Security Trustee -An Active Protector Of Investor Rights

Author:Ms Sarah White

The role of the security trustee is to represent the interests of the holders of notes, who have invested their monies, by taking on the benefit on behalf of the noteholders (and on its own behalf as a secured creditor) of the issuers obligations including the all-important agreement to pay. In essence the security trustee acts as an intermediary between the noteholders and the issuer. Protecting the rights of the noteholders as set out in the trust deed and agreements.

In financial transactions such as securitisation it is essential that the security trustee is both an experienced professional and an independent party, having the right of access to appropriate and relevant information with regard to the assets so that the trustee can monitor the note issuers compliance to its obligations as set forth in the trust deed. The trustee's role is to reduce complications, as well as add value and comfort to the participants.

Mandaris offers the possibility of tapping into the benefits of using a security trustee in commercial structures via its professional trustee company, Mandaris Trustees (Malta) Ltd, a fully licenced trustee company recognised under the Trusts and Trustees Act.

How does it work?

In its simplest form a security trustee is the person or entity holding the various security interests created on trust for the secured creditors, such as banks or bondholders in a financial transaction, like securitisation or investment. The security trustee defends investor rights as well as enforces security upon default. The trustee may accelerate the notes and take enforcement on behalf of the beneficiaries. Equally the nature of the trust structure means that acceleration by a single noteholder is prevented, protecting the entire transaction and preventing an individual noteholder bringing down the structure.

Theoretically the trustee may consult the noteholders prior to taking any action however should this otherwise not be possible or should the trustee choose not to, then the trustee may exercise his discretionary powers to take the necessary steps in order to protect the interests of the noteholders collectively.

Where a trust is created, security may be granted and held by the trustee in his own name (with an indication that it is acting in its capacity as security trustee) irrespective of the number of noteholders (or lenders as the case may be) and irrespective of any transfers or assignments made by the noteholders of their interest in...

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