lender
(Clause 6.17(b)). For more on control accounts, see Drafting note, Drafting assumptions and
legal issues: Control accounts.
The application of insurance proceeds may also depend on whether the insurance cover
relates to an otherwise secured asset. For example, if the insurance is paid out for damage or
destruction of property that forms another part of the Lender's security package, the Lender is
more likely to require the proceeds to be applied in satisfaction of the Secured Liabilities.
Hide Note
6.18 Payment of outgoings

The Borrower shall promptly pay all taxes, fees, licence duties, registration charges, insurance
premiums and other outgoings in respect of the Secured Property and, on demand, produce
evidence of payment to the Lender.
Hide Note
Payment of outgoings
This clause obliges the Borrower to pay all outgoings that relate to the Secured Property. This
seeks to reduce the risk that the value of the Secured Property (or the Lender's ability to
enforce the security) would be prejudiced by the Borrower failing to pay these outgoings.
Hide Note
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6.19 [Compliance with covenants

The Borrower shall observe and perform all covenants, stipulations and conditions to which any
Secured Property, or the use of it, is or may be subjected and (if the Lender so requires) produce to
the Lender evidence sufficient to satisfy the Lender that those covenants, stipulations and
conditions have been observed and performed.]
Hide Note
Compliance with covenants (optional clause)

This optional clause requires the Borrower to comply with any other covenants or conditions
that may attach to any Secured Property (or the use of any Secured Property). To the extent
the Lender is comfortable that this clause simply duplicates the provisions of Clause 6.3 or
any other provision of the finance documents, this clause may be deleted.
Hide Note
7. POWERS OF THE LENDER

7.1 Power to remedy
(a) The Lender shall be entitled (but shall not be obliged) to remedy, at any time, a breach by
the Borrower of any of its obligations contained in this deed.
(b) The Borrower irrevocably authorises the Lender and its agents to do all such things as are
necessary or desirable for that purpose.
(c) Any monies expended by the Lender in remedying a breach by the Borrower of its
obligations contained in this deed, shall be reimbursed by the Borrower to the Lender on a full
indemnity basis and shall carry interest in accordance with clause 14.1.
Hide Note
Power to remedy
This clause entitles (but does not oblige) the Lender to remedy any breach by the Borrower of
the Borrower's obligations under the standard document. This may include remedying a
breach by the Borrower under a Relevant Agreement or Relevant Policy.
Any action by the Lender is entirely at the cost of the Borrower who may also be required to
pay interest on those sums.
These are standard provisions and are not typically negotiated.
Hide Note
7.2 Exercise of rights

The rights of the Lender under clause 7.1 are without prejudice to any other rights of the Lender
under this deed. The exercise of any rights of the Lender under this deed shall not make the
Lender liable to account as a mortgagee in possession.
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Hide Note
Exercise of rights
This clause refers to the general power to remedy contained in Clause 7.1. The power to
remedy is without prejudice to any other powers that the Lender may have under the standard
document.
Despite not being security over land, under the standard document there is still a risk (likely to
be a remote risk in practice) that, by exercising its powers, whether before or after
enforcement, the Lender may become a mortgagee in possession and become liable to
account as such.
For more information on the liability of a mortgagee in possession and the exclusion of the
Lender's liability, see Drafting note, No liability as mortgagee in possession.
Hide Note
7.3 Lender has Receiver's powers

To the extent permitted by law, any right, power or discretion conferred by this deed on a Receiver
may, after the security constituted by this deed has become enforceable, be exercised by the
Lender in relation to any of the Secured Property whether or not it has taken possession of any
Secured Property and without first appointing a Receiver or notwithstanding the appointment of a
Receiver.
Hide Note
Lender has Receiver's powers

This clause confers on the Lender all the powers given to a Receiver under Clause 11,
whether or not a Receiver has been appointed. It is important to be clear and express about
the powers the Lender has (as secured creditor) should it need to enforce the security. If not,
the nature of any implied powers on enforcement depends on whether the document is
executed as a deed, the type of security and the Secured Property.
Hide Note
7.4 Conversion of currency

(a) For the purpose of, or pending the discharge of, any of the Secured Liabilities, the Lender
may convert any monies received, recovered or realised by it under this deed (including the
proceeds of any previous conversion under this clause 7.4) from their existing currencies of
denomination into such other currencies of denomination as the Lender may think fit.
(b) Any such conversion shall be effected at [the Lender's OR [APPROPRIATE REFERENCE
BANK]] then prevailing spot selling rate of exchange for such other currency against the
existing currency.
(c) Each reference in this clause 7.4 to a currency extends to funds of that currency and, for
the avoidance of doubt, funds of one currency may be converted into different funds of the
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same currency.
Hide Note
Conversion of currency
This clause is intended to protect the Lender if it receives any monies under the standard
document in a currency other than that of the underlying liabilities. It gives the Lender wide
powers to convert monies recovered in one currency into other currencies as it thinks fit. The
Lender may choose not to be the reference bank for the relevant exchange rate and, if not,
include the appropriate reference bank in the square brackets in place of the Lender.
Currency risk is usually a Borrower risk, and the Lender will typically seek to recover any
shortfall in the Secured Liabilities (that is, as a result of exchange rate differences) from the
Borrower.
Hide Note
7.5 New accounts

(a) If the Lender receives, or is deemed to have received, notice of any subsequent Security
Interest, or other interest, affecting all or part of the Secured Property, the Lender may open a
new account for the Borrower in the Lender's books. Without prejudice to the Lender's right to
combine accounts, no money paid to the credit of the Borrower in any such new account shall
be appropriated towards, or have the effect of discharging, any part of the Secured Liabilities.
(b) If the Lender does not open a new account immediately on receipt of the notice, or deemed
notice, under clause 7.5(a), then, unless the Lender gives express written notice to the
contrary to the Borrower, all payments made by the Borrower to the Lender shall be treated as
having been credited to a new account of the Borrower and not as having been applied in
reduction of the Secured Liabilities, as from the time of receipt of the relevant notice by the
Lender.
Hide Note
New accounts
If the Lender is notified (or deemed to have received notice) of a subsequent security interest
having been created over any of the Secured Property, this clause gives the Lender the power
to open a new account into which amounts paid to the Lender relating to the Secured
Liabilities may be credited. If the Lender does not actually open a new account, it will be
deemed to have done so unless it notifies the Borrower to the contrary.
"Account" in Clause 7.5 refers to a ledger entry rather than a physical bank account so this
provision is relevant even if the Lender is not a bank.
The provision seeks to displace the rule in Devaynes v Noble, Clayton's case (1816) 1 Mer
529 and the effect of the rule in Hopkinson v Rolt (1861) 9 HL Cas 514. Clayton's case held
that monies paid into an overdrawn account are set against, and extinguish, the earliest debts
first. As a result of Hopkinson v Rolt, once a lender has notice of a subsequent security
interest (even if created in contravention of a negative pledge), all subsequent advances it
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makes may rank behind the subsequent security.
The effect of these rules can be seen in the following example:
A borrower has a secured overdraft facility with a lender (Lender 1) and it is £500
overdrawn when it grants security to another lender (Lender 2) to secure a loan.
Lender 2 notifies Lender 1 of the security granted by the borrower to it.
A week later, the borrower pays in £500 to its account with Lender 1. A few days after
this, it draws out another £500.
The effect of Clayton's case is that the £500 the borrower paid into its account with Lender
1 discharged the £500 that was owing at the time Lender 1 received notice of Lender 2's
security. The further £500 that was drawn is new money lent by Lender 1 after it received
notice of Lender 2's security and so, because of Hopkinson v Rolt, ranks after the loan
made by Lender 2. This is so even though the borrower owes the same amount to Lender
1 both before and after it granted security to Lender 2.
By opening a new account, the whole of the debit balance at the date on which the Lender
receives notice of the subsequent security remains secured and retains priority. This concept
is often referred to as "ruling off".
This clause is only relevant where the security is all monies or covers all amounts advanced
under a revolving account (such as an overdraft (www.practicallaw.com/9-107-6952) or a
revolving facility (www.practicallaw.com/5-107-7171)). It is not relevant to security
securing a term loan (www.practicallaw.com/8-107-7382) where there is no obligation to
advance further amounts, although such a provision is often retained by the Lender as a
precautionary measure as the Facility Agreement might be amended to provide for further
advances.
This clause is usually not negotiated and, even if it is not relevant because the security
secures a specific debt amount under a term loan, it is not deleted as it is a market standard
provision that is not controversial.
Hide Note
7.6 Lender's set-off rights

If the Lender has more than one account for the Borrower in its books, the Lender may at any time
after:
(a) the security constituted by this deed has become enforceable; or
(b) the Lender has received, or is deemed to have received, notice of any subsequent Security
Interest or other interest affecting all or any part of the Secured Property,
transfer, without prior notice, all or any part of the balance standing to the credit of any account to
any other account which may be in debit. After making any such transfer, the Lender shall notify
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the Borrower of that transfer.
Hide Note
Lender's set-off rights

Clause 7.6 provides a specific contractual right of set-off for the Lender under certain
circumstances where the Lender has more than one account (ledger entry) for the Borrower.
Set-off is a complex area. Contractual rights of set-off generally do not override the mandatory
insolvency set-off rules under the Insolvency Rules 1986 (SI 1986/1925) (which apply if a
party is subject to liquidation or administration proceedings).
For more information on insolvency set-off, see Practice note, Set-off and netting: Insolvency
set-off (www.practicallaw.com/5-264-7953).
For more information on drafting set-off clauses, see Drafting note, Set-
off (www.practicallaw.com/1-107-3801).
Hide Note
7.7 Indulgence
The Lender may, at its discretion, grant time or other indulgence or make any other arrangement,
variation or release with any person not being a party to this deed (whether or not such person is
jointly liable with the Borrower) in respect of any of the Secured Liabilities or of any other security
for them without prejudice either to this deed or to the liability of the Borrower for the Secured
Liabilities.
Hide Note
Indulgence
This clause confirms that the Lender may grant indulgence (that is, deliberately elect not to
enforce its rights) and make any variation or release with third parties (including
Counterparties and insurers) without prejudice to the security interests created by the
standard document or the Borrower's liability for the Secured Liabilities.
The concept of indulgence is generally more applicable to guarantees where an extension of

the time to pay may impact on the guarantor's right to pay off the debt and sue the debtor in
the name of the creditor (subrogation). Take care, however, with any time, indulgence or
waiver given by a Lender (as creditor) so that it does not give the obligor rights or remedies
under promissory estoppel.
For an explanation of issues of estoppel (www.practicallaw.com/5-201-8307) and

preserving a party's rights in the event of implied or actual waivers, see Drafting note,
Waiver (www.practicallaw.com/8-107-3807).
Hide Note
8. WHEN SECURITY BECOMES ENFORCEABLE
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Hide Note
When security becomes enforceable

