Security Enforcement - English High Court Guidance On The Appropriation Of Collateral Under The Financial Collateral Regulations

• Published date: 21 December 2022
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Financial Services, Financial Restructuring
• Law Firm: Mayer Brown
• Author: Ms Alexandra Wood and Amy Rothbarth

Summary

The English High Court¹ has upheld a collateral-taker's appropriation of shares under the Financial Collateral Arrangements (No 2) Regulations 2003 (the "FCARs"), rejecting arguments raised by the collateral-provider. The shares were the subject of a share charge in favour of the collateral-taker which constituted a "security financial collateral arrangement" under the FCARs. The collateral-taker had enforced the share charge by appropriating the shares.

What is appropriation?

The FCARs implement into English law Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements. The FCARs introduced the concept of "a security financial collateral arrangement" (where a security interest is granted in the financial collateral) and the self-help remedy of appropriation (which a collateral-taker may exercise without a Court order).

Pursuant to Articles 17 and 18 of the FCARs, where a security interest is created or arises under a security financial collateral arrangement on terms that include a power for the collateral-taker to appropriate the financial collateral, the collateral-taker may exercise that power in accordance with the terms of the security financial collateral arrangement, without any order for foreclosure from the courts. The power to...