Clifford Chance
Financial Collateral Arrangements and 'possession': shades of Gray
28 February 2011
Last year, doubt was cast on the ability of a collateral-taker to establish a security financial collateral arrangement over intangible property by taking "possession" of that property and thereby benefit from the many protections afforded by the Financial Collateral Arrangements (No. 2) Regulations 2003 (the Regulations that implement the Financial Collateral Directive in the UK). In Gray v G-T-P Group Ltd, the judge, to the surprise of many, suggested that possession of intangible property is a difficult concept and focused instead on control, the alternative method of creating a security financial collateral arrangement. From 6 April 2011, however, the 2003 Regulations will include a shiny new provision relating to "possession". This provision clarifies that possession of intangible property, like dematerialised securities, is possible for the purposes of creating a security financial collateral arrangement, albeit subject to some significant restrictions. Unfortunately, there is as yet no clarification on what is meant by "control" in the 2003 Regulations.