A security document should explain when and how the security can be enforced.
There is a distinction in the LPA 1925 between when the statutory power of sale arises and
when it becomes exercisable (for more on the power of sale, see Practice note, Mortgages
and charges over land: Power of sale (www.practicallaw.com/2-107-4640)). The distinction
between the power of sale arising and becoming exercisable is important because a
purchaser of the mortgaged property is interested only in seeing that the power has arisen
and not whether it has become exercisable or whether it is being properly exercised (section
104, LPA 1925), although the courts will not allow this protection to be used for fraud.
Whether or not the power of sale has arisen should be apparent on the face of the security
document (which a purchaser should ask to inspect), but determining whether the power has
become exercisable will not always be so simple. It is normal to vary the LPA 1925 provisions
on when the power of sale arises and when it becomes exercisable but maintain a distinction
between the two.
Hide Note
8.1 Security becomes enforceable on Event of Default

The security constituted by this deed shall be immediately enforceable if an Event of Default occurs.
8.2 Discretion
After the security constituted by this deed has become enforceable, the Lender may, in its absolute
discretion, enforce all or any part of that security at the times, in the manner and on the terms it
thinks fit, and take possession of and hold or dispose of all or any part of the Secured Property.
Hide Note
Discretion
This clause confirms that the Lender may take the enforcement action it sees fit once the
security has become enforceable (see Drafting note, When security becomes enforceable). In
practice, a Lender wanting to enforce its security will, before doing so, make a formal demand
on the Borrower for payment, to prevent any argument that there was an express or implied
obligation to do so.
The right to enforce the standard document may be frozen if the Borrower is in administration.
For more information on this, see Practice note, Administration:
Moratorium (www.practicallaw.com/3-107-3975).
Hide Note
9. ENFORCEMENT OF SECURITY
9.1 Enforcement powers
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(a) The power of sale and other powers conferred by section 101 of the LPA 1925 (as varied or
extended by this deed) shall, as between the Lender and a purchaser from the Lender, arise
on and be exercisable at any time after the execution of this deed, but the Lender shall not
exercise such power of sale or other powers until the security constituted by this deed has
become enforceable under clause 8.1.
(b) Section 103 of the LPA 1925 (restricting the power of sale) does not apply to the security
constituted by this deed.
Hide Note
Enforcement powers
The standard document provides that the statutory power of sale (and other powers that
include the power to appoint a receiver) conferred by section 101 of the LPA 1925 arises on
execution of the standard document, but may only be exercised by the Lender at any time
after an Event of Default has occurred (although a purchaser can assume the power is
exercisable at any time after the standard document has been executed).
This varies the position set out in the LPA 1925, which provides that the statutory power of
sale arises when the mortgage money has become due (section 101(1)(i)).
Clause 9.1(b) disapplies section 103 of the LPA 1925, so that the requirements set out in that
section do not have to be fulfilled before the power of sale is exercised. This is because
section 103 provides that a lender can only exercise the statutory power of sale in one of the
following circumstances:
Notice requiring payment of the debt has been served on the borrower and default has
been made in payment of the debt or part of it for three months after service.
Interest under the mortgage is in arrears and unpaid for two months after becoming due.
There has been a breach of a provision of the security document (other than those
relating to payment of interest or principal).
The Lender, however, will want the power of sale to be exercisable as soon as possible after
a default and will not want to wait for the statutory grace periods to expire.
Note that although section 101 is contained in a part of the LPA 1925 that applies to land, the
section specifically states that it applies to a mortgage (the term "mortgage" includes
a "charge" (section 205)) over any property and "property" is defined as including both land
and personal property (section 205). In terms of security over goods, the Court of Appeal in
Re Morritt, ex p Official Receiver (1886) 18 QBD 222 confirmed this interpretation relating to
the precursor of section 101.
The mortgagee of a chose in action also has an implied power of sale as a legal occurrence of
his security (Re Morritt). This right is exercisable if the Borrower acts in a way so as to
endanger the security or where payment is not received by the Lender within a reasonable
time after the Lender has served a proper demand and notice on the Borrower. In such
circumstances the Lender is entitled to sell the Secured Property, free from the equity of
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redemption. This implied power of sale is in addition to any statutory or express power of sale
in the standard document.
Hide Note
9.2 [Access on enforcement

(a) At any time after the Lender has demanded payment of the Secured Liabilities or if the
Borrower defaults in the performance of its obligations under this deed or the Facility
Agreement, the Borrower will allow the Lender or its Receiver, without further notice or
demand, immediately to exercise all its rights, powers and remedies. In particular (and without
limitation), to take possession of the Secured Property and for that purpose to enter on any
premises where the Secured Property is situated (or where the Lender or a Receiver
reasonably believes the Secured Property to be situated) without incurring any liability to the
Borrower for, or by any reason of, such entry.
(b) At all times, the Borrower must use its best endeavours to allow the Lender or its Receiver
access to any premises for the purpose of clause 9.2(a) (including obtaining any necessary
consents or permits of other persons) and ensure that its employees and officers do the same.]
Hide Note
Access on enforcement (optional clause)

This optional clause seeks to give the Lender (or its Receiver) the ability to enter premises to
recover the Secured Property where the Lender has demanded payment of the debt or the
Borrower has breached any of its obligations in the standard document or the Facility
Agreement.
This clause is wide-reaching and gives the Lender (or its Receiver) a right to demand access
to any premises (whether they are the Borrower's premises or not) on the basis it reasonably
believes the Secured Property is located there, to remedy any breach or take possession of
the Secured Property and without the Lender incurring any liability to the Borrower. Where the
Secured Property is located in premises that are not the Borrower's, the Borrower will be
under a "best endeavours" obligation to procure access for the Lender (or its Receiver) (see
Clause 9.2(b)).
The relevance of this clause in the context of security over contractual rights will depend on
the nature of the relevant Secured Property. It is only likely to be relevant where:
Physical possession of the relevant contract, policy or agreement is necessary to be able

to enforce the rights under it.
The relevant Secured Property has not been deposited with the Lender under Clause
6.12.
If this clause is included, the Borrower may wish to limit its effect to those situations where an
Event of Default is subsisting unremedied and unwaived (allowing for any grace periods). This
would prevent the Lender from demanding access to the Borrower's premises after seemingly
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technical or minor defaults under the finance documents.
Hide Note
9.3 Prior Security Interest

At any time after the security constituted by this deed has become enforceable, or after any powers
conferred by any Security Interest having priority to this deed shall have become exercisable, the
Lender may:
(a) redeem such or any other prior Security Interest;
(b) procure the transfer of that Security Interest to it; and
(c) settle and pass any account of the holder of any prior Security Interest.
The settlement and passing of any such account shall, in the absence of any manifest error, be
conclusive and binding on the Borrower. All monies paid by the Lender to an encumbrancer in
settlement of such an account shall, as from its payment by the Lender, be due from the Borrower
to the Lender on current account and shall bear interest [at the default rate of interest specified in
the Facility Agreement] and be secured as part of the Secured Liabilities.
Hide Note
Prior Security Interest

This clause allows the Lender to take control of the enforcement process by either:
Paying off the debt owed by the Borrower to each holder of prior ranking security.
Taking an assignment of the benefit of any prior ranking security.
In each case, the Lender would have to reach agreement with the relevant holder of any prior
ranking security. If the Lender pays off the debt owed by the Borrower to a holder of prior
ranking security, then that holder would release its security and the amount the Lender paid to
clear the relevant debt would be added to the Secured Liabilities (carrying interest at the
appropriate default rate, which may be specified in the optional part of the clause).
Usually, this clause is not negotiated.
It is important that the clause contains a carve out for "manifest error". For more information,
see Drafting note, Certificates.
Hide Note
9.4 Protection of third parties

No purchaser, mortgagee or other person dealing with the Lender, any Receiver or Delegate shall
be concerned to enquire:
(a) whether any of the Secured Liabilities have become due or payable, or remain unpaid or
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undischarged;
(b) whether any power the Lender, a Receiver or Delegate is purporting to exercise has
become exercisable or is properly exercisable; or
(c) how any money paid to the Lender, any Receiver or any Delegate is to be applied.
Hide Note
Protection of third parties

This clause provides that third parties dealing with the Lender, a Receiver or a Delegate (for
example, any prospective purchasers under the power of sale) need not be concerned as to:
Whether the power of sale has arisen.
How any monies paid to the Lender (or a Receiver or Delegate) under the power of sale
are to be applied.
In part, this provision essentially restates what is already provided for in sections 104 and 107
of the LPA 1925, but it is usual to extend those provisions in the manner contemplated by this
clause.
Hide Note
9.5 Privileges
Each Receiver and the Lender is entitled to all the rights, powers, privileges and immunities
conferred by the LPA 1925 on mortgagees and receivers.
Hide Note
Privileges
This clause confirms that, as well as the express provisions of the standard document, the
Lender (and each Receiver) has the benefit of all the rights, powers, privileges and immunities
applicable to mortgagees and receivers as set out in the LPA 1925.
This seeks to avoid the argument that the powers conferred by the standard document in
some way limit or cut across the statutory powers.
Hide Note
9.6 No liability as mortgagee in possession

Neither the Lender, any Receiver nor any Delegate shall be liable to account as mortgagee in
possession in respect of all or any of the Secured Property, nor shall any of them be liable for any
loss on realisation of, or for any neglect or default of any nature in connection with, all or any of the
Secured Property for which a mortgagee in possession might be liable as such.
Hide Note
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No liability as mortgagee in possession

At common law, a legal mortgagee has the proprietary right to take actual possession of the
mortgaged property for any purposes. If a mortgagee goes into possession, it assumes
certain duties (such as to take reasonable care of the property (Palk v Mortgage Services
Funding plc [1993] Ch 33)) so there is a risk that it will incur liabilities. For more information on
these duties (principally in the context of land), see Practice note, Mortgagees and
mortgagees in possession (www.practicallaw.com/7-507-2026).
Despite not being security over land, if the Lender takes a mortgage over choses in action,
there is still a theoretical risk that the Lender may become a mortgagee in possession.
The Lender and Receiver are subject to certain common law duties when exercising their
enforcement powers. For example, a mortgagee has a duty to obtain the best price
reasonably obtainable (Den Norske Bank ASA v Acemex Management Co Ltd [2003] EWCA
Civ 1559).
This clause seeks to limit the liability of the Lender, any Receiver or any Delegate for the
duties it would assume if it became a mortgagee in possession. Because it is not possible in
all cases to exclude liability for negligence (see, for example, section 2(2), UCTA), the extent
to which this provision will be effective is not settled law.
Hide Note
9.7 Conclusive discharge to purchasers

