Taking Security Over Securities: The Choice of Law Question

Abstract

The financier who takes collateral to secure a debt (or other obligation) is primarily concerned that the collateral be valid and enforceable against the world. The collateral’s validity, its priority over competing interests, and its enforceability will be decided (in the event of a dispute) by reference to the law applicable to the issue as determined by the court. It is therefore critical that the lawyer advising the financier be able to identify this law in advance so as to ensure the collateral’s validity and enforceability under it. It is this choice of law question that this seminar considers, and specifically that in relation to security taken over securities (shares and other forms of securities). Conflicts literature suggest that the Court of Appeal in Macmillan v Bishopgate Investment Trust plc (No 3) [1996] 1 WLR 387 had decided the question for directly held securities, and that the more difficult (and interesting) question lies with intermediated securities. Conflicts experts and financiers seem confident that that too will be resolved when the Hague Securities Convention becomes law, or with the application of PRIMA. This seminar will seek to demonstrate that Macmillan has not determined the choice of law issue for directly held securities, and that more complex issues remain than conflicts texts suggest (these mostly point to the fact that the judges were divided as to whether shares are located at the jurisdiction of incorporation or the place of the relevant register). It will also seek to demonstrate that neither the Hague Securities Convention nor PRIMA in fact provide a viable solution for security over intermediated securities. Finally it will offer solutions to the choice of law problem.