Bill of Sale Legislation
The Bill of Sales legislation is almost identical in Ireland and England and Wales. The legislation applies when security is created by an individual over moveable items where the secured items remain in the owner’s possession. The security is void unless the Act is complied with. The security document must be executed verified by an affidavit and the contract must be registered in the High Court within seven days. It must be renewed every five year. Details of each item must be set out.
The Bill of Sales legislation is too rigid, to work as a practical form of security. Many forms of security over goods have evolved so as to avoid the complexities, rigidities and impracticalities of the Bill of Sales legislation. This includes credit sale agreements with the seller “retaining” title, leasing and hire purchase arrangements. These arrangements do not fall under the Bill of Sales Acts because the borrower does not become owner, at least until after the completion of the finance agreement.
Company Floating Charges
Compnies can more easily grant security over all their assets, including movable items, than individuals. They are not subject to the Bill of Sales Acts. The charges must be registered in the relevant Companies Office within 21 days. A floating charge by a company is a charge over a circulating category of assets, usually the company’s working capital. The purpose of a floating charge is to allow the borrower to continue to deal with the assets in the course of its trade. The assets within the scope of the charge may include stock, debts, movables and other circulating assets. See our chapter on securities by companies.
Pledges, Liens & Title Retention
Security can be created over movable items without registration in a number of limited circumstances. These include pledges and pawns under which the mortgagee retains physical custody of the secured item. A pledge gives a creditor the right to retain possession of the secured asset until the debt had been paid.
A lien is a right to retain property until a debt is paid. An example is a mechanic’s lien over a vehicle that has been repaired.
Retention of title which is not strictly a security. It is an arrangement under which title to goods does not pass not pass until payment is made.
Shares
A legal mortgage may be taken over shares by making transfer of them to the mortgagee, subject to an agreement to re-transfer. The mortgagee will be registered as shareholder. It is not possible to note a mortgage on the register of shares of a company.
An equitable mortgage of shares can be taken by way of a transfer executed by the mortgagor, leaving the name of the transferee blank. The share certificate should also be delivered. It is possible to give a company a stop notice that entitles the mortgagee to notice of an application to transfer and gives the mortgagee the opportunity to obtain a restraining order.
Contracts and Claims
There are very little limitations on what might be contained in a contract. Usually there are rights and obligations on the respective parties. One person’s rights are equivalent to the other person’s obligation. The obligations or rights “receivable” are often capable of assignment. This might comprise a right to payment or the right to require performance
Many contracts are not capable of assignment. There is a presumption that a contract may be assigned, unless it is expressed or implied otherwise. An assignment involves an outright transfer of the benefit of the contract. It is not possible to transfer the burdens or obligations under a contract. It is possible to subcontract their performance to a third party. However it is a fundamental principle that a person who has undertaken obligations cannot get rid of his obligations by transferring or assigning them.
Certain types of assets are effectively legal claims which can only be enforced by court action. A debt, insurance policy or bank account fall into this category and can be mortgaged by being assigned to the mortgagee as security. In order to complete the security, notice should be given to the debtor or the party who has the obligation to pay, who should in turn confirm and acknowledge such assignment.
A security assignment over a life policy, bank account or rent account will commonly be encountered in residential and commercial investment lending. In the case of development loans, more complex securities such as security over a special purpose company or security assignments over project assets may be taken.
Assignment and notice in writing is essential to give the assignee the right to sue and enforce the obligation in its own name. Failure to give notice does not necessarily render the assignment void. Rather it means that it can only be indirectly enforced. The priority of assignments is determined by the date of notice to the debtor/covenanting party.
A security assignment may be taken over rents receivable in the same manner as over a debt or third party liability. A formal security assignment is the best way to procure assignment. The tenant should be notified to pay the rent to a nominated account.
Debt, Bank Account
A bank account is a debt owed by the bank to the customer. The customer does not “own” the deposit as such and it is not property. Rather is a claim against the bank. A debt, asset or receivable is mortgaged by assignment in writing followed by notice to the debtor.
Certain difficulties arise with a charge over a deposit with the lender itself. Generally it is not possible to take a security charge over the mortgagee’s own debt (which is what the deposit is). There is a mechanism to avoid this difficulty and EU regulations have assisted and simplified this type of security.
It is possible to create a fixed charge over monies due, such as accounts receivables (e.g. unpaid invoices). It is necessary that the borrower does not control the account and only makes withdrawals with the lender’s specific consent. It is often desirable for a lender to create a fixed charge over a borrower’s debtors as these may constitute a significant asset. Many attempts to create a fixed charge over a receivable attempt to leave the borrower with too much control so that the such charges take effect as floating charges, with the consequent weaknesses and vulnerability. Irish Revenue debts have priority over fixed charges over book debts.
Insurance Policies
The Policy of Insurance Act 1867 (law in both Ireland and the UK) provides that an assignment of an insurance policy must be in writing, and be done either by endorsing the policy or by a separate instrument. Written notice of the assignment must be given to the insurance company at their principal place of business. The company must acknowledge receipt of a notice.
A mortgage of an insurance policy takes the form of an assignment with a provision for re-assignment. The assignments take effect in order of notice.
Intellectual Property
A mortgage over intellectual property which comprises patents or trade marks must be signed, transferred and registered on the Register. A mortgage is registered in the Intellectual Property Office. Mortgages have priority in order of registration.
There is no register of copyright. A mortgage of copyright is taken by way of a transfer subject to an obligation to re-transfer upon redemption.
The grant of security over the following assets must be registered in the Patents Office;
- patents;
- trade marks;
- registered designs.