The receipt of the Lender or any Receiver or Delegate shall be a conclusive discharge to a
purchaser and, in making any sale or other disposal of any of the Secured Property or in making
any acquisition in the exercise of their respective powers, the Lender, every Receiver and Delegate
may do so for such consideration, in such manner and on such terms as it or he thinks fit.
10. RECEIVER
10.1 Appointment
At any time after the security constituted by this deed has become enforceable, or at the request of
the Borrower, the Lender may, without further notice, appoint by way of deed, or otherwise in
writing, any one or more person or persons to be a receiver, or a receiver and manager, of all or
any part of the Secured Property.
Hide Note
Appointment
This clause gives the Lender a right to appoint a Receiver of the Secured Property, once the
security has become enforceable.
If a mortgage or charge is made by way of a deed, section 101 of the LPA 1925 automatically
gives the Lender a statutory power to appoint a receiver (sometimes known as an LPA
receiver (www.practicallaw.com/9-380-8575)). It is usual to supplement this statutory power
with an express power to appoint a receiver (or receiver and manager) in the security
document, as is done in this clause, partly because it is arguable that the implied power under
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section 101 relates only to land (for further discussion of this issue, see Drafting note,
Enforcement powers) and partly because there are other uncertainties about the extent of the
power.
A Receiver must be appointed under a written instrument (which may be executed by way of
deed) executed by the Lender.
This clause is not usually negotiated.
Hide Note
10.2 Removal
The Lender may, without further notice (subject to section 45 of the Insolvency Act 1986), from time
to time, by way of deed, or otherwise in writing, remove any Receiver appointed by it and may,
whenever it thinks fit, appoint a new Receiver in the place of any Receiver whose appointment may
for any reason have terminated.
Hide Note
Removal
The Lender typically has an unfettered discretion to remove and appoint a replacement for
any Receiver appointed by it.
This clause is not usually negotiated.
Hide Note
10.3 Remuneration
The Lender may fix the remuneration of any Receiver appointed by it without the restrictions
contained in section 109 of the LPA 1925, and the remuneration of the Receiver shall be a debt
secured by this deed, which shall be due and payable immediately on its being paid by the Lender.
Hide Note
Remuneration
Section 109(6) of the LPA 1925 specifies that in the absence of another rate being specified in
his appointment, a receiver shall be entitled to a commission of 5% of the gross amount of all
money received by him. This is generally unsatisfactory and, in practice, many firms of
accountants charge on an hourly basis. It is standard practice to provide that a lender may
agree with the receiver (or receiver and manager), the fees that he will receive.
Hide Note
10.4 Power of appointment additional to statutory powers

The power to appoint a Receiver conferred by this deed shall be in addition to all statutory and
other powers of the Lender under the Insolvency Act 1986, the LPA 1925 or otherwise, and shall
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be exercisable without the restrictions contained in sections 103 and 109 of the LPA 1925 or
otherwise.
Hide Note
Power of appointment additional to statutory powers

This clause confirms that the express power to appoint a Receiver given in Clause 10.1 is
additional to any statutory rights of the Lender, including the statutory power to appoint a
receiver under section 101 of the LPA 1925.
The clause also disapplies the requirement that the Lender must wait until the statutory power
of sale has become exercisable (see Drafting notes, When security becomes enforceable and
Enforcement powers) before appointing a Receiver (see sections 103 and 109, LPA 1925).
Instead, the express power to appoint a Receiver is exercisable when the security has
become enforceable.
Hide Note
10.5 Power of appointment exercisable despite prior appointments

The power to appoint a Receiver (whether conferred by this deed or by statute) shall be, and
remain, exercisable by the Lender despite any prior appointment in respect of all or any part of the
Secured Property.
Hide Note
Power of appointment exercisable despite prior

appointments
This clause confirms that the statutory and express power to appoint a Receiver can be
exercised more than once.
Hide Note
10.6 Agent of the Borrower

Any Receiver appointed by the Lender under this deed shall be the agent of the Borrower and the
Borrower shall be solely responsible for the contracts, engagements, acts, omissions, defaults,
losses and remuneration of that Receiver and for liabilities incurred by that Receiver. The agency
of each Receiver shall continue until the Borrower goes into liquidation and after that, the Receiver
shall act as principal and shall not become the agent of the Lender.
Hide Note
Agent of the Borrower

Clause 10.6 provides that any Receiver shall be the agent of the Borrower until its liquidation
and so, until that time, the Receiver will be exercising his powers on behalf of the Borrower or
its directors, as provided by Clause 11.1(c). This enables the Receiver to bind the Borrower
when exercising his powers and also means the Lender will not be liable for the Receiver's
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acts and omissions.
A provision similar to this is implied by section 109(2) of the LPA 1925. However, it is arguable
that section 109(2) only applies to powers exercised by a receiver under the LPA 1925 and,
therefore, it is usual to include an express clause.
Liquidation of the Borrower stops the Receiver acting as agent for the Borrower. However, the
liquidator cannot revoke the Receiver's appointment by the Lender as the Receiver is acting
as a receiver of property in which the Lender has a proprietary interest.
Clause 10.6 seeks to:
Make the Receiver primarily liable for contracts entered into by him after the Borrower has
gone into liquidation.
Ensure that, from the moment the Borrower goes into liquidation, the Receiver will be
acting for himself by exercising his powers, as provided by Clause 11.1(c).
In reality, the position is likely to be more complex as, when appointing a Receiver, the Lender
often agrees to indemnify that Receiver.
As Clause 10.6 largely mirrors the position under the LPA 1925, the Lender is unlikely to
agree to delete it.
Hide Note
11. POWERS OF RECEIVER

11.1 General
(a) Any Receiver appointed by the Lender under this deed shall, in addition to the powers
conferred on him by statute, have the powers set out in clause 11.2 to clause 11.15.
(b) If there is more than one Receiver holding office at the same time, each Receiver may
(unless the document appointing him states otherwise) exercise all of the powers conferred on
a Receiver under this deed individually and to the exclusion of any other Receiver.
(c) Any exercise by a Receiver of any of the powers given by clause 11 may be on behalf of
the Borrower, the directors of the Borrower or himself.
Hide Note
General
It is usual to extend the statutory powers of a Receiver to include additional powers since the
Lender will argue that a Receiver should be able to exercise any powers it sees fit to enable it
to pay off the Secured Liabilities. These additional powers are set out in Clause 11.
The purpose of Clause 11 is simply to specify any powers (for example, those arising at
common law) that may not be set out in the legislation.
Since the Receiver's powers only come into effect when the security has become enforceable
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(broadly, when the Borrower is in default), these provisions are rarely negotiated. The only
acceptable amendments are where certain provisions may be obviously irrelevant to the
Secured Property and the Lender is comfortable they could not, in the future, be relevant to
subsequently acquired (and secured) property.
The extent to which the powers of a receiver may be extended under contract has recently
been the subject of a private member's bill, the Secured Lending Reform Bill. For more
information, see Drafting note, Drafting assumptions and legal issues: Enforcement.
Hide Note
11.2 Employ personnel and advisers

A Receiver may provide services and employ, or engage such managers, officers, servants,
contractors, workmen, agents, other personnel and professional advisers on such terms and
subject to such conditions as he thinks fit. A Receiver may discharge any such person or any such
person appointed by the Borrower.
11.3 Remuneration
A Receiver may charge and receive such sum by way of remuneration (in addition to all costs,
charges and expenses incurred by him) as the Lender may prescribe or agree with him.
11.4 Realise Secured Property

A Receiver may collect and get in the Secured Property or any part of it in respect of which he is
appointed, and make such demands and take such proceedings as may seem expedient for that
purpose, and take possession of the Secured Property with like rights.
11.5 Dispose of Secured Property

A Receiver may sell or assign (or concur in selling or assigning), all or any of the Secured Property
in respect of which he is appointed in such manner (including, without limitation, by public auction
or private sale) and generally on such terms and conditions as he thinks fit. Any such sale may be
for such consideration as the Receiver thinks fit and a Receiver may promote, or concur in
promoting, a company to purchase the Secured Property to be sold.
11.6 Valid receipts

A Receiver may give valid receipt for all monies and execute all assurances and things which may
be proper or desirable for realising any of the Secured Property.
11.7 Make settlements

A Receiver may make any arrangement, settlement or compromise between the Borrower and any
other person which he may think expedient.
11.8 Bring proceedings

A Receiver may bring, prosecute, enforce, defend and abandon all actions, suits and proceedings
in relation to any of the Secured Property as he thinks fit.
11.9 Insurance
A Receiver may, if he thinks fit, but without prejudice to the indemnity in clause 14, effect with any
insurer, any policy of insurance either in lieu or satisfaction of, or in addition to, such insurance.
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11.10 Powers under LPA 1925

A Receiver may exercise all powers provided for in the LPA 1925 in the same way as if he had
been duly appointed under the LPA 1925, and exercise all powers provided for an administrative
receiver in Schedule 1 to the Insolvency Act 1986.
11.11 Borrow
A Receiver may, for any of the purposes authorised by this clause 11, raise money by borrowing
from the Lender (or from any other person) either unsecured or on the security of all or any of the
Secured Property in respect of which he is appointed on such terms as he thinks fit (including, if the
Lender consents, terms under which such security ranks in priority to this deed).
11.12 Redeem prior Security Interest

A Receiver may redeem any prior Security Interest and settle and pass the accounts to which the
Security Interest relates. Any accounts so settled and passed shall be, in the absence of any
manifest error, conclusive and binding on the Borrower, and the monies so paid shall be deemed to
be an expense properly incurred by the Receiver.
Hide Note
Redeem prior Security Interest

A recent case has considered a party's ability to rely on manifest error in the context of
conclusive determination clauses. For more information, see Drafting note, Certificates.
Hide Note
11.13 Delegation
A Receiver may delegate his powers in accordance with this deed.
11.14 Absolute beneficial owner

A Receiver may, in relation to any of the Secured Property, exercise all powers, authorisations and
rights he would be capable of exercising, and do all such acts and things, as an absolute beneficial
owner could exercise or do in the ownership and management of the Secured Property or any part
of the Secured Property.
Hide Note
Absolute beneficial owner

