Corporate Mergers And Hypothecs: Lenders Beware!

1. The dangers of a merger for hypothecary creditors

When financing a business, a lender will want to minimize its exposure to risk by weighing a multitude of factors. In particular it will want to ensure that the borrower continues to respect certain financial ratios and provides it with sufficient security, often in the form of movable hypothecs on the borrower's present and future property. 

Once the financing structure has been put in place, the lender must remain vigilant. Certain events, sometimes beyond its control, can impact the extent and rank of the security granted to it. In particular, the merger of two business entities can cause a lot of headaches to the lenders holding security on the property of the entity resulting from the merger.