Cross-border creation and perfection of security interests

In today’s global financial landscape, lenders and borrowers frequently engage in transactions that span multiple jurisdictions. Ensuring that security interests are properly created, perfected, and enforceable across borders is key to protecting lender rights and maintaining borrower compliance. This alert provides an overview of the legal frameworks in the United States and England and Wales[1], with summary charts to assist in structuring effective security packages.

Secured transactions in the United States

The United States relies on the Uniform Commercial Code (UCC) to govern the creation, attachment, and perfection of security interests in personal property and fixtures. Although the UCC has been adopted in all 50 US states and the District of Columbia, it is not entirely uniform, and state-specific nuances may affect how perfection is achieved. Moreover, in 2022 the Uniform Law Commission promulgated comprehensive amendments to the UCC, which amendments were designed, in part, to address emerging technologies (UCC 2022 Amendments). The UCC 2022 Amendments also add to the UCC an Article 12 which expressly addresses methods for the creation, attachment, and perfection of security interests in virtual currency and other digital assets as “controllable electronic records” (CERs). As of the date of this alert, 31 states and the District of Columbia have enacted the UCC 2022 Amendments.

Also, whether a tax is levied and, if so, how much will be dependent upon the state where the collateral is located.

To establish a valid and enforceable security interest, three conditions must be met: value must be given, the debtor must have rights in the collateral, and the debtor must authenticate a security agreement that describes the collateral. Once these conditions are satisfied, the security interest is created and attaches to the collateral. Perfection is then required to establish priority of the secured party’s security interest against third parties, including in bankruptcy proceedings.

A perfected security interest gives the secured party priority over other (later-filing or unsecured) creditors and, in the case of perfection by filing of UCC-1 Financing Statements, provides public notice of the secured party’s lien. If the secured party holds a first-priority, perfected security interest, their chances of recovery in insolvency scenarios are significantly enhanced.

Perfection methods by asset type

The method of perfection depends on the nature of the asset:

• UCC-1 Financing Statements are used for most personal property. These are filed in the jurisdiction of incorporation of the entity granting a security interest, or in the District of Columbia for non-US entities. Note that a UCC-1 will only be effective against a non-US debtor if its place of business or chief executive office is located in a jurisdiction whose law does not generally require information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system (in the jurisdiction of its place of business or chief executive office) as a condition or result of the security interest's obtaining priority over the rights of a lien creditor of such non-US debtor with respect to the collateral[2]; but it is customary to file a UCC-1 as an extra precaution and to provide notice. In most states, filings are made with the Secretary of State (or in the District of Columbia, with the Recorder of Deeds).


• Commercial tort claims are perfected by filing a UCC-1 but are required to be specifically described in the security agreement.


• Certificated securities are perfected by physical delivery of the original stock certificate (or equivalent) with a stock power. Uncertificated securities are considered general intangibles and are generally perfected by filing a UCC-1. For limited liability company interests, the operating agreement must include Article 8 “opt-in” language to allow perfection by control or possession; otherwise, the equity is treated as a general intangible and perfected by filing a UCC-1. Some state statutes limit the rights granted by a pledge of limited liability company interests unless explicitly stated, so lenders typically require language allowing them to assume equityholder rights upon foreclosure.


• Deposit accounts require a deposit account control agreement (DACA) among the borrower, secured party, and depository bank. If the secured party and depository bank are the same entity, no DACA is required but may still be used depending on the bank’s internal policies and preferences. Securities accounts require a securities account control agreement (SACA) among the borrower, secured party, and securities intermediary. DACAs and SACAs may be blocked, giving the secured party control over any withdrawals from the account. They may also be, and in the US often are, “springing,” meaning that the debtor retains access to and control over the accounts until the secured party provides notice to the depository bank or securities intermediary that an event of default has occurred and the secured party is blocking the account at that time. For asset-based lending (ABL) facilities or liquidity covenants, only cash and cash equivalents covered by a DACA typically qualify.


• Security interests over copyrights are perfected by filing a security agreement with the US Copyright Office. Security interest over patents and trademarks are secured by filing a UCC-1. As a matter of best practice, it is recommended to also file a security agreement with the US Patent and Trademark Office.


• Real property interests are perfected by the filing of mortgages or deeds of trust for owned property, and leasehold mortgages or leasehold deeds of trust for leased property.