Clause 11.14 provides that any Receiver will have all the same powers as the absolute owner
of the Secured Property would have, which may be in addition to any statutory powers under
the LPA 1925 and the Insolvency Act 1986 or the further powers conferred elsewhere in
Clause 11.
Hide Note
11.15 Incidental powers
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A Receiver may do all such other acts and things:
(a) as he may consider desirable or necessary for realising any of the Secured Property;
(b) as he may consider incidental or conducive to any of the rights or powers conferred on a
Receiver under or by virtue of this deed or law; or
(c) which he lawfully may or can do as agent for the Borrower.
12. DELEGATION
Hide Note
Delegation
This clause provides that the Lender and any Receiver may delegate any right, power,
authority or discretion that they have under the standard document. A Delegate cannot sub-
delegate unless it is given a specific power to do so. Clause 12.3 also makes it clear that
neither the Lender nor any Receiver shall be liable or responsible to the Borrower for any loss
or liability caused by an act or omission of any Delegate.
Hide Note
12.1 Delegation
The Lender or any Receiver may delegate (either generally or specifically) by power of attorney or
in any other manner to any person any right, power, authority or discretion conferred on it by this
deed (including the power of attorney granted under clause 16.1).
12.2 Terms
Any delegation may be made on such terms and conditions (including the power to sub-delegate)
as the Lender or any Receiver may think fit.
12.3 Liability
Neither the Lender nor any Receiver shall be in any way liable or responsible to the Borrower for
any loss or liability arising from any act, default, omission or misconduct on the part of any
Delegate.
13. APPLICATION OF PROCEEDS

13.1 Order of application of proceeds
All monies received by the Lender, a Receiver or a Delegate pursuant to this deed, after the
security constituted by this deed has become enforceable (other than sums received pursuant to
any Relevant Policy), shall (subject to the claims of any person having prior rights and by way of
variation of the LPA 1925) be applied in the following order of priority:
(a) in or towards payment of or provision for all costs, charges and expenses incurred by or on
behalf of the Lender (and any Receiver, Delegate, attorney or agent appointed by it) under or
in connection with this deed, and of all remuneration due to any Receiver under or in
connection with this deed;
(b) in or towards payment of or provision for the Secured Liabilities in such order and manner
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as the Lender determines; and
(c) in payment of the surplus (if any) to the Borrower or other person entitled to it.
Hide Note
Order of application of proceeds

This clause sets out the order in which monies (other than insurance proceeds) received after
the security has become enforceable, have to be applied. Insurance proceeds are excluded
as these are dealt with in Clause 6.17. This clause is not typically negotiated.
Sometimes, the order of application is dealt with (or partially dealt with) in the Facility
Agreement or intercreditor agreement (www.practicallaw.com/1-107-6282) (if any), in
which case, the parties should make sure the provisions are consistent.
Hide Note
13.2 Appropriation
Neither the Lender, any Receiver nor any Delegate shall be bound (whether by virtue of section 109
(8) of the LPA 1925, which is varied accordingly, or otherwise) to pay or appropriate any receipt or
payment first towards interest rather than principal or otherwise in any particular order between any
of the Secured Liabilities.
Hide Note
Appropriation
The clause provides that monies received by the Lender, any Receiver or any Delegate need
not be appropriated to pay interest before principal, nor in any particular order between any of
the Secured Liabilities. Accordingly, the Lender has the discretion to allocate receipts to pay
off any amounts that are subject to a lower rate of interest first.
This right may assist the Lender if the security, when realised, fails to satisfy the Secured
Liabilities and there are insufficient assets to satisfy all of the Borrower's creditors in full. By
being able to appropriate the enforcement proceeds to debt incurring a lower rate of interest,
the Lender can then make a greater claim (and, therefore, be entitled to a greater share of the
residual assets of the Borrower available for the unsecured creditors) in any insolvency
proceedings concerning the Borrower.
Typically, this clause is not negotiated.
Hide Note
13.3 Suspense account

All monies received by the Lender, a Receiver or a Delegate under this deed (other than sums
received pursuant to any Relevant Policy, which are not going to be applied in or towards
discharge of the Secured Liabilities):
(a) may, at the discretion of the Lender, Receiver or Delegate, be credited to any suspense or
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securities realised account;
(b) shall bear interest at such rate, if any, as may be agreed in writing between the Lender and
the Borrower; and
(c) may be held in such account for so long as the Lender, Receiver or Delegate thinks fit.
Hide Note
Suspense account
This clause permits monies received under the standard document (other than insurance
proceeds received and applied in discharging the Secured Liabilities) to be credited to a
suspense account at the Lender's discretion. This allows the Lender to receive partial
payments under the standard document without having to allocate those payments in
reducing the Secured Liabilities.
The Lender can then prove (www.practicallaw.com/8-500-3971) for the entire debt in any
insolvency proceedings of any guarantors of the Secured Liabilities. There is doubt whether
such a provision is effective post-liquidation or administration. This is because of the
mandatory insolvency set-off rules under the Insolvency Rules 1986 (High Street Ltd v BCCI
[1993] BCC 360). For more information on insolvency set-off, see Practice note, Set-off and
netting: Insolvency set-off (www.practicallaw.com/5-264-7953).
This clause could also be beneficial to the Lender if the standard document secures a
contingent liability (for example, where the Lender is contingently liable under a guarantee
provided to a third party on behalf of the Borrower (such as under a bank
guarantee (www.practicallaw.com/9-200-1381)) and the Lender receives monies under the
standard document on account of that contingent liability).
Hide Note
14. COSTS AND INDEMNITY
Hide Note
Costs and indemnity

This clause confirms that the Borrower will pay the Lender's, Receiver's and any Delegate's
costs. The covenant to pay costs does not oust the discretionary jurisdiction of the court to
award costs (Bank of Baroda v Panessar [1986] 3 All ER 751).
The right to recover costs on a full indemnity basis (www.practicallaw.com/3-205-5150) will

be subject to the costs being reasonably incurred and to the costs not being unreasonable in
amount (Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1992] 4 All ER 588 CA).
The importance of specifying in a security document that the lender can recover costs on an
indemnity basis was underlined in the case of Charles Cleland Helden v Strathmore Ltd
[2011] EWCA Civ 542. This case held that in the absence of a clause allowing for recovery of
enforcement costs on an indemnity basis, the costs of enforcing the security will be awarded
on a standard basis (www.practicallaw.com/0-205-5222). If costs are specified to be
recoverable on an indemnity basis then, as long as there is no good reason not to, the court
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will usually give effect to that contractual provision when exercising its discretion in relation to
costs. For more information on this case, see Legal update, Costs of enforcing a charge
awarded on a standard not indemnity basis (Court of Appeal) (www.practicallaw.com/7-506-
8166).
A chargor or mortgagor that is liable to pay the lender's solicitor's fees (for example, for
enforcing security) is entitled to have those fees assessed under section 71 of the Solicitors
Act 1974. However, the chargor or mortgagor is only entitled to raise those objections that the
lender itself would have been entitled to raise on an assessment of solicitor-client costs.
Where the costs have been agreed by the lender, the costs will be presumed to be
reasonable in amount (Tim Martin Interiors Ltd v Akin Gump LLP [2010] EWHC 2951 (Ch)).
For further information on this case, see Legal update, High Court guidance on assessing
solicitors' costs payable by party other than the client (www.practicallaw.com/3-503-9562).
For more on costs (including the courts' discretion to award costs), see PLC Dispute
Resolution, Practice note, Costs: an overview: What is the position regarding recovery of
costs in disputes? (www.practicallaw.com/7-203-1181).
Hide Note
14.1 Costs
The Borrower shall pay to, or reimburse, the Lender and any Receiver on demand, on a full
indemnity basis, all costs, charges, expenses, taxes and liabilities of any kind (including, without
limitation, legal, printing and out-of-pocket expenses) incurred by the Lender, any Receiver or any
Delegate in connection with:
(a) this deed or the Secured Property;
(b) taking, holding, protecting, perfecting, preserving or enforcing (or attempting to do so) any
of the Lender's, a Receiver's or a Delegate's rights under this deed; or
(c) taking proceedings for, or recovering, any of the Secured Liabilities,
together with interest, which shall accrue and be payable (without the need for any demand for
payment being made) from the date on which the relevant cost or expense arose until full
discharge of that cost or expense (whether before or after judgment, liquidation, winding up or
administration of the Borrower) at the rate and in the manner specified in the Facility Agreement.
14.2 Indemnity
The Borrower shall indemnify the Lender, each Receiver and each Delegate, and their respective
employees and agents, on a full indemnity basis against any cost, charge, expense, tax, loss,
liability or damage incurred by any of them as a result of:
(a) the exercise or purported exercise of any of the rights, powers, authorities or discretions
vested in them under this deed or by law in respect of the Secured Property;
(b) taking, holding, protecting, perfecting, preserving or enforcing (or attempting to do so) the
security constituted by this deed; or
(c) any default or delay by the Borrower in performing any of its obligations under this deed.
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Any past or present employee or agent may enforce the terms of this clause 14.2 subject to and in
accordance with the provisions of the Contracts (Rights of Third Parties) Act 1999.
15. FURTHER ASSURANCE
Hide Note
Further assurance
Under this clause, the Borrower must take whatever action the Lender (or a Receiver)
reasonably requires it to take to:
Create, perfect, protect or facilitate the realisation of the security.
Facilitate the exercise of any right, power, authority or discretion by the Lender (or a
Receiver).
This clause enables the Lender to compel the Borrower to take actions to remedy any defects
or omissions in the creation, perfection or protection of the security created by the standard
document. This may include the Borrower providing any documents that are reasonably
required to create, perfect or protect the Lender's interest in the Secured Property.
However, there are limits as to the extent of this power. For example, in Ford v Polymer Vision
Ltd [2009] EWHC 945 (Ch), the court refused an application for summary judgment asking
that a further assurance covenant in a debenture be performed by requiring the borrower to
execute a power of attorney, which would have been used to enter into a Dutch law security
document on the borrower's behalf (see Legal update, Not much reassurance on further
assurance clauses (www.practicallaw.com/1-385-9639)).
The security created by the standard document is not typically a registrable security interest
under section 860 of the Companies Act 2006 (see Drafting note, Drafting assumptions and
legal issues: Perfection) although, in practice, practitioners will often take a cautious view and
register such security. If the standard document is submitted to Companies House for
registration, although it is not a statutory requirement, the Lender should include details of any
covenant for further assurance in any Form MG01 used to register the security at Companies
House. While the details of any covenant for further assurance are not always included, it is
usually helpful to do so to ensure that a clear picture of the security granted is available to
third parties searching the register. For more information, see Drafting note, Form
MG01 (www.practicallaw.com/3-386-4574).
Hide Note
The Borrower shall, at its own expense, take whatever action the Lender or any Receiver may
reasonably require for:
(a) creating, perfecting or protecting the security intended to be created by this deed;
(b) facilitating the realisation of any of the Secured Property; or
(c) facilitating the exercise of any right, power, authority or discretion exercisable by the Lender
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or any Receiver in respect of any of the Secured Property,
including, without limitation, if the Lender or Receiver thinks it expedient, the execution of any
transfer, conveyance, assignment or assurance of all or any of the assets forming part of, or
intended to form part of, the Secured Property (whether to the Lender or to its nominee) and the
giving of any notice, order or direction and the making of any registration.
16. POWER OF ATTORNEY
Hide Note
Power of attorney
This clause is necessary as the Lender cannot guarantee that the Borrower will co-operate
with it to take any steps necessary to perfect or realise its security, particularly if a default has
occurred. Also, if the Borrower does not appoint the Receiver as its attorney and goes into
liquidation, the Borrower's liquidator would have to be made a party if the Receiver disposes
of the Secured Property. For the power of attorney to be effective, the standard document
must be executed as a deed by the Borrower (see Drafting notes, Execution and Drafting
assumptions and legal issues: Execution).
The words "by way of security" and "irrevocably" are important as they bring into effect section
4 of the Powers of Attorney Act 1971, which allows the power of attorney to endure the
winding up or dissolution of the Borrower.
Lenders sometimes accept an amendment to the power of attorney clause as drafted so that it
is only exercisable following the occurrence of an event of default and while the same is
continuing.
The Lender should check that there are no restrictions in the Borrower's constitutional
documents on its ability to grant a power of attorney.
For more information on powers of attorney, see Practice note, Powers of

