Priority of payments in the event of default (LLI)

Hi nick,

Clause 17 of the standard Legal Charge provides for the following distribution (it is avaliable on Companies House where the Security Agent holds a charge):

Application of moneys received


Money that the Security Agent or a Receiver receives under or because of this Deed is to be applied in the following order:


17.1 first in payment of all expenses that the Security Agent or a Receiver incurs in or incidental to the exercise or attempted exercise of a power under this Deed;

17.2 then in payment of any other reasonable outgoings that the Receiver or the Security Agent thinks it appropriate to pay;

17.3 then in payment to the Receiver of any reasonable remuneration (whether by way of commission or otherwise);

17.4 then in payment to the Security Agent or a Receiver of any amount necessary to give effect to any indemnity contained in this Deed; and

17.5 then in payment to the Security Agent of the Secured Money recoverable under this Charge and the Security Agent agrees that it will distribute any such amount to the Lenders rateably in proportion to the money owed to each of them under the Loan Agreement.



Generally speaking (as each situation is unique), as long as no Receiver or Administrator is appointed, the Security Agent's expenses (including legal expenses) are likely to be relatively limited in relation to the loan amount (provided that there is no litigation with another charge holder and/or the borrower(s) but the Security Agent's expenses would rank ahead of capital and interest.

In practise, we only have one loan where there was a shortfall after that the security property was realised (a second charge loan with 81.4% LTV), and we deferred most of the Security Agent's expenses to ensure that lenders received as much as possibly back from the sale of the security property. We deducted the reminder of the Security Agent's fees after settling with the Guarantor (which also ensured that full capital and most interest was returned to lenders).  
 

I hope that this help and do let me know if you have any other questions.

Regards,

Filip