• Landlord waivers are often used to allow the secured party access to collateral stored on leased premises.


• Assets, such as motor vehicles, require certificates of title, and security interests over aircraft must be registered with the Federal Aviation Administration (or other applicable state of registration) and, generally, with the International Registry under the Cape Town Convention.


• Certain assets, such as supporting obligations[3], are automatically perfected.


• Intangible assets, such as CERS and “records evidencing chattel paper in electronic form” (otherwise known as “electronic chattel paper”), are perfected by control under the applicable UCC control provisions (eg, Section 9–105 for electronic chattel paper, Section 12–105 for CERs in those jurisdictions that have adopted the UCC 2022 Amendments). For certain intangible assets, the parties may elect to engage a securities intermediary and include Article 8 “opt-in” language in the agreement to allow perfection by control; otherwise, the asset is treated as a general intangible and perfected by filing a UCC-1. Note that other types of intangible assets such as “transferable records” can also be perfected by control.[4]

In the United States, it is customary to name the secured party as lender loss payee or additional insured on insurance certificates. The designation ISAOA ATIMA (its successors and/or assigns as their interests may appear) is commonly used.

The sale of accounts receivables is governed by the UCC and the “perfection” of that sale requires the filing of UCC-1 Financing Statement.

Below is a chart identifying how security interests are perfected in the United States for various asset classes. Note that UCC-1 Financing Statements are only effective against US entities, except for filings in the District of Columbia as described above.

Asset class	Perfection
Personal property other than copyrights[5]	UCC-1 or control, depending on asset type
Investment property[6]	Control or control agreement
Deposit accounts[7]	Deposit account control agreement; automatic if the bank is both the secured party and depositary bank
Securities accounts[8]	UCC-1; securities account control agreement (recommended)
Letter-of-credit rights	Control agreement
Money	Possession[9]
Cash	Possession or control agreement, depending on the nature of the cash[10]
Electronic chattel paper[11]	Control or control agreement
Tangible chattel paper	Possession
Certificated securities[12]	Possession
Uncertificated securities	UCC-1 and entry of security interest on books of entity; may also have a control agreement
Instruments and negotiable documents[13]	Possession
Goods[14]	Possession
Consumer goods[15]	Automatic
Inventory	Automatic
Proceeds	Automatic
Supporting obligations	Automatic
Patents	UCC-1 and file security agreement with the US Patent and Trademark Office (recommended)
Trademarks	UCC-1 and file security agreement with the US Patent and Trademark Office (recommended)
Copyrights	File security agreement with the US Copyright Office (required) and file UCC-1 (recommended)
Equipment	UCC-1; automatic if purchase money security interest
Owned real property	Mortgage/deed of trust filed in the jurisdiction where the property is located[16]
Leased real property	Leasehold mortgage; landlord waiver for access to collateral stored in leased location
Contracts	UCC-1
Insurance	Insurance endorsements to name the secured party as lender loss payee/additional insured on insurance certificates
Other intangible assets not discussed above, such as digital debt obligations or virtual currency[17]	UCC-1; control or control agreement (where available)

 

Excluded property

Certain assets are typically excluded from the collateral package due to legal or tax concerns. These include:

• Deposit accounts for payroll, taxes, and employee benefits,


• Voting equity interests in excess of 65 percent of non-US subsidiaries and US holding companies that have no or minimal assets other than equity interests in foreign entities,


• Contracts, leases, permits, or licenses that prohibit granting a security interest without consent, and


• Intent-to-use trademark applications, where granting a security interest may impair enforceability.

Additionally, some assets are excluded from perfection requirements due to practical considerations, such as:

• De minimis or zero-balance deposit accounts,


• Owned real property below a certain fair market value,


• Leasehold interests, and


• Assets where the cost of perfection exceeds the value.

Documentation and timing

Security interests are typically documented through a security agreement and a pledge agreement, which may be standalone or combined with a guaranty and/or credit agreement. These documents are usually executed at closing. However, post-closing steps – such as DACAs and landlord waivers—are common, though they may be challenged in bankruptcy if not supported by additional consideration.

When new money is provided or amendments are made, reaffirmation agreements or provisions are typically included, though not strictly required.
Upon repayment, release documentation such as UCC-3 filings, DACA/SACA terminations, and intellectual property releases are prepared.

