Share security does not cover shareholder loans

Key points

  • A legal mortgage of shares, ‘debentures’ and ‘other securities’ does not attach a security interest to the benefit of any shareholder loans made by the security provider.
  • If security over shareholder loans is required, it is necessary to take a specific assignment or charge of the relevant debt.

Fons owned ordinary and preference shares in Corporal, which operated the well-known toy store Hamleys. It had also made two loans to Corporal totalling in excess of £2m. Fons granted a legal charge to Kaupthing Bank over ‘the shares’ to secure its liabilities to that bank. The shares were defined as ‘all shares [if any] specified in Schedule 1 [shares] and also all other stocks, shares, debentures, bonds, warrants, coupons or other securities now or in the future owned by the Chargor in Corporal from time to time or any in which it has an interest’.

Pillar acquired the debt and security from Kaupthing…

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