HomeFWJ TakeawayCompeting security interest in deeds of priority

A borrower may already has a secured lending facility on assets such as a property, vehicles or plant and machinery.

If this will not be discharged or paid off when a new facility is completed, it will often be necessary for the original secured lender to agree to vary or confirm the legal priority of their competing security interest by entering into a deed of priority or inter-creditor agreement to with the new lender.

  • the reason for this is that the law designates the priority of charges to apply by way of first in time having priority over subsequent charges;
  • however, a financier taking a subsequent charge may only be prepared to give finance if it is given priority over the asset being acquired with its finance, and so that priority needs to be agreed between the charge holders in a deed of priority or inter-creditor agreement.

A deed of priority will usually only rank secured debt providers and regulate the distribution of proceeds of enforcement of security.

Typically, in addition to the priority of the distribution of proceeds following enforcement, an inter-creditor deed will also regulate the creditors’ rights to receive payments (such as principal, interest and fees) before any enforcement of security from a common debtor or debtors, as well as the creditors’ rights to enforce security over the assets of that debtor or those debtors.

Where there is more than one layer of security, the inter-creditor deed should set out the order of priority of that class of security.

Francis Wilks & Jones have a team with legal expertise on providing advice relating to deed of priority. We are experts in all matters relating to deeds of priority and interceditor agreements and our expertise include drafting and negotiating deeds of priority and inter-creditor agreements.

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