Take reasonable steps to obtain a proper price for the asset.
Where a chargee takes enforcement action in relation to charged shares, it will be subject to the overriding legal obligations under English law on chargees exercising a power of sale, being to: In practice, chargees may also require the addition to the articles of association of provisions which specifically facilitate the right of a chargee of shares to be registered as holder of the shares in the event of enforcement. For this reason, it is important that the articles of association of that company are checked in advance, and that provisions permitting, for example, the directors to refuse to register a transfer or standard pre-emption on transfer provisions are removed or expressed not to apply in such circumstances.
In the event of enforcement of an equitable charge, the stock transfer form would have to be lodged with the company whose shares were charged for registration of the chargee as the holder of the shares in question. In practice, there is little difference between an equitable charge and an equitable mortgage over shares, the terms being used interchangeably. As a result, the charge takes effect as an equitable charge. The security agreement will provide that the chargee will only date and submit the stock transfer form for registration if the charge becomes enforceable. The actual terms of the charge will be set out in a security agreement between lender/chargee and borrower/chargor which will contain many of the provisions and protections in favour of the chargee which we would expect to find in any formal charge, whatever the assets. Legal charges over shares are less common than equitable charges over shares, which are created by depositing the relevant share certificate with the chargee, accompanied by a completed, undated stock transfer form. This would mean the lender/chargee actually being registered in the register of members of the company whose shares are being charged in relation to those shares. To put in place a legal charge over shares, title to the shares is actually transferred to the lender by way of security for the relevant obligations, on condition that it is re-transferred when the secured obligations are discharged. With a smaller private company, this may be very uncertain. An overriding question for the chargee at the outset with any charge over shares will be the marketability of the charged shares in the event of enforcement. Charges over shares of companies incorporated under English law are not uncommon, often as part of a group banking facility, where subsidiary company shares are charged by the borrowing parent company in favour of the lender.