Template:Amending security interests

Amending security interests

Security is deep Eagle lore. Even sensible, experienced, senior, inhouse lawyers will get the shivers whenever the topic of taking security comes up. This will come from their conditioning: from childhood they have been raised on gruesome stories of what happens to legal eaglets who are careless with security interests. An obscure German children’s author named Heinrich Hoffman wrote a book of cautionary tales about misbehaviour with Geschäftsanteilsverpfändung, and it has thrown a long, nervous shadow over the practice of banking law ever since. Little Harriet played with duration mismatches and burned herself to death. Little Johnny Head-in-Air forgot to register his Sicherungsdarlehen and was struck off the wharf and floated away, never to be seen again. Fidgety Philip amended his security package and rendered it void for want of consideration.

If you amend a document granting a security interest you risk the argument that you have terminated the old security interest and created a new one, thereby re-starting any voidable preference period, potentially invalidating any previously registered charge at Companies House, and of course relegating your interest behind those of anyone who has registered a security interest over the same assets in the mean time.

Some of these risks have been de-complicated by the financial collateral regulations (insofar as they've done away with registration requirements for financial collateral arrangements altogether), and while this is a bit of a mine-field, basic common sense should avoid anyone but the most headless chicken-licken standing on any landmines.

For one thing, to run any risk you have to actually be amending the security interest itself, rather than other related legal or economic terms. So, if you have — ooh, say a prime brokerage agreement which contains a charge but a lot of other stuff besides — you are (in the humble opinion of this bear of little brain) most likely to be amending other things and not the actual charge provision, which tends to be dull and workpersonlike. You may tweak rehypothecation limits, financing rates, transaction terms and so on — but the security package will remain intact.

In any case, the following magic words should help: “These amendments will not affect the effectiveness, time of original execution or priority of any security interests.”