Lenders discover defects in a security package at the point of enforcement, when the options for repair have closed. Most defects are administrative.
Security is documented at the start of a facility and tested at the end, often years later and usually in circumstances where the borrower is no longer cooperative. Defects that would have taken an afternoon to correct at the outset can, at that stage, materially reduce recovery.
Registration and timing
Statutory registration and filing requirements carry time limits, and the consequences of late compliance vary from additional fees to loss of priority. Facility teams frequently treat post-closing filings as administrative housekeeping delegated without a tracked deadline. A closing checklist that ends at disbursement is incomplete.
Describing the collateral
Collateral descriptions that are copied between transactions tend to describe assets the borrower does not hold and omit assets it does. Where a description is materially inaccurate, enforcement invites argument about what was actually charged.
- Confirm the chargor actually owns the asset, and that any prior charge is disclosed.
- Check whether third-party or lessor consent is required to create the charge.
- Confirm corporate authority, including any borrowing or charging limits.
- Track post-closing filings to completion, with evidence retained on file.
Guarantees and their limits
Guarantees are often the least examined part of a security package. Corporate authority, financial assistance considerations and the interaction between a guarantee and any subordination arrangement all deserve attention at documentation stage rather than at enforcement.
Periodic review
Security packages age. Assets are sold, entities are merged and facilities are amended. A periodic review, aligned to covenant reporting, keeps the package consistent with the borrower's actual position and identifies gaps while they can still be closed cooperatively.
This article is general in nature and does not constitute legal advice.