attorney (www.practicallaw.com/3-107-4654) and Drafting note, Power of
attorney (www.practicallaw.com/8-107-4656).
Hide Note
16.1 Appointment of attorneys

By way of security, the Borrower irrevocably appoints the Lender, every Receiver and every
Delegate separately to be the attorney of the Borrower and, in its name, on its behalf and as its act
and deed, to execute any documents and do any acts and things which:
(a) the Borrower is required to execute and do under this deed; and/or
(b) any attorney deems proper or desirable in exercising any of the rights, powers, authorities
and discretions conferred by this deed or by law on the Lender, any Receiver or any Delegate.
16.2 Ratification of acts of attorneys

The Borrower ratifies and confirms, and agrees to ratify and confirm, anything which any of its
attorneys may do in the proper and lawful exercise, or purported exercise, of all or any of the rights,
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powers, authorities and discretions referred to in clause 16.1.
17. RELEASE
Hide Note
Release
This clause obliges the Lender to take any necessary steps (at the Borrower's expense) to
release the Secured Property from the security created by the standard document once the
Secured Liabilities have been paid in full.
This clause also includes an express provision for reassignment. This is a requirement for
ensuring the assignment is characterised as a legal assignment by way of security and not an
outright transfer (or sale) attracting possible stamp duty.
Read this clause in conjunction with the rights of the Lender under Clause 1.3 (see Drafting
note, Clawback).
Hide Note
Subject to clause 19.3, on the expiry of the Security Period (but not otherwise), the Lender shall, at
the request and cost of the Borrower, take whatever action is necessary to:
(a) release the Secured Property from the security constituted by this deed; and
(b) reassign the Secured Property to the Borrower.
18. ASSIGNMENT AND TRANSFER

18.1 Assignment by Lender
(a) At any time, without the consent of the Borrower, the Lender may assign or transfer the
whole or any part of the Lender's rights and/or obligations under this deed to any person.
(b) The Lender may disclose to any actual or proposed assignee or transferee such
information about the Borrower, the Secured Property and this deed as the Lender considers
appropriate.
Hide Note
Assignment by Lender
The Lender may assign or transfer its rights and obligations under the standard document
without the Borrower's consent. An assignment or transfer under this provision may be
required if the Lender wishes to assign or transfer its rights and obligations under the Facility
Agreement as it will wish to do so with the benefit of the accompanying security. A transfer of
obligations must be done by way of novation.
The Borrower may seek to amend the Lender's right to disclose information to any actual or
proposed assignee or transferee (the recipient) so that before any disclosure, the recipient
signs a confidentiality agreement (www.practicallaw.com/3-107-5979). This is usually
acceptable to a lender.
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For more information on assigning security interests, see Standard document, Deed of
assignment of loan: Drafting note: Drafting assumptions and legal issues: Is the facility
agreement secured or guaranteed? (www.practicallaw.com/9-500-4767).
For more information on novating security, see Standard document, Deed of novation of loan
facility: Drafting note: Read this before using document: Is the facility agreement secured or
guaranteed? (www.practicallaw.com/8-500-5017).
Hide Note
18.2 Assignment by Borrower

The Borrower may not assign any of its rights, or transfer any of its obligations, under this deed or
enter into any transaction that would result in any of those rights or obligations passing to another
person.
Hide Note
Assignment by Borrower
The Borrower is prohibited from transferring any of its rights and obligations under the
standard document. It is unlikely that the Lender will accept any amendment of this clause.
Hide Note
19. FURTHER PROVISIONS

19.1 Independent security
This deed shall be in addition to, and independent of, every other security or guarantee which the
Lender may hold for any of the Secured Liabilities at any time. No prior security held by the Lender
over the whole or any part of the Secured Property shall merge in the security created by this deed.
Hide Note
Independent security
This clause is intended to negate any presumption of merger of the security created by the
standard document with any other security given by the Borrower in favour of the Lender. The
merger presumptions are:
An equitable security interest merges with (and is thereby extinguished by) a legal
security interest.
A subsequent security interest is intended to replace an earlier security interest.
(Chetwynd v Allen [1899] 1 Ch 353.)
This is a market standard clause and it is extremely unlikely that the Lender will agree to
delete it.
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Hide Note
19.2 Continuing security

This deed shall remain in full force and effect as a continuing security for the Secured Liabilities,
despite any settlement of account, or intermediate payment, or other matter or thing, unless and
until the Lender discharges this deed in writing.
Hide Note
Continuing security
This clause aims to displace any argument that the security created by the standard
document is released if the Borrower's account with the Lender is in credit after the security is
created (for example, because the facility secured is an overdraft or a revolving facility).
This is a market standard clause and it is extremely unlikely that the Lender will agree to
delete it.
Hide Note
19.3 Discharge conditional

Any release, discharge or settlement between the Borrower and the Lender shall be deemed
conditional on no payment or security received by the Lender in respect of the Secured Liabilities
being avoided, reduced or ordered to be refunded pursuant to any law relating to insolvency,
bankruptcy, winding up, administration, receivership or otherwise. Despite any such release,
discharge or settlement:
(a) the Lender or its nominee may retain this deed and the security created by or pursuant to it,
including all certificates and documents relating to the whole or any part of the Secured
Property, for such period as the Lender deems necessary to provide the Lender with security
against any such avoidance, reduction or order for refund; and
(b) the Lender may recover the value or amount of such security or payment from the Borrower
subsequently as if such release, discharge or settlement had not occurred.
Hide Note
Discharge conditional
This clause makes any discharge of the security constituted by the standard document
conditional on any payment or security received by the Lender not being reviewed and
subsequently avoided, reduced or ordered to be refunded in accordance with any insolvency
laws.
A payment or security may be avoided, reduced or refunded if it is held to be, among other
things, a preference or a transaction at an undervalue. For more information on transactions
that are reviewable in the event of insolvency, see Practice note, Reviewable transactions in
corporate insolvency (www.practicallaw.com/5-107-3979).
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The Lender may agree to reduce the period during which it can retain the security to a
specified period (rather than the period being at the Lender's discretion). Typically, the revised
period may be set at either:
24 months, to tie in with the period during which a transaction at an undervalue or a

preference with a connected person can be set aside.
Six months, to tie in with the period during which a preference with a non-connected
person can be set aside.
The Lender may also agree that the security should be released irrevocably if the Borrower
refinances (www.practicallaw.com/7-384-6168) the Secured Liabilities and is solvent at the
time or, in other situations, where there is reasonable evidence of the Borrower's solvency.
Hide Note
19.4 Certificates
A certificate or determination by the Lender as to any amount for the time being due to it from the
Borrower under this deed [and the Facility Agreement] shall be, in the absence of any manifest
error, conclusive evidence of the amount due.
Hide Note
Certificates
This clause (sometimes known as a conclusive evidence clause) provides that any certificate
given by the Lender of the amount due to it from the Borrower will be conclusive evidence of
that amount, so long as it is not obviously incorrect. However, this clause will not prevent an
English court examining the basis on which any certificate is given.
This clause is market standard when given in favour of a bank or other financial institution.
It may be important that the clause states that any certificate is conclusive evidence of the
amount due under the standard document and not simply that it is conclusive evidence of an
amount. The optional wording in the clause is for use if the Facility Agreement does not
contain a conclusive evidence clause. Any ambiguity in conclusive evidence clauses is
typically resolved in favour of the chargor or mortgagor. For two cases that considered,
among other things, the interpretation of conclusive evidence clauses (in the context of
guarantees), see Legal updates, High Court rules against guarantee and indemnity being
classified as a demand bond (www.practicallaw.com/7-502-9349) and High Court raises the
bar for performance bonds (www.practicallaw.com/1-503-6121).
The Court of Appeal has held that a party's ability to "rely on a manifest error in a certificate
does not depend on its ability to demonstrate the error immediately and conclusively". There
was, they held, no reason why the error must be manifest at the time of the certificate (North
Shore Ventures Ltd v Anstead Holdings, Inc and others [2011] EWCA Civ 230). For more
information, see Legal update, Inadvertent variation of guarantees and manifest errors that
emerge over time (Court of Appeal) (www.practicallaw.com/3-505-4010).
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Hide Note
19.5 Rights cumulative

The rights and remedies of the Lender conferred by this deed are cumulative, may be exercised as
often as the Lender considers appropriate, and are in addition to its rights and remedies under the
general law.
Hide Note
Rights cumulative
This clause confirms that the rights and remedies that the Lender has under the standard
document are cumulative and are in addition to the Lender's general rights at law. For
example, the clause preserves any rights and remedies the Lender may have in
tort (www.practicallaw.com/6-107-7397) or at common law.
This is a market standard clause and it is extremely unlikely that the Lender will agree to this
clause being deleted. For further information, see Drafting note, Cumulative
remedies (www.practicallaw.com/0-202-4706).
Hide Note
19.6 Variations and waivers

