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Security trusteeship has several benefits; primarily that the trustee “shall have the power and legal interest to file any legal proceedings for the enforcement.”. Hence, the Security Trustee has the power to enforce the security on its own even though all creditors enjoy the right to sue the debtors for the enforcement of the debt.
Security Trust Services
CSB Trustees & Fiduciaries Limited, is a fully licensed trustee company recognised under the Trusts and Trustees Act and licensed by the Malta Financial Services Authority to act as trustee of trusts and administrator of foundations. CSB Trustees & Fiduciaries Limited offers the possibility to be appointed as Security Trustee in any commercial structure. Our team has the experience and the knowledge to guide clients in setting up a security trust.
Our Security Trusteeship Experience
CSB Trustees & Fiduciaries Ltd has been at the heart of a number of commercial transactions availing of the concept of security trusteeship, holding the position of security trustee in transactions involving the offering of securities, whether to the public or for private placement, portfolio management and custody of investment instruments. The securitisation of assets is also a transaction in which the Company has often been appointed as security trustee for the purpose of segregating assets of the Special Purpose Vehicle (SPV) from the originator and the creditors and consequently mitigating any risks of consolidation of assets in any bankruptcy proceedings.
History of Security Trust
Even before Act XIII of 2004 came into force, security trusts were already known to law practitioners. As a matter of fact, subsequent to the enactment of the Recognition of Trusts Act in 1994 and Malta’s ratification of The Hague Convention, Malta had the possibility to recognise trusts which are not regulated by Maltese law. The shift occurred when Act XIII of 2004 came into force. It has then been agreed and approved that the proper law of a security trust can be any law. Hence, trusts can also be regulated by Maltese law.
Definition of a Security Trust
In relation to security trusts, one needs to make reference to two separate laws; Chapter 16 of the Laws of Malta, Civil Code and Chapter 331 of the Laws of Malta, Trusts and Trustees Act. The most important article found in the civil code is Article 2095E. The latter provides for the possibility of having a security “created in favour of a trustee for the benefit of any creditor/s, present or future, or in favour of a class or classes of creditors”. In such case the trustee, who would be referred to as ‘Security Trustee’, would be eligible to take “particular types of security” or else through the “settlement of property” in favour of the same, for the benefit of all the creditors/beneficiaries to secure all the present and future indebtedness, both actual and contingent, that might be due to the creditors. The Civil Code goes on to define ‘security’ as “any arrangement whereby the rights of a creditor are legally protected”.. The law goes on to provide a non exhaustive list of “arrangement” through which a security could be created. These include, a guarantee, pledge, mandate, privilege or hypothec or even placing property in possession of the trustee that would possibly have rights of retention and sale (as agreed between parties).
The role of the Security Trustee can be changed
A change catered by the security trust would be that of the trustee itself. The Trust Instrument would mention the possibility to substitute the existing trustee with a new one. In this case, even if the trustee changes, the security taken shall remain in force. The only change that would happen is that the security would then be registered under the name of the new trustee. The possibility to substitute the trustee is very crucial as this ensures the continuity of the security which security would still continue to rank from the date of registration of the retiring trustee.
Beneficiaries right to assign their debt
As mentioned earlier on, a security could be provided for any creditor/s future or present or even a class of creditors. Hence, the law caters as well for any future changes that may occur to the creditor. This is worth highlighting especially when there is a group of creditors who decide at a later stage to sell their loan participation. This would be carried out in an effective manner without leaving any bearing on the security taken by the Security Trustee. Indeed Article 2095E(10) provides for the possibility of the beneficiaries; which are ultimately the creditors, to have their debt assigned. The debt may be assigned to third parties and “in such case the assignees of such debt shall enjoy the rights of beneficiaries under the security trust upon notice to or acknowledgement by the trustee without the need of a separate assignment of the beneficiary rights under the trust deed”.
Advantages of a Security Trust
Security trusteeship has several benefits; primarily that the trustee “shall have the power and legal interest to file any legal proceedings for the enforcement.”. Hence, the Security Trustee has the power to enforce the security on its own even though all creditors enjoy the right to sue the debtors for the enforcement of the debt. It is worth noting that a Security Trustee shouldn’t be held liable for the obligations of other creditors as otherwise it is very challenging to find a trustee that would agree to act so in such situations. Nevertheless, the Civil Code provides a loophole whereby the parties can freely agree otherwise, if they so desire. A security trust is also beneficial for other reasons, some of which are:
- The trust assets are segregated from those of the trustee;
- Tax transparency on any distribution carried out to the beneficiaries; and
- The trust deed can be tailor made to fulfil the client’s wishes.
A trust is not only seen well by clients for their own estate planning but also by banks and financial institutions in cases of loan structures whereby a bank or a financial institution would have a security (usually in the form of a hypothec) over certain assets belonging to the borrower. A trust would also be the perfect solution whereby a number of bondholders take a security over an issuer’s assets or else when an employer enables its employees to benefit under a share option scheme.
Commonly used Security Trust
In Malta a Security Trustee is popular in two specific practices:
- A security trust is used in the shipping sector whereby mortgages over Maltese registered ships would be granted by the Maltese ship owning company in favour of the security trustee; and
- A security trust is used when bonds are issued by Maltese companies on which security over immovable property in Malta is provided to the Security Trustee.
Various types of Security Trust
There are various types of security trusts and for a better understanding one would need to refer to Article 2 of the Trusts and Trustees Act. Article 2 provides a detailed description of what could ultimately fall under a ‘commercial transaction’. Hereunder we shall discuss the most commonly used types of security trusts:
a) Securities offerings whether to the public or for private placement, portfolio management and custody of investment instruments;