What is a Share Security Agreement?
A Share Security Agreement is commonly used in financing transactions where shares are provided as collateral for loans or other financial obligations. The agreement, governed by English and Welsh law, details the creation and enforcement of security interests over shares, including voting rights, dividend entitlements, and enforcement mechanisms. It's essential for corporate financing, acquisition financing, and investment structures, requiring careful consideration of Companies Act requirements and registration formalities. The document typically forms part of a wider security package in financing transactions.
About the Share Security Agreement
A Share Security Agreement is a crucial legal document that creates a security interest over company shares, allowing them to be used as collateral for loans or other financial obligations. Under England and Wales law, this agreement provides lenders with protection by granting them specific rights over the charged shares, including potential enforcement rights if the borrower defaults on their obligations.
When do you need this document?
You'll need a Share Security Agreement when securing business loans with company shares, during acquisition financing where shares serve as collateral, or when establishing investment structures requiring security over equity interests. The document is also essential for corporate restructuring involving secured debt, when providing guarantees backed by share holdings, and in situations where lenders require additional security beyond traditional assets. Private equity transactions, management buyouts, and complex commercial lending arrangements frequently rely on share security agreements to protect lender interests.
Key legal considerations
The agreement must clearly define the security interest being created, whether it's a legal charge or equitable charge over the shares. You need to address voting rights retention or transfer, dividend payment arrangements, and circumstances that trigger enforcement rights. The document should specify registration requirements, particularly the need to file particulars with Companies House within 21 days under the Companies Act 2006. Consider including provisions for share transfers, dealing restrictions, and the security taker's rights to information about the company. Priority of charges is crucial - ensure the agreement addresses how this security ranks against other charges over the same shares.
Legal requirements in England and Wales
Under the Companies Act 2006, share charges must be registered with Companies House within 21 days of creation to be valid against liquidators and creditors. The Financial Collateral Arrangements Regulations 2003 may apply if the arrangement qualifies as a financial collateral arrangement, potentially providing enhanced enforcement rights. You must comply with any restrictions in the company's articles of association regarding share transfers or charges. For listed companies, consider Financial Services and Markets Act 2000 disclosure requirements and Listing Rules obligations. The Law of Property Act 1925 governs the general principles of charge creation, while the Enterprise Act 2002 affects enforcement procedures. Ensure proper execution formalities are followed, including board resolutions authorising the creation of security and compliance with any shareholder approval requirements under company law.
Governing law
Applicable law
This Share Security Agreement is drafted to comply with England and Wales law. Key legislation includes:
- Companies Act 2006: Primary legislation governing company law in the UK. Key sections 770-780 cover registration of charges. Contains crucial provisions for share transfers, share charges, and registration requirements.
- Financial Collateral Arrangements (No.2) Regulations 2003: Implements EU Directive 2002/47/EC on financial collateral arrangements. Provides specific framework for creation and enforcement of security over financial collateral.
- Law of Property Act 1925: Establishes general principles of security interests and sets out requirements for creation of legal charges under English law.
- Financial Services and Markets Act 2000: Provides regulatory framework for financial services and contains specific requirements for security over shares in regulated entities.
- Enterprise Act 2002: Contains important provisions affecting the enforcement of security interests and administrative procedures.
- Insolvency Act 1986: Governs the treatment of security interests during insolvency and establishes priority of creditors in insolvency proceedings.
- PSC Register Requirements: Regulatory requirement to maintain a register of People with Significant Control (PSC) which may be affected by share security arrangements.
- Companies House Registration Requirements: Mandatory registration requirements for company charges at Companies House within specified timeframes.
- FCA Requirements: Financial Conduct Authority regulatory requirements that may apply when dealing with regulated entities or financial instruments.
