Collateral Control Agreement Template for the United States

A Collateral Control Agreement is a specialized legal document that establishes third-party oversight and control over collateral in secured lending transactions. Under United States law, this agreement provides lenders with enhanced security by appointing an independent control agent to manage physical or electronic custody of collateral assets. The arrangement helps satisfy UCC requirements for perfection by control while creating clear protocols for collateral management throughout the lending relationship.

When do you need this document?

You need a Collateral Control Agreement when standard security agreements don't provide sufficient control over collateral assets. This typically occurs in inventory financing arrangements where goods are stored in third-party warehouses, commodities trading transactions involving physical assets, and securities lending where electronic control is required. The agreement is essential when lenders require perfection by control under UCC Article 9, particularly for investment property, deposit accounts, or electronic chattel paper. You'll also need this document when dealing with high-value collateral that requires ongoing monitoring and management by a neutral third party.

Key legal considerations

Several critical legal elements must be addressed in your Collateral Control Agreement. The appointment and duties of the control agent must be clearly defined, including their authority to take possession, release, or dispose of collateral upon proper instructions. You must establish clear procedures for giving instructions and notices, including required authentication and timing requirements. The agreement should address liability allocation among all parties, indemnification provisions, and insurance requirements for collateral protection. Priority of security interests and subordination arrangements need careful consideration, especially when multiple lenders are involved. Default provisions must specify when the control agent can take enforcement actions and under what circumstances collateral can be released or sold.

Legal requirements in United States

Under United States law, Collateral Control Agreements must comply with the Uniform Commercial Code, particularly Articles 8 and 9 governing investment securities and secured transactions. For securities collateral, the agreement must satisfy control requirements under UCC Section 8-106, which may involve control agreements with securities intermediaries or direct registration. When dealing with deposit accounts, UCC Section 9-104 control requirements must be met through proper agreements with depositary banks. The agreement must ensure proper perfection of security interests, as control often provides the highest priority under UCC Article 9. Federal regulations may also apply, including SEC rules for securities transactions, Federal Reserve regulations for banking institutions, and Dodd-Frank Act provisions affecting financial institutions. The control agent must be properly licensed and qualified to hold the specific type of collateral involved, and all parties must comply with applicable anti-money laundering and know-your-customer requirements.