Q&As

A company is loaning money to a director/shareholder. Can the company take security over (a) the shares owned by the director in the company itself and (b) the director’s receivable under a loan note issued by the company? How can such security be enforced?

read titleRead full title
Copyright © 2025 LexisNexis
Produced in partnership with Brian Cain
Published on: 14 November 2018
imgtext

Creating the security

There are two elements to this Q&A. Firstly, can the director create security over the shares and loan notes they own in/from the company to secure a liability due to the company. As the shares/loan notes are assets of the director they can be the subject of security created by them to any third party.

The second element is the question as to what type of security can be taken by the company in relation to those assets.

Share security

It is not possible for the company to own its own shares and therefore a legal mortgage of the shares will not be available. Although, special provisions of the Companies Act 2006 allow share buyback and the holding of shares in treasury they would not appear to be applicable to this situation. However,

Powered by Lexis+®
Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Shares definition
What does Shares mean?

The CA 2006 merely provides that a share is a share in the company's share capital. A company's share capital comprises the number of shares issued by it to investors either on or after incorporation. Those investors then become the shareholders in the company. A shareholder’s shares are their personal property. By contrast, the assets of a company are owned by the company itself. Owning shares does not entitle a shareholder to any property rights in the company's assets.

Read more readmore

Popular documents

Taking security over cash deposits in bank accounts

Taking security over cash deposits in bank accountsCash is commonly offered as security for a loan.In commercial lending transactions cash may be offered as security:•as part of a package of security over the whole of a company's assets•in transactions where the borrower is required to reserve

Micklefield clauses

Micklefield clausesWhat is a Micklefield clause?It is common for employee share plans to provide that, on termination of employment (or when an employee is given or receives notice of termination of employment), subsisting share awards will be forfeited and subsisting share options will lapse.It is

What is the difference between an appeal and a review?

What is the difference between an appeal and a review?What is an appeal?An appeal in insolvency proceedings is no different to an appeal in normal litigation. An appeal will be allowed only if the appeal court is satisfied that the decision of the lower court was 'wrong' or 'unjust because of a

Brussels I (recast)—domicile (Arts 4 and 63) [Archived]

Brussels I (recast)—domicile (Arts 4 and 63) [Archived]ARCHIVED: This Practice Note has been archived and is not maintained.This Practice Note considers the general rule set out in Article 4 of Regulation (EU) 1215/2012, Brussels I (recast) when determining the relevance of a defendant’s domicile to