Secured transactions in England and Wales

There are three main categories of security under English law:

• Mortgage: This involves the transfer of title to an asset, which will be transferred back to the debtor once all of the secured obligations are discharged. Physical possession of the asset would not be required and both legal and equitable mortgages can be granted. For an equitable mortgage, the beneficial interest will pass from the debtor to the lender, whereas under a legal mortgage, the legal title will pass.


• Charge: For this type of security, title to the asset will not pass and instead the lender would obtain an equitable interest in the assets. The charges can be fixed or floating charges.


• Lien: These tend to arise by the operation of law and as such they are more likely to arise for the benefit of trade creditors rather than lenders.

Fixed and Floating Charges

In England and Wales, the legal framework distinguishes between fixed and floating charges. A fixed charge is taken over a specific identifiable asset. The distinguishing feature of a fixed charge is that it gives the lender control over the asset. If the lender cannot demonstrate control, the charge will be considered to be floating. It is worth noting that simply stating a charge is a "fixed charge" is not conclusive in determining whether it will be regarded by a court as a fixed charge, such as stock in trade. By contrast, floating charges cover general classes of assets which fluctuate over time. Until a specific event occurs, such as a default under the loan documentation, the debtor is free to dispose of and add to the floating charge assets in the ordinary course of its business. On the occurrence of those previously agreed events, the floating charge will crystallize into a fixed charge and attach to the relevant assets. At this point, the debtor is no longer free to dispose of the floating charge assets in the ordinary course of its business.

Below is a chart identifying the benefits of fixed and floating charges.

Benefits of fixed charges	Benefits of floating charges
Insolvency: If a debtor becomes insolvent within 12 months of granting a floating charge, the floating charge will be void save to the extent of new money provided by the lender to the debtor on or after the date of creation of the floating charge. Fixed charges do not have this limitation.	Flexibility: Floating charges allow the debtor to carry on with its business without needing lender consent for disposing of assets.
Priority: Fixed charges rank ahead of floating charges if a company goes into administration, receivership, or liquidation and would take priority over all unsecured claims.	Broad security: Floating charges provide the lender with the ability to take security over a wide class of current and future assets and can even cover all the assets of a company.
Sale: The sale of an asset which is subject to a fixed charge can only be challenged if the asset is sold to an arm's length purchaser of the legal title that does not have notice of that charge. Real estate assets subject to a fixed charge also have a restriction on the title in favor of the lender preventing such sale or transfer.	Appointing an administrator: An administrator can be appointed without a court order to manage the assets (provided the charge is a qualifying floating charge for the purposes of the Insolvency Act 1986).
Appointing an LPA Receiver: The lender can appoint an LPA (Law of Property Act) receiver without a court order to act as the agent of the debtor to sell the fixed charge assets.

 

Assignment by way of security

An assignment by way of security is a type of mortgage and is an assignment of a debtor's rights against third parties (such as a right to receive payment under an insurance policy). An assignment can be legal or equitable. In order to be a legal assignment, it should be:

• In writing and executed by the assignor


• Absolute, and


• Notified in writing to the relevant third party.

A legal assignment can only assign debts which already exist while an equitable assignment can assign future rights.

Documentation and timing

Security interests in England and Wales are typically documented in corporate lending through an all-asset debenture. A debenture includes in one document the granting of mortgages, fixed and floating charges, and assignments. Separate security documents can also be entered into in respect of specific assets, such as a legal mortgage over certain real property, a share charge over specific shares, etc. Security is typically granted at the time of closing and where new money is provided or material amendments are made to the terms of any loan, it is common for supplemental security to be granted. When other amendments are made to the loan documentation, security and guarantee confirmations are typically required by the lender.

There is no stamp duty payable in the United Kingdom on creating a security interest. There are also no notaries' fees. English companies and limited liability partnerships (LLPs), including any English company which is acting as the General Partner in relation to a charge granted by an English limited partnership, must register any charge document (including any non-English law governed charge documents) to which they are a party in order to grant security at the UK register of companies, known as Companies House. Such security must be registered at Companies House within 21 days of its creation. The fee for registration at Companies House is GBP24 (GBP15 for online registrations) for each separate charge document granted by each charging company. There is no requirement for security created by non-UK corporate parties or by individuals to be registered at Companies House, however security over interests in land in England and Wales, UK intellectual property, and UK ships and aircraft must be registered on specific asset registers whether granted by a UK company, an overseas company, or an individual.