Any waiver or variation of any right or remedy (whether arising under this deed or under the
general law), or any consent given under this deed, is only effective if it is in writing and signed by
the waiving, varying or consenting party. It applies only in the circumstances for which it was given,
and shall not prevent the party giving it from subsequently relying on the relevant provision.
Hide Note
Variations and waivers

This clause is designed to exclude informal or unintended variations by the Lender by
requiring a waiver or variation to be in writing and signed before it is effective.
For more information on variation clauses, see Drafting note,

Variation (www.practicallaw.com/1-107-3839).
Hide Note
19.7 Further exercise of rights

No act or course of conduct or negotiation by or on behalf of the Lender shall, in any way, preclude
the Lender from exercising any right or remedy under this deed or constitute a suspension or
variation of any such right or remedy.
Hide Note
Further exercise of rights
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Clause 19.7, Clause 19.8 and Clause 19.9 are intended to counteract certain common law
doctrines and to preserve the Lender's rights if it does not immediately take action or use
every right available to it for a breach of the standard document.
There is some doubt as to whether such clauses are effective. For example, the effectiveness
of a "no waiver" clause has been thrown into doubt by the Court of Appeal's decision in Tele2
International Card Company SA and others v Post Office Ltd [2009] EWCA Civ 9. The court
decided that the no waiver clause in an agreement did not prevent the breaching party from
relying on the doctrine of affirmation of contract by election (www.practicallaw.com/4-385-
1118) (see Legal update, Court of Appeal decision in phonecards
dispute (www.practicallaw.com/8-384-7582)).
Nonetheless, these are market standard clauses and are rarely negotiated.
For further information, see Drafting note, Waiver (www.practicallaw.com/8-107-3807).
Hide Note
19.8 Delay
No delay or failure to exercise any right or remedy under this deed shall operate as a waiver of
such right or remedy.
Hide Note
Delay
See Drafting note, Further exercise of rights.
Hide Note
19.9 Single or partial exercise

No single or partial exercise of any right or remedy under this deed shall prevent any further or
other exercise of that right or remedy, or the exercise of any other right or remedy under this deed.
Hide Note
Single or partial exercise

See Drafting note, Further exercise of rights.
Hide Note
19.10 Consolidation
The restriction on the right of consolidation contained in section 93 of the LPA 1925 shall not apply
to this deed.
Hide Note
Consolidation
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Section 93 of the LPA 1925 provides that, unless there is an agreement to the contrary, a
mortgagor is entitled to redeem a mortgage or charge even if it owes money to the lender
under another mortgage or charge. This clause excludes that right, so that the Lender is
entitled to protect itself against any one mortgage or charge failing to cover the Secured
Liabilities adequately (see Practice note, Redemption of mortgages, clogs, collateral
advantages and consolidation: Consolidation (www.practicallaw.com/6-107-3950)).
Hide Note
19.11 Partial invalidity

The invalidity, unenforceability or illegality of any provision (or part of a provision) of this deed
under the laws of any jurisdiction shall not affect the validity, enforceability or legality of the other
provisions. If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if
some part of it were deleted, the provision shall apply with any modifications necessary to give
effect to the commercial intention of the parties.
Hide Note
Partial invalidity
This clause attempts to sever an invalid, unenforceable or illegal provision from the rest of the
standard document on the basis that the remaining provisions will be valid and enforceable.
For this clause to be effective, it is likely that:
The severance must not be contrary to public policy.
The severed obligation must be a separate and independent obligation.
The remaining provisions must not need to be added to or changed as a result of the
severance and their scope and intention must be unaltered following the severance.
For further discussion of severance, see Drafting note, Severance (www.practicallaw.com/7-

107-3841).
Hide Note
19.12 Counterparts
This deed may be executed and delivered in any number of counterparts, each of which is an
original and which together have the same effect as if each party had signed the same document.
Hide Note
Counterparts
This clause is included to make it clear that the parties to the standard document may sign
different copies of the same document and that those copies together will constitute one
agreement signed by all parties. This makes execution easier where it is inconvenient for all
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the parties to sign one document (for example, if the signatories of one party are located in a
different jurisdiction from those of the other signatory). Take care, however, when dealing with
virtual signings or closings and the exchange of signature pages in lieu of full documents.
If the Borrower is not incorporated in England and Wales, the Lender's lawyers will need to
check whether execution in counterpart is acceptable in other jurisdictions, taking into account
any perfection requirements, such as notarisation (see Practice note, Notaries and
notarisation (www.practicallaw.com/5-238-0996)).
For information on virtual signings and closings, see Practice note, Execution of deeds and
documents: Virtual signings and closings (www.practicallaw.com/0-380-8400).
For more information on counterpart clauses generally, see Drafting note,

Counterparts (www.practicallaw.com/8-107-3845).
Hide Note
20. NOTICES
Hide Note
Notices
This clause deals with the mechanism for giving notices, how notices may be delivered and
when the giving and receipt of a notice is deemed to have occurred. The Borrower's and the
Lender's notice details should be inserted and these should match those in the Facility
Agreement.
For more information on notice clauses, see Drafting note, Notices (www.practicallaw.com/3-
107-3843).
Hide Note
20.1 Service
Each notice or other communication required to be given under or in connection with this deed
shall be:
(a) in writing, delivered personally or sent by pre-paid first-class letter or fax; and
(b) sent:
(i) to the Borrower at:
[ADDRESS]
Fax: [NUMBER]
Attention: [NAME]
(ii) to the Lender at:
[ADDRESS]
-
Fax: [NUMBER]
Attention: [NAME]
(iii) to the relevant Counterparty or insurer at its principal place of business, the details of
which are provided in Schedule 1 or Schedule 2 (as applicable),
or to such other address or fax number as is notified in writing by one party to the other from time
to time.
20.2 Receipt by Borrower

Any notice or other communication that the Lender gives shall be deemed to have been received:
(a) if sent by fax, when received in legible form;
(b) if given by hand, at the time of actual delivery; and
(c) if posted, on the second Business Day after the day it was sent by pre-paid first-class post.
A notice or other communication given as described in clause 20.2(a) or clause 20.2(b) on a day
which is not a Business Day, or after normal business hours, in the place it is received, shall be
deemed to have been received on the next Business Day.
20.3 Receipt by Lender

Any notice or other communication given to the Lender shall be deemed to have been received
only on actual receipt.
21. GOVERNING LAW AND JURISDICTION
Hide Note
Governing law and jurisdiction

Specific commentary is provided below for Clause 21.1 and Clause 21.2. For further detailed
discussion of the issues arising in respect of the governing law of a contract and jurisdiction
clauses, particularly in the context of assignments of choses in action, see Drafting note,
Governing law and jurisdiction (www.practicallaw.com/4-107-3852).
If the Borrower is incorporated outside England and Wales (note that the standard document
assumes the Borrower is incorporated in England and Wales), it is usual to include an English
process agent clause so that the Lender avoids having to effect service of proceedings
outside the jurisdiction (for an example of such a clause, see Standard document, Debenture:
clause 14.3 (www.practicallaw.com/3-202-3055)).
Hide Note
21.1 Governing law

This deed and any dispute or claim arising out of or in connection with it or its subject matter or
formation (including non-contractual disputes or claims) shall be governed by and construed in
accordance with the law of England and Wales.
Hide Note
-
Governing law
If, as is the case under the standard document, the Borrower is incorporated in, and the
Secured Property is situated in, or connected to, England and Wales, the law of England and
Wales will apply but should be specifically stated to do so.
Even if the transaction is purely domestic, and the law of the domestic jurisdiction would be
expected to apply to it, it is best practice to state the applicable governing law expressly
because failure to do so adds to the potential for uncertainty. Should the governing law be
determined to be a law that had not been anticipated (under jurisdictional conflict rules), the
words used in the documents may not be interpreted in the manner the draftsperson intended.
For more information on governing law issues in the context of assignments of choses in
action, see Drafting note, Drafting assumptions and legal issues: Governing law and
jurisdiction.
Hide Note
21.2 Jurisdiction
The parties to this deed irrevocably agree that, subject as provided below, the courts of England
and Wales shall have exclusive jurisdiction to settle any dispute or claim that arises out of or in
connection with this deed or its subject matter or formation (including non-contractual disputes or
claims). Nothing in this clause shall limit the right of the Lender to take proceedings against the
Borrower in any other court of competent jurisdiction, nor shall the taking of proceedings in any one
or more jurisdictions preclude the taking of proceedings in any other jurisdictions, whether
concurrently or not, to the extent permitted by the law of such other jurisdiction.
Hide Note
Jurisdiction
In selecting the applicable jurisdiction, the Lender should consider the location of the Secured
Property. The Lender should also consider its ability to enforce a judgment obtained in the
chosen jurisdiction in another jurisdiction. Governing law and jurisdiction clauses are
particularly relevant when assigning choses in action. The standard document is prepared on
the assumption that all the Secured Property is located in (that is, the rights, benefits and
interests secured by the standard document arise under the laws of) England or Wales. For
more information on jurisdiction issues in the context of assignments of choses in action, see
Drafting note, Drafting assumptions and legal issues: Governing law and jurisdiction.
From the Lender's perspective, the clause is a non-exclusive jurisdiction clause (that is, the
Borrower nominates a jurisdiction but the Lender is not prohibited from bringing proceedings
in another jurisdiction).
For further details on enforcing judgments across jurisdictions, see PLC Dispute Resolution,
Practice note, Reciprocal enforcement of judgments (www.practicallaw.com/0-203-8930).
Hide Note
-
21.3 Other service

The Borrower irrevocably consents to any process in any proceedings under clause 21.2 being
served on it in accordance with the provisions of this deed relating to service of notices. Nothing
contained in this deed shall affect the right to serve process in any other manner permitted by law.
This document has been executed as a deed and is delivered and takes effect on the date stated
at the beginning of it.
SCHEDULE 1
RELEVANT AGREEMENTS
Hide Note
Relevant Agreements
This Schedule should contain the details of each agreement that the Borrower assigns to the
Lender under Clause 3.1(a) (see Drafting note, Assignment) as at the date of the standard
document. Where possible each contract, agreement or document should be clearly identified
and recorded in the Schedule. Typically, the Schedule would include details of the following
for each agreement:
The counterparty or counterparties (including the full name, address and any company or
registered partnership number if known).
The name of the agreement.
The date of the agreement.
Any expiry date.
Any other material details such as account numbers, invoice numbers and so on.
For more information on the types of agreement or arrangement that are typically assigned,
see Drafting note, Relevant Agreement.
Hide Note
[DETAILS OF SPECIFIC AGREEMENTS TO BE ASSIGNED]
SCHEDULE 2
RELEVANT POLICIES
Hide Note
-
Relevant Policies
This Schedule should contain the details of each policy of insurance that the Borrower assigns
to the Lender under Clause 3.1(b) (see Drafting note, Assignment) as at the date of the
standard document. Where possible, each policy should be clearly identified and recorded in
the Schedule. Typically, the Schedule would include details of the following for each policy:
The insurer (including the address of that insurer's principal place of business).
The insured risk.
The date of the policy (and any renewal or expiry date).
The policy number.
The amount of cover.
For more information on the assignment of insurance policies, see Drafting note, Drafting
Hide Note
[DETAILS OF SPECIFIC POLICIES OF INSURANCE TO BE ASSIGNED]
SCHEDULE 3
NOTICE AND ACKNOWLEDGEMENT OF ASSIGNMENT OF RELEVANT

