What is a Security Trust?
The notion of a Security Trust was first introduced into Maltese Law in 2004, through the introduction of Article 2095E of the Civil Code. A security trust exists when security is created in favour of a trustee (known as the security trustee) for the benefit of any creditor or creditors.
Security Mechanisms under Maltese Law
Prior to understanding the benefits of a security trust, one must first understand the legal mechanics and formalities behind certain security instruments under Maltese law.
Traditional Security Mechanisms under Maltese Law
Privileges and hypothecs are the most common lawful causes of preference under Maltese law. Both privileges and hypothecs must be registered in the Public Registry in order for their right of preference to be effective. The note of registration must identify the creditor, the debtor and the amount of capital due.
This gives rise to two major disadvantages. The first involves a lack of flexibility to cater for future debts of a yet indeterminate value, since the amount of capital due must be stated in the note of registration.
The second occurs in situations where a large consortium of lenders are involved in financing a project. In such case, all lenders and their legal representatives must appear and sign the deed. This proves to be a major limitation when lenders are situated in different countries.
Mortgages under Maltese Law
The application of mortgages under Maltese Law is limited to situations where ships or aircraft are provided as security for a loan or other debt. In such scenarios, it is common for there to be a consortium of lenders, which would all need to appear upon the mortgage for registration.
The Benefit of Security Trusts
This is where the benefits of a security trust emerge.
Simplification of Formalities
The law provides that the security trustee shall be treated as a creditor and shall be entitled to be registered as the holder of the security. This allows for the security trustee to appear solely on any hypothecary deeds on behalf of all the lenders without the need for the legal representatives of each lender to sign the deed, simplifying the process.
Catering for Future Debts
Where a hypothec is created in favour of a security trustee which is an authorised entity, such hypothec may be granted to secure future debts, provided that the deed constituting the hypothec expressly states that it secures future debts and limits the effects of the hypothec to a stated maximum sum.
The Optimal Solution
The role of the security trustee, as well as Maltese security law, was further optimised through the introduction of Security by Title Transfer in 2010. Security by title transfer is defined as a contract whereby the debtor transfers or assigns movable things so as to secure a present or future obligation to a creditor or creditors, or to a security trustee for the benefit of a creditor or creditors.
The greatest benefit of using Security by Title Transfer over other traditional security mechanisms under Maltese law (such as privileges and hypothecs) results from the strong self-help rights available to the creditor. The law provides that if expressly agreed by the parties in the agreement, the creditor shall, in the event of default and upon giving written notice to the debtor, shall be entitled to realise the property transferred either (i) by sale, or (ii) by setting off or netting their value.
Security by Title Transfer in Favour of a Security Trustee
Therefore, an optimal solution arises when combining the strong self-help rights offered by Security by Title Transfer with the simplicity and flexibility offered by the use of a Security Trust.
Premier as your Security Trustee
Our team brings extensive experience and a deep understanding of legal and regulatory requirements to every transaction. Whether it’s managing security documents, overseeing compliance, or executing enforcement actions, we ensure that your security interests are upheld with the utmost diligence and integrity.
For more information do not hesitate to contact us on info@premier-fiduciary.com.mt
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