Secured Convertible Promissory Note for the United Kingdom

Secured Convertible Promissory Note Template for England and Wales

A Secured Convertible Promissory Note under English and Welsh law is a debt instrument that combines elements of debt financing with the potential for equity conversion. It provides the lender with security over specified assets while offering the right to convert the loan into equity shares under predetermined conditions. The document includes detailed provisions for interest calculations, repayment terms, security arrangements, and conversion mechanisms, all governed by the laws of England and Wales.

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What is a Secured Convertible Promissory Note?

A Secured Convertible Promissory Note is commonly used in growth-stage financing where investors seek the security of debt with potential equity upside. This document, governed by English and Welsh law, combines traditional loan provisions with conversion rights, allowing the debt to be converted into equity shares at specified triggers or at the lender's option. It provides security over company assets while offering flexibility in investment structure, making it particularly attractive for bridge financing or pre-Series A rounds. The document includes comprehensive terms covering security arrangements, conversion mechanics, and default provisions.

What sections should be included in a Secured Convertible Promissory Note?

1. Parties: Identifies the lender and borrower

2. Background: Context of the loan and security arrangement

3. Definitions: Key terms used throughout the document

4. Promise to Pay: Principal amount, interest rate, and payment terms

5. Security Provisions: Details of collateral and security arrangements

6. Conversion Rights: Terms and mechanism for converting debt to equity

7. Events of Default: Circumstances triggering immediate repayment

What sections are optional to include in a Secured Convertible Promissory Note?

1. Representations and Warranties: Additional assurances from the borrower, typically used for larger transactions or sophisticated parties

2. Subordination Provisions: Provisions governing the ranking of debt against other creditors, used when multiple creditors exist

3. Board Observer Rights: Provisions granting the lender rights to attend board meetings, typically used for significant investment amounts

What schedules should be included in a Secured Convertible Promissory Note?

1. Schedule of Security Assets: Detailed list of assets forming security

2. Conversion Calculations: Formula and examples for conversion calculations

3. Form of Conversion Notice: Template notice for exercising conversion rights

4. Shareholders' Agreement Terms: Rights applicable post-conversion

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

England and Wales

Publisher

Genie AI

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant legal definitions
Industries

Companies Act 2006: Primary legislation governing company operations, including provisions for share capital, share issues, convertible securities, and directors' duties

Law of Property Act 1925: Foundational legislation concerning security interests and charges over property in England and Wales

Financial Services and Markets Act 2000: Regulatory framework for financial instruments and financial promotion restrictions

Consumer Credit Act 1974: Legislation protecting consumers in credit arrangements, relevant if the note holder could be classified as a consumer

Companies (Registration of Charges) Regulations 2009: Specific regulations governing the registration of security interests and charges at Companies House

FCA Regulations: Financial Conduct Authority regulations regarding regulated investment products and financial instruments

UK Prospectus Regulations: Regulations governing the offering of securities to the public

Income Tax Act 2007: Tax legislation relevant to interest payments and conversion features of the note

Corporation Tax Act 2010: Corporate tax implications for both issuer and holder of the convertible note

Insolvency Act 1986: Legislation governing creditor rights and priority in case of insolvency

Financial Collateral Arrangements (No 2) Regulations 2003: Regulations governing financial collateral arrangements and security interests in financial instruments

Teams

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