Can you explain who instructs a security trustee and how?
Can you provide me with the relevant extracts from the Stephenson Harwood book please?
A: SenseCheck
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- 07 May 2024
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Yes
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Simple
From the book:
5.3.1 A Security Trustee's Inherent Discretion
A security trustee is often described as a 'bare trustee', although technically it is not.
A bare trustee is typically a mere nominee with no active duties or fiduciary powers (other than those imposed on all trustees under general law). A security trustee will, however, retain certain discretions to act in the interests of its beneficiaries. For example, the security trustee might have discretion as to the manner of enforcement of the security in the absence of instructions from its beneficiaries. It will also have certain powers and duties which would typically go beyond those of a mere nominee.
In practice, while the security trustee will be provided with the ability to exercise a discretion, it will only do this as a last resort. The default position
should be to seek and act on the instructions of its secured creditor beneficiaries (or a group of them who are empowered to provide directions on behalf of the others), and it should be able to rely (without any liability) on these instructions.
5.3.2 Who Has the Power to Instruct the Security Trustee?
It will be important for a trustee to identify both the beneficiaries of the security trust and those beneficiaries with the power to instruct the security trustee. The security trustee must also ensure, for its own protection, that the documentary provisions dictating who can instruct the security trustee (and how they do it) are followed.
Syndicated lending transactions
Where the security trust provisions are set out in a facility agreement, this will ordinarily be because there is one level of debt in the transaction. In these circumstances, it will commonly be the 'Majority Lenders' (meaning those lenders whose commitments aggregate a certain percentage - often 66½ per cent - of the total commitments who can instruct the security trustee and on whose instructions the security trustee can rely without liability).
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