A legal charge or mortgage over land in England and Wales should be perfected by registration at the English Land Registry in order to ensure the priority. There is a fee payable, but it does not exceed GBP305 for registration of the charge alone (if there is a registration involving both a transfer of title, eg, to a purchaser who then grants a charge, the fee will not exceed GBP1,105 for registration of the transfer and the charge).

If English law security is granted by an entity outside of England and Wales, it is important to check for any registration requirements in the jurisdiction of such entity.

Below is a chart identifying how security interests are perfected in England and Wales for various asset classes, in addition to the requirement to register the security at Companies House as mentioned above. Note that registration with Companies House is only effective against English entities.

Asset class	Perfection
Bank accounts	If the account is to be treated as a blocked account, notice must be served on the account bank informing the account bank of the charge and prohibiting the account bank from allowing withdrawals from the account without the consent of the lender
Shares	Delivery of the original share certificate and a duly executed blank stock transfer form
Insurances	Service of a notice addressed to the insurer informing the insurer that the debtor's rights under the insurance policy have been assigned to the lender
Intellectual property	Registration of the security on the relevant IP register
Real property	Registration of the security at the Land Registry
Contracts	Service of a notice addressed to the counterparty informing the counterparty that the debtor's rights under the relevant contract have been assigned to the lender
Equipment	Affix notice of the security granted over the equipment to the actual equipment

 

Conclusion

Cross-border perfection of security interests requires careful planning and jurisdiction-specific expertise. Lenders must ensure their interests are properly perfected to maintain priority, while borrowers must navigate compliance obligations to avoid delays or legal complications. By understanding the nuances of each jurisdiction and aligning documentation and perfection strategies accordingly, parties can structure transactions that are both enforceable and efficient.

 

[1] This article only covers England and Wales and does not cover Scotland or Northern Ireland.

[2] See, eg, the reference below to security required to be registered at Companies House within 21 days of its creation.

[3] In the US, a “supporting obligation” is a letter-of-credit right or secondary obligation that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument, or investment property.

[4] See the federal Electronic Signatures in Global and National Commerce Act, 15 USC 7001 et seq. and the Uniform Electronic Transactions Act, Section 16 for the legal framework for “control” for Article 3 promissory notes in electronic form secured by real property (otherwise known as transferable records).

[5] Personal property is property that is movable or intangible and not real property.

[6] Investment property is a security, security entitlement, securities account, commodity contract, or commodity account.

[7] In the US, a “deposit account” is a bank account that holds cash. 

[8] In the US, a “securities account” is a bank account that holds financial assets.

[9] In the US, “money” means a medium of exchange authorized by a government. It does not include cryptocurrencies.

[10] In the US, “cash” includes money, negotiable checks and balances in bank accounts.

[11] In the US, “chattel paper” is a record that evidences a monetary obligation and a security interest in specific goods and may include a related software license. Electronic chattel paper is chattel paper that is in the form of an electronic record. Tangible chattel paper is chattel paper that is in a physical form (ie, paper).

[12] In the US, certain equity interests are treated as “securities” under the UCC, including shares in a corporation and membership interests in certain limited liability companies, as described above. Securities can be certificated (evidenced by a stock certificate or equivalent) or uncertificated (evidenced in the company’s books and records, but without a physical stock certificate).

[13] In the US, “instruments” or “negotiable documents” are writings (in paper form) that evidence a right to the payment of money, other than investment property, letters of credit, or right to use credit cards.

[14] In the US, “goods” are things that are movable when a security interest attaches (eg, fixtures, timber to be cut, growing crops, manufactured homes). Consumer goods are goods that are primarily used for personal, family, or household purposes.

[15] In the US, “consumer goods” are goods that are primarily used for personal, family, or household purposes.

[16] Assumes real property is held in fee simple.

[17] Digital debt obligations, with respect to the UCC, is any payment obligation in electronic form that does not otherwise qualify as, or is not otherwise covered as, electronic chattel paper, CERs, or “controllable accounts,” “controllable payment intangibles,” or “electronic money,” each as defined in Article 9 of the UCC 2022 Amendments, and would be characterized under the UCC as a payment intangible. As noted above in footnote 3, other regimes for control of certain digital debt obligations known as “transferable records” are available in the US.