Have you been asked by a Bank or Lender to enter into a Deed of Priority? You’ll probably need to take independent legal advice on it, which of course we can give, but in the meantime here’s a little more information about a Deed of Priority.
What is a Deed of Priority?
A Deed of Priority is an agreement between two or more lenders (creditors) usually to a business, under which the parties agree between themselves the priority of repayment from the borrower.
I’ve recently assisted 12 individuals who’d previously lent money to a company via a Company Bond. Their loans were secured by Debentures. The Company’s new lender, Allica Bank, insisted that the individual bond holders each enter into the Deed of Priority.
Usual Rules of Distribution in Liquidation
Without a Deed of Priority, if a Company goes into liquidation, there is an established order of repayment once a liquidator is appointed. This is:
- Liquidators fees (in fact these are supposed to come 2nd, but usually come first in practice)
- Secured Charge Holders with a Fixed Charge
- Preferential Creditors – employees owed more than £800
- Secondary Preferred Creditors – HMRC for certain taxes
- Secured Charge Holders with a floating charge
- Unsecured creditors / trade creditors
- Shareholders
Accordingly, where there are two secured charge holders, without a Deed of Priority, any money would usually be distributed to the charge(s) that was registered first.
Changing Priority of Repayment
A Deed of Priority then, is entered into between two secured charge holders. In it, one lender will seek to take priority over the others. The priority one is usually called the Senior Creditor and the other the Junior Creditor.
Going back to my recent case study, Allica Bank wanted to ensure that they would be repaid in full before the other bondholders.
Need advice on a Deed of Priority?
If you’ve been asked to give a Deed of Priority, it is likely that you’ll be required to take independent legal advice as well. We can do that for you.
Steven charges £500 plus VAT per Deed of Priority with discounts for additional people signing the same form of Deed.
Get in touch today.
