• Collateral Security Structure

    • CA-8.2.5

      Consideration of the collateral security structure41 is a critical factor; it needs to be the subject of legal opinions and is subject to Shari'a permissibility (in the case of perfectibility42). Those security interests must be the first priority (there can be no prior or subsequent claims) and be perfected (or perfectible).


      41 Collateral security structure is mainly used in Sukuk based on Shari'a-compliant project financing.

      42 In legal terminology, perfection relates to the additional steps required to be taken in relation to a security interest in order to make it effective against third parties and/or to retain its effectiveness in the event of default by the grantor of the security interest.

      January 2015

    • CA-8.2.6

      The legal opinions must address the nature of the security interest, the enforceability of the security interest against third parties, and perfection requirements (such as notices and registration). The effects of bankruptcy (see also Paragraph CA-8.3.22) on perfection must also be considered and opined upon. Major issues related to Sukuk based on collateral security interest and related perfection include the following:

      (a) Rahn (mortgage or other pledge of assets) concepts in certain jurisdictions are possessory in nature. This makes perfection a particularly difficult opinion issue in these jurisdictions;
      (b) In many jurisdictions, and without regard to rahn concepts, perfection and priority regimes are not well developed; and
      (c) Bankruptcy laws and regimes may also not be well developed in some jurisdictions.
      January 2015