A signed facility agreement does not, by itself, give a lender effective security. The value of collateral depends on the chargor's title, the legal character of the instrument, the required registration or perfection steps and the ability to enforce it when payment fails. Those questions should be answered before disbursement.
Distinguish personal and proprietary protection
A corporate guarantee creates a separate obligation of the guarantor; a mortgage, pledge or charge grants rights against identified property. A pledge involving possession is not the same as a fixed or floating charge over assets that remain in the borrower's business. The lender should identify the collateral, ownership evidence, location and restrictions on transfer. Security over receivables, inventory, equipment and immovable property can require different documentation and perfection. A description such as 'all assets of the company' will not cure a defective instrument or a missing statutory step.
Corporate capacity and approvals matter
The borrowing company and every corporate guarantor or security provider must have lawful capacity and authority. Board approvals should identify the facility and security commitments rather than being treated as general stationery. Transactions involving associated companies raise questions of corporate benefit, directors' duties and conflict management. A director's personal assurance that the company will provide security is not necessarily a valid corporate act. Lenders should inspect relevant constitutional documents, shareholder restrictions and existing facility covenants before relying on a new security package.
Perfection should be a drawdown condition
The Companies Act, 2017 and the applicable property and financial laws may require registration of certain charges and other formalities. The exact steps depend on the instrument and collateral. Priority between secured creditors may turn on dates, notice and the legal effect of registration or possession. A bank that releases funds before completing an essential perfection step may discover that it has only an unsecured or subordinated claim. Closing checklists should require documentary proof of each completed registration, together with the original instruments and collateral records needed for enforcement.
Enforcement is a separate commercial exercise
On default, the lender may need to proceed against the borrower, guarantors and security in a sequence governed by law and contract. The available forum and process may differ for banking-finance claims and ordinary civil recovery. The bank should have current valuations, insurance details, records of prior encumbrances and evidence of delivery of notices. Enforcement costs, contested title and possession problems can materially reduce recoveries even where the security is facially sufficient. Borrowers likewise need to know what events permit acceleration and whether a temporary covenant breach endangers assets unrelated to the immediate facility.
From signed security to recoverable security
Security advice should report not only what documents have been signed, but which rights have been validly created, perfected and made enforceable. The objective is a recoverable position if the transaction fails, not the appearance of protection at closing.
When the issue arises in practice.
Our advice begins with the governing documents, the legal position and the decision that needs to be made.
DISCUSS THIS MATTERThis publication is for general information and does not constitute legal advice on any particular matter.