Meaning
Secured lenders who hold a charge over a borrower’s equity in a company require rapid methods to take control of those shares if a default occurs. The process of share charge enforcement enables the lender to execute their security without needing a court order, provided the security document is drafted correctly. This is usually achieved by appointing an out-of-court receiver or exercising a power of sale over the shares.
It allows the lender to quickly take control of the underlying company.
Receiver Appointment
This is the most common method of taking control of the secured asset. In a share charge enforcement, the receiver is appointed to step into the shoes of the shareholder and exercise all voting rights. This allows the lender to replace the board of directors and control the company.
Power Sale
The lender can sell the shares to a third party to recover the debt. During a share charge enforcement, the power of sale allows the lender to transfer ownership of the shares without the consent of the borrower. The proceeds of the sale are used to pay off the outstanding loan.
Equity Redemption
The borrower loses the right to reclaim the shares once the enforcement process is complete. In the context of share charge enforcement, the debtor’s right of redemption is extinguished upon the sale or transfer of the shares. This provides finality to the purchaser of the shares.