AGREEMENT
Hide Note
Notice and acknowledgement of assignment of

Relevant Agreement
In the notice, the Borrower notifies the Counterparty that it has created security over the
Relevant Agreement. For more on the need to give notice of an assignment, see Drafting
notes, Drafting assumptions and legal issues: Perfection: Notice of assignment and Notices to
be given by Borrower.
The notice is a letter that the Borrower will send to each Counterparty. The Borrower will
enclose with the notice, a copy of it with the form of acknowledgement to be signed by the
Counterparty attached. When the Counterparty receives the notice, it should sign the
acknowledgement and deliver it to the Lender. Receipt of the signed acknowledgement by the
Lender may be a condition precedent to the availability to the Borrower of the loan facilities
under the Facility Agreement. This ensures that the Borrower does get the Counterparty to
give the acknowledgement to the Lender.
-
If the Borrower simply serves the notice on the Counterparty without the Counterparty's prior
agreement as to the form of the acknowledgement it must give, both the Borrower and the
Lender run the risk that the Counterparty will refuse to sign the acknowledgement.
Accordingly, the Borrower should not covenant that the Counterparty will give the
acknowledgement unless the actual signing of the acknowledgement is within the control of
the Borrower. Similarly, the Lender should not agree to make the facilities available until it is
satisfied that the Counterparty has given an acceptable acknowledgement.
It is often time consuming to get a Counterparty's agreement to the form of acknowledgement.

Accordingly, the notice and acknowledgement should be agreed between the Borrower, the
Lender and the Counterparty as early as possible in a transaction. The lawyers acting for the
Lender normally draft the forms of notice and acknowledgement. The forms of notice and
acknowledgement are often attached to the relevant security document as a schedule.
The wording in the notice and, as far as possible, the acknowledgement, should conform to
the wording of the covenants in the standard document.
The form of this notice (and acknowledgement) should also be used for any notice of
assignment under Clause 6.10(c) with any necessary modifications.
The extent to which the Lender will allow the notice (and acknowledgement) to depart from
this will be a matter for commercial negotiation having regard to, among other things:
The materiality of the relevant choses in action.
The need to ensure a full legal assignment of such choses in action.
Hide Note
PART 1
Form of notice of assignment
[On the letterhead of the Borrower]
[NAME OF COUNTERPARTY]
[ADDRESS LINE 1]
[ADDRESS LINE 2]
[POSTCODE]
[DATE]
Dear Sirs,
Security assignment (Assignment) dated [DATE] between [BORROWER] and [LENDER]
We refer to the [DESCRIBE RELEVANT AGREEMENT] (Contract).
Hide Note
-
Description of the Relevant Agreement

The notice should include a description of the Relevant Agreement so that it can be clearly
identified. The Lender (or its lawyers) should ensure all factual information is accurate to avoid
potential disputes with the Borrower.
The term "Contract" should be amended throughout the notice and the acknowledgement if it
is not an appropriate descriptive term for the Relevant Agreement.
Hide Note
This letter constitutes notice to you that under the Assignment [(a copy of which is attached)] we
have assigned to [LENDER] (Lender), by way of security, all our rights, title and interest and benefit
in and to the Contract.
We irrevocably instruct and authorise you to:
Comply with the terms of any written instructions received by you from the Lender relating to
the Contract, without notice or reference to, or further authority from, us and without enquiring
as to the justification or the validity of those instructions.
Hold all sums from time to time due and payable by you to us under the Contract to the order
of the Lender.
Pay, or release, all monies to which we are entitled under the Contract to the Lender, or to
such persons as the Lender may direct.
Disclose information in relation to the Contract to the Lender on request by the Lender.
Hide Note
Instructions and authorisations

The notice contains various instructions and authorisations from the Borrower to the
Counterparty that are designed to strengthen the Lender's position. The Borrower's
instructions should reflect the provisions of the covenants in the standard document.
Hide Note
Neither the Assignment nor this notice releases, discharges or otherwise affects your liability and
obligations in respect of the Contract.
Subject to the foregoing, you may continue to deal with us in relation to the Contract until you
receive written notice to the contrary from the Lender. Thereafter, we will cease to have any right to
deal with you in relation to the Contract and you must deal only with the Lender.
Hide Note
-
Counterparty to deal with the Borrower until notice

from the Lender
The notice provides that the Counterparty can continue to deal with the Borrower until it
receives written notice from the Lender to the contrary. The Lender is likely to give such a
notice to the Counterparty when the security constituted by the standard document becomes
enforceable.
Hide Note
Please note that we have agreed that we will not amend or waive any provision of or terminate the
Contract without the prior written consent of the Lender.
The instructions in this notice may only be revoked or amended with the prior written consent of the
Lender.
Hide Note
No amendment of instructions
It will be important to the Lender that the Counterparty is made aware that the instructions in
the notice cannot be revoked or amended without the Lender's prior written consent. This is
because any amendment or revocation of those instructions could be prejudicial to the
Lender's security interest in the Relevant Agreement.
Hide Note
Please confirm that you agree to the terms of this notice, and to act in accordance with its
provisions, by sending the attached acknowledgement to the Lender at [ADDRESS OF LENDER],
with a copy to us.
This notice, and any dispute or claim arising out of or in connection with it or its subject matter or
formation (including non-contractual disputes or claims), shall be governed by and construed in
Hide Note
Governing law
Always include a governing law clause in both the notice and acknowledgement. The
governing law should be the same as the governing law of the relevant security document.
This ensures that there is no room for a party to argue that the notice (or acknowledgment) is
governed by a law that is different to that of the Facility Agreement and the standard
document.
For more information on governing law clauses in the context of assignment, see Drafting
note, Governing law and jurisdiction.
-
Hide Note
Yours faithfully,
................................................................
[NAME OF BORROWER]
PART 2
Form of acknowledgement of assignment
[On the letterhead of the Counterparty]
[NAME OF LENDER]
[ADDRESS LINE 1]
[ADDRESS LINE 2]
[POSTCODE]
[DATE]
Dear Sirs,
We confirm receipt from [BORROWER] (Borrower) of a notice (Notice) dated [DATE] of an

assignment, by way of security, of all the Borrower's rights under [DESCRIBE RELEVANT
AGREEMENT] (Contract).
[Terms defined in the Notice shall have the same meaning when used in this acknowledgement.]
Hide Note
Definitions
If the form of acknowledgement uses any terms defined in the Notice (as defined in the
acknowledgement) it is important that the acknowledgement makes it clear that those terms
have the same meaning in the acknowledgement as is given to them in the Notice.
Hide Note
We confirm that:
We accept the instructions and authorisations contained in the Notice and agree to comply with
the Notice.
There has been no amendment, waiver or release of any rights or interests in the Contract
since the date of the Contract.
We will not cancel, avoid, release or otherwise allow the Contract to lapse without giving the
Lender at least 30 days' prior written notice.
-
We have not, as at the date of this acknowledgement, received notice that the Borrower has
assigned its rights under the Contract to a third party, or created any other interest (whether by
way of security or otherwise) in the Contract in favour of a third party.
The Lender will not in any circumstances have any liability in relation to the Contract.
The Contract shall not be rendered void, voidable or unenforceable by reason of any non-
disclosure by the Lender.
Hide Note
Confirmations
The acknowledgement should contain confirmation from the Counterparty that it accepts, and
will comply with, the instructions and authorisations contained in the Notice.
The Lender will also want the Counterparty to confirm various other issues.
Delivery of a copy (being either an original or certified copy) of the Relevant Agreement to the
Lender is likely to be a condition precedent to the availability of the facilities under the Facility
Agreement. So that it can be sure that this copy is an up-to-date reflection of the Relevant
Agreement, the Lender will want to be sure that there has been no amendment, waiver or
release of rights or interests under the Relevant Agreement since the date of the Relevant
Agreement provided to it, so the acknowledgement includes a confirmation to that effect.
The Lender will also want to be sure the Contract is not cancelled, avoided, released or
allowed to lapse in the future unless it has been informed in advance. If any of these things
happen, the Lender's security package will be diminished. Therefore, it will want advance
notice so that it can consider any action it may need to take as a consequence, for example,
requiring the Borrower to remedy any default under the Relevant Agreement or enter into
replacement equivalent arrangements.
Hide Note
This letter, and any dispute or claim arising out of or in connection with it or its subject matter or
Hide Note
Governing law
See Drafting note, Governing law.
Hide Note
Yours faithfully,
.......................................
-
[COUNTERPARTY]
SCHEDULE 4
NOTICE AND ACKNOWLEDGEMENT OF ASSIGNMENT OF RELEVANT POLICY
Hide Note
Notice and acknowledgement of assignment of

Relevant Policy
For the most part, the issues relating to the need to give notice in respect of choses in action
generally (as described in the drafting notes accompanying Schedule 3) are equally
applicable in the context of a security assignment of rights under an insurance policy.
Where there are issues that are specific to a security assignment of rights under an insurance
policy, they are set out in the drafting notes to this Schedule 4.
For more information on the assignment of insurance policies generally, see Drafting note,
Drafting assumptions and legal issues: Insurance policies.
For a stand-alone standard document notice and acknowledgement of a security interest over
an insurance policy (including integrated drafting notes), see Standard document, Notice and
acknowledgement of security interest over insurance policy (www.practicallaw.com/0-381-
3717).
Hide Note
PART 1
Form of notice of assignment
[On the letterhead of the Borrower]
[NAME OF INSURANCE COMPANY]
[ADDRESS LINE 1]
[ADDRESS LINE 2]
[POSTCODE]
[DATE]
Dear Sirs,
We refer to the [DESCRIBE INSURANCE POLICY AND SPECIFY ITS POLICY NUMBER] (Policy).
Hide Note
Description of the Policy
-
The notice should include a description of the Relevant Policy so that it can be clearly
identified. The details of the Relevant Policy should include the relevant policy number and
the Lender (or its lawyers) should ensure all factual information is accurate to avoid potential
disputes with the Borrower.
Hide Note
This letter constitutes notice to you that under the Assignment [(a copy of which is attached)] we
have assigned to [LENDER] (Lender), by way of security, all our rights, title and interest and benefit
in and to the Policy.
We irrevocably instruct and authorise you to:
[Note the Lender's interest on the Policy as [DESCRIBE NOTATION REQUIRED BY LENDER
TO BE ENDORSED ON POLICY, FOR EXAMPLE, "FIRST MORTGAGEE"] and first loss
payee OR Name the Lender on the Policy as co-insured].
Comply with the terms of any written instructions received by you from the Lender relating to
the Policy, without notice or reference to, or further authority from, us and without enquiring as
to the justification or the validity of those instructions.
Hold all sums from time to time due and payable by you to us under the Policy to the order of
the Lender.
Pay, or release, all monies to which we are entitled under the Policy to the Lender, or to such
persons as the Lender may direct.
Disclose information in relation to the Policy to the Lender on request by the Lender.
Hide Note
Instructions and authorisations

