Chattel Mortgage (Over Plant, Machinery and Equipment).

Updated for 2018

This is a form of legal mortgage granted over tangible movable property such as plant, equipment or machinery (known as chattels) in favour of a third party as security for the discharge of a particular debt or liability.

With chattel mortgages, the legal title to the chattel is transferred from the mortgagor (i.e. the borrower/debtor) to the mortgagee (i.e. the lender/creditor) on the condition that such title will be transferred back to the mortgagor once its debt or liability to the mortgagee has been repaid and discharged in full.

If the mortgagor defaults in repaying the debt or discharging the liability, the mortgagee will be able to take ownership of the charged chattel and sell it with a view to using the proceeds to discharge the mortgagor’s liability.

Further details are set out below.

See below for a full product description

A property and equipment mortgage (more formerly called a chattel mortgage) is a form of security interest taken over a piece of tangible movable property known as a chattel. Chattels can include items such as plant and machinery, ships, aircraft and other similar items. It is usually granted by a borrower of money or a person who owes some form of contractual debt to another. This person is known as the “Mortgagor”. The person who receives the benefit of the mortgage is called the “Mortgagee”.

With a property and equipment mortgage, legal title in the chattel/asset can be transferred to the mortgagee on the condition that it will be transferred back to the Mortgagor once the debt has been repaid in full.

A mortgage of this kind is usually granted by a borrower/debtor to a lender/creditor to secure the debt owed by the borrower/debtor to the lender/creditor. If the debt is not repaid, the lender/creditor is entitled to take possession of the mortgaged property and equipment and sell it. The proceeds of sale can then be used by the lender/creditor to pay back the debt owed by the borrower/debtor. To the extent that there is any surplus following repayment of the debt, this will be returned to the borrower/debtor. If the proceeds of sale are not sufficient to repay the debt in full, the borrower/debtor will remain liable to repay the balance owing to the lender/creditor.

A summary of the principal terms of the property and equipment mortgage is set out below.

Under the terms of the mortgage, the Mortgagor is obliged to pay all sums owing to the Mortgagee on demand. To the extent that the monies are not payable on demand under the terms of any arrangement between the parties, it will become repayable on demand in the event that (i) the Mortgagor defaults in making any payment to the Mortgagee under the terms of the mortgage or under any other agreement between them; (ii) the Mortgagor becomes insolvent; (iii) the Mortgagor breaches any terms of the mortgage deed; (iv) the mortgaged property is compulsorily acquired; (v) a resolution is passed to wind up the Mortgagor; or (vi) a petition is presented for the winding up of the Mortgagor or an examiner or receiver is appointed.

The mortgaged property will be charged under the terms of the security pending repayment in full of any amounts owing by the Mortgagor to the Mortgagee. During the term of the security, the Mortgagor cannot create any other security over the charged assets.

The Mortgagor gives a warranty (a form of assurance) to the Mortgagee that it is the beneficial owner of the mortgaged property free from all encumbrances.

The Mortgagor is required to maintain appropriate insurance over the mortgaged property (i.e. the chattels) during the course of the security. The proceeds of the any insurance claim in respect of the mortgaged property shall be paid to the Mortgagee who shall be entitled to apply the proceeds thereof to repay the debt owing to it or to replace the damaged or destroyed property. The balance of any monies remaining shall be transferred to the Mortgagor.

For so long as the security is in place, the Mortgagor shall be restricted from disposing of the mortgaged property, required to maintain the mortgaged property in good repair; required to replace any element of the mortgaged property that has been damaged or destroyed; etc.

To secure the interest of the Mortgagee, the Mortgagee shall be entitled to do any of the above things which the Mortgagor is ordinarily entitled to do. If it does so, any money spent by it shall be added to the amount owing by the Mortgagor to the Mortgagee and shall be secured by the mortgage created under this property and equipment chattel mortgage.

If any of the monies become payable to the Mortgagee, it may appoint a receiver as its agent for the purpose of dealing with the mortgaged property and ensuring that the debt is repaid in full (where possible). The receiver will have broad powers to deal with the charged assets including the power to take possession of the mortgaged property and to sell, lease, dispose, repair, insure and otherwise deal with the mortgaged property in the manner that the Mortgagor would ordinarily do.

All moneys received by the Receiver shall be applied in the payment of the receiver’s remuneration and the other costs related to the receiver’s appointment and in the repayment of any moneys owing to the Mortgagee. Any balance remaining after such payments have been made shall be paid over to the Mortgagor.

Detailed information in relation to each clause of this chattel mortgage and on how to complete the chattel mortgage are contained in the notes that accompany the mortgage.

Clauses Included in this Chattel Mortgage:

- Defined Terms Clause

- Obligation to Pay and Discharge Clause

- Security Clause

- Insurance Clause

- General Protection of Mortgaged Property Clause

- Receivers Clause

- Ancillary Powers and Liabilities Clause

- Mortgagor Entitled to Possession Clause

- Statutory Powers Clause

- Miscellaneous Clause

- Notices Clause

- Confidentiality Clause

- Amendments Clause

- Counterparts Clause

- Severance Clause

- Assignment Clause

- Entire Agreement Clause

- Governing Law and Jurisdiction Clause

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