Securing securities - what's the best?

When you make a loan, or a supplier or other person has a liability or debt to your business, it is important to ensure that you have a proper security to protect you, and to prevent you from being last in line to claim the debt owed to you.

There are a range of security types available to consider, including personal guarantees, bank guarantees, bonds, insurance, a general security interest or a security interest over circulating assets (previously known as a fixed charge or a fixed and floating charge) or a mortgage. There are advantages and disadvantages of each security type.

A bank guarantee or bond is nearly as good as cash (but there are important differences) but it is rare that you receive these as security, unless you are a landlord.

A personal guarantee is simply a promise by a person to pay the debt if the primary debtor does not pay. A personal guarantee is only worth as much as the person making the promise to pay – so due diligence is required.

Mortgages are securities over land. Mortgages are generally regarded the high water mark for security, because the value of land is stable and the land cannot disappear. You can usually exercise your rights as a mortgagee even if the debtor enters insolvency or bankruptcy.

General security interests are only over personal property, i.e. assets which are not land.

If you receive a mortgage or a general security interest, it needs to be registered within certain time limits to be fully effective for you. Delay in registration can mean you don’t have security at all.

Many securities are not simple to enforce – for some you need a Court order before you can exercise your rights which is not always ideal.

We can assist you obtain the right security for your business.