Security Trustee is normally appointed when Lenders / Financers are extending the finance to Borrower on Multiple Arrangement basis or on syndication basis. Normally in such arrangement, the Terms and Conditions of sanction of each individual Bank / Institution may differ except common security. Therefore, Security Trustee is appointed, whose role is to create and hold the security on behalf of all the lenders till the time, the loan is settled. It may be stated that Security Trustee cannot precipitate any action on its own unless it is specifically instructed by all lenders or by Facility Agent as per arrangement.
Pursuant to the execution of the Security Trustee Agreement (STA), the Borrower, Lenders (who are NBFCs, Banks & Financial Institutions), and the Security Trustee, come into a contractual arrangement amongst themselves which is legal, valid, binding, and enforceable. The Security Trustee holds a charge on Borrower’s assets including interest in underlying security on behalf of the multiple lenders. Thus under the arrangement, Hypothecation/Mortgage and any other charge on other securities is created by the Borrower in favor of a single entity called “Security Trustee” for the benefit of lenders. In other words, lenders are represented through Security Trustee as their sole representative.
Scope of Services
- There is no conflict of interest in discharging the role as Security Trustee; since Security Trustee has no financial relations with other corporate entities (like many banks and financial institutions have).
- It is the responsibility of the Security Trustee to coordinate with the lenders, borrowers and all other agencies involved in the particular transaction.
- Protection of lender’s interest in respect of security held under the charge including verification of the title deeds related to mortgage property and holding of such title deeds under the custody of STA at one place.
- The limitations on a pledge of shares prescribed under various regulations can be addressed by engaging a Security Trustee
- Enforcement of the security when required by the lenders and disbursement of the sale proceeds without prejudice
- Any potential down sell of Loans can be easily executed to incumbent (incoming) lenders with minimal documentation