What is a security trustee?
A security trustee is a person or corporate entity which holds security for the benefit of others. The security involved may comprise a charge over property, a debenture over the assets and undertaking of a company, a bank account charge or a combination of other types of security for the performance of obligations.
Security trustees are often used in structures such as secured loan notes, where the benefit of the security is held on behalf of the loan note holders as a group. A security trustee is usually (but not always) an independent entity which is regulated by the Financial Conduct Authority or equivalent financial services regulator.
The security trustee, whilst not acting for the Borrower, is appointed typically by the Borrower as an independent trustee to represent the group of investors, holding a charge or debenture on their behalf until the terms of the facility agreement are fulfilled. Typically, a security trustee does not have any day-to-day involvement in the operation of the company, nor does it have any oversight or control over the company’s officers, unless specifically required under the terms of the Security Trustee Deed Agreement which governs the trust and the security trustee’s role.
The security trustee’s primary responsibility is that of acting impartially but representing the interests of the investors should the Borrower fail to meet its financial obligations under the terms agreed in the Security Trustee Deed Agreement or instrument. In most cases, the Security Trustee is given wide discretionary powers to enforce the security in the event of default by the Borrower. Similarly, if the security trustee is called upon to act by a specified percentage of the investors (usually 75%), the trustee would act in accordance with their wishes usually by appointing insolvency practitioners and placing the company into administration, receivership or to liquidate the Company. In either scenario the assets charged in favour of the security trustee are ring fenced and protected from unsecured creditors of the company on behalf of the investors.