The Borrower's instructions should reflect the provisions of the insurance covenants in the
standard document (and the Facility Agreement) (see Clause 6.14 - Clause 6.17).
One of the most important instructions is that the insurer must note the Lender's interest on
the Policy. From the Lender's perspective, it is important that the insurer notes the Lender on
the Policy as "first loss payee". This ensures that the proceeds of the Policy will be paid direct
to the Lender. The insurance covenant in the standard document (or Facility Agreement) may
alternatively provide that the Borrower must get the Policy reissued so that the Borrower and
the Lender are co-insured. If this is the case then the notice should reflect that. For more
information, see Drafting note, Insurance.
Hide Note
Neither the Assignment nor this notice releases, discharges or otherwise affects your liability and
-
obligations in respect of the Policy.
Subject to the foregoing, you may continue to deal with us in relation to the Policy until you receive
written notice to the contrary from the Lender. Thereafter, we will cease to have any right to deal
with you in relation to the Policy and you must deal only with the Lender.
Hide Note
Insurer to deal with the Borrower until notice from the

Lender
See Drafting note, Counterparty to deal with the Borrower until notice from the Lender.
Hide Note
The instructions in this notice may only be revoked or amended with the prior written consent of the
Lender.
Hide Note
No amendment of instructions
See Drafting note, No amendment of instructions.
Hide Note
Please confirm that you agree to the terms of this notice and to act in accordance with its
provisions by sending the attached acknowledgement to the Lender at [ADDRESS OF LENDER],
with a copy to us.
This notice, and any dispute or claim arising out of or in connection with it or its subject matter or
Hide Note
Governing law
Hide Note
Yours faithfully,
................................................................
[NAME OF BORROWER]
PART 2
Form of acknowledgement of assignment
-
[On the letterhead of the insurance company]
[NAME OF LENDER]
[ADDRESS LINE 1]
[ADDRESS LINE 2]
[POSTCODE]
[DATE]
Dear Sirs,
We confirm receipt from [BORROWER] (Borrower) of a notice (Notice) dated [DATE] of an

assignment, by way of security, of all the Borrower's rights under [DESCRIBE INSURANCE
POLICY AND ITS NUMBER] (Policy).
[Terms defined in the Notice shall have the same meaning when used in this acknowledgement.]
Hide Note
Definitions
See Drafting note, Definitions.
Hide Note
We confirm that:
We accept the instructions and authorisations contained in the Notice and agree to comply with
the Notice.
We have noted the Lender's interest on the Policy as [DESCRIBE NOTATION REQUIRED BY
LENDER TO BE ENDORSED ON POLICY, FOR EXAMPLE, "FIRST MORTGAGEE AND
FIRST LOSS PAYEE" OR AS "CO-INSURED"].
There has been no amendment, waiver or release of any rights or interests in the Policy since
the date the Policy was issued.
We will not cancel, avoid, release or otherwise allow the Policy to lapse without giving the
Lender at least 30 days' prior written notice.
We have not, as at the date of this acknowledgement, received notice that the Borrower has
assigned its rights under the Policy to a third party, or created any other interest (whether by
way of security or otherwise) in the Policy in favour of a third party.
The Lender will not in any circumstances be liable for the premiums in relation to the Policy.
-
The Policy shall not be rendered void, voidable or unenforceable by reason of any non-
disclosure by the Lender.
Hide Note
Confirmations
As with the Relevant Agreements, delivery of a copy (being either an original or certified copy)
of the Policy to the Lender is likely to be a condition precedent to the availability of the
facilities under the Facility Agreement. (Note that in the case of a life policy, a lender will
usually take possession of the Policy (Spencer v Clarke (1878) 9 Ch D 137).) So that it can be
sure that this copy is an up-to-date reflection of the Policy, the Lender will want to be sure that
there has been no amendment, waiver or release of rights or interests under the Policy since
the Policy was issued, so the acknowledgement includes a confirmation to that effect.
The Lender will want advance notice of any problems with the Policy so that it can consider
any action it may need to take as a consequence, for example, requiring the Borrower to take
out replacement insurance. This will be particularly important if the Policy relates to an asset
that is also a part of the Lender's security package. If the insurance is not replaced and the
asset in question is then destroyed, there will be no insurance monies to replace it and the
value of the Lender's security package will be significantly reduced.
Hide Note
This letter, and any dispute or claim arising out of or in connection with it or its subject matter or
Hide Note
Governing law
Hide Note
Yours faithfully,
.......................................
[COUNTERPARTY]
Hide Note
Execution
The Borrower should execute the standard document as a deed.
An assignment (whether legal or equitable) of a chose in action must be signed by the

assignor (or its lawful agent) (sections 136 and 53(1)(c), LPA 1925).
-
The Lender must also sign the deed because it has undertaken obligations under the
standard document (for example, under Clause 17).
The standard document uses standard execution wording for companies subsequent to the
Companies Act 2006. Lenders typically execute by way of authorised signatories or may have
preferred forms of execution wording that should be used.
When the standard document is signed, the parties should request evidence of the authority
of any authorised signatories.
For more information on the need for the standard document to be executed as a deed, see
Drafting note, Drafting assumptions and legal issues: Execution.
For more on the execution of deeds and documents by companies, see Practice note,
Execution of deeds and documents (www.practicallaw.com/0-380-8400).
Hide Note
Executed as a deed by [NAME OF BORROWER] acting by ....................

[NAME OF FIRST DIRECTOR], a director and [NAME OF
[SIGNATURE OF
SECOND DIRECTOR/SECRETARY], [a director OR its
FIRST DIRECTOR]
secretary]
Director
....................
[SIGNATURE OF
SECOND DIRECTOR
OR SECRETARY]
[Director OR Secretary]
OR
Executed as a deed by [NAME OF BORROWER] acting by

[NAME OF DIRECTOR] a director, in the presence of: ....................
.................... [SIGNATURE OF
DIRECTOR]
[SIGNATURE OF WITNESS]
Director
[NAME, ADDRESS [AND OCCUPATION] OF WITNESS]
Executed as a deed by [NAME OF LENDER] acting by

[NAME OF FIRST DIRECTOR], a director and [NAME OF ....................
SECOND DIRECTOR/SECRETARY], [a director OR its
[SIGNATURE OF
secretary]
FIRST DIRECTOR]
Director
-
....................
[SIGNATURE OF
SECOND DIRECTOR
OR SECRETARY]
[Director OR Secretary]
OR
Executed as a deed by [NAME OF LENDER] acting by

[NAME OF DIRECTOR] a director, in the presence of: ....................
.................... [SIGNATURE OF
DIRECTOR]
[SIGNATURE OF WITNESS]
Director
[NAME, ADDRESS [AND OCCUPATION] OF WITNESS]
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Security Assignment of Contractual Rights - PLC

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Security Assignment of Contractual Rights - PLC

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A standard form security assignment of contractual rights, created by a company incorporated in

1. Definitions and interpretation

4. Liability of the Borrower

5. Representations and warranties

7. Powers of the Lender

8. When security becomes enforceable

11. Powers of Receiver

13. Application of proceeds

14. Costs and indemnity

15. Further assurance

16. Power of attorney

18. Assignment and transfer

19. Further provisions

21. Governing law and jurisdiction

3. Notice and acknowledgement of assignment of Relevant Agreement

4. Notice and acknowledgement of assignment of Relevant Policy

Drafting assumptions and legal issues

The standard document does not create fixed (www.practicallaw.com/0-107-5768) or

The standard document is drafted on the basis of the following assumptions:

The security is created by a private company (www.practicallaw.com/5-107-7048)

The security is granted in favour of a single lender, which is a bank.

It secures amounts due by the Borrower under a bilateral

The facility agreement (www.practicallaw.com/8-200-1386) sets out:

the general representations, warranties, covenants and events of

interests under leases, including rent, or other rights in real property;

intellectual property (www.practicallaw.com/9-107-7541);

a partner's interest in a partnership or partnership property (see Practice note, Taking

a beneficiary's interest in a trust fund;

financial instruments (www.practicallaw.com/4-200-9252) including any rights or

a right to a cash deposit made with a bank;

receivables (www.practicallaw.com/3-107-7110), including book

choses in action that are essentially personal in nature; and

a bare cause of action or other right in litigation.

The assignment is not a partial assignment.

Legal mortgage or equitable mortgage

By contrast, a charge is simply an encumbrance (www.practicallaw.com/2-500-5888),

A mortgage of a chose in action may also be effected by novation (www.practicallaw.com/1-

An assignment is a means of transferring a party's (assignor's) rights under a contract with a

An assignment may be a legal assignment (www.practicallaw.com/9-107-6754) (also

The assignment must be in writing and signed by the assignor.

The assignment must be absolute (that is, unconditional and irrevocable).

An assignment by way of security will only be a legal assignment if it is expressed to be an

Restrictions and prohibitions on assignment

Unreasonably withholding consent to assignment

Assignment without consent

Certain rights not transferred by assignment

amounts payable by that counterparty.

Lender may be subject to equities

Identifying the Relevant Agreements

The type of transaction.

The nature of the Borrower's business.

The value of the Borrower's interest in that contract.

The Lender's credit support requirements.

Examples of contracts that are typically secured by way of assignment include:

Construction or development documents including collateral warranties.

Property sale agreements or agreements for lease.

Hedging (www.practicallaw.com/8-107-6684) agreements.

Keyman insurance (www.practicallaw.com/0-107-6211) and other insurance policies

The acceptance by an insurer of an assignment, and its acknowledgement of the Lender's

An acknowledgement that the policy can be sold, surrendered or exchanged by the

Life insurance policies