Legal Issues In The Creation of Security - Part 1

INTRODUCTION

The creation of security constitutes an arrangement whereby a creditor is able to look to a particular asset, or the asset's proceeds of sale, if a debtor fails to discharge its liabilities to the creditor. Particularly with reference to our CDO practice, you should note that security cannot be granted to shareholders in respect of a company's obligations in respect of ordinary or preference shares.

There is a distinction between real rights (rights in rem) and personal rights (rights in personam). A real right is a right which is exercisable against the world at large.¹ A personal right is an interest which is protected solely against specific individuals.² Taking a security interest over an asset confers a real right over that asset. Personal rights which confer additional rights, for example guarantees, are often described as personal security. However, strictly, security