Elgar Financial Law and Practice series
Chapter 12: REMEDY OF APPROPRIATION
The remedy of appropriation was introduced by the Financial Collateral Arrangements (No. 2) Regulations 2003 (‘FCARs’) as an alternative to a collateral-taker exercising a power of sale or appointing a receiver over financial collateral upon a security financial collateral arrangement becoming enforceable. The term ‘appropriation’ is not defined in the FCARs or the Financial Collateral Directive (‘FCD’) which it implements. It is a self-help remedy which enables the collateral-taker to take the collateral assets in place of the debt secured on them. The natural meaning is ‘making property one’s own’. Appropriation is much closer to sale than it is to foreclosure. It is in effect a sale by the collateral-taker to himself at a price determined by an agreed valuation process. The notion of appropriation of collateral by a unilateral act of the collateral-taker is a novel concept in English law. Before the FCD was implemented, it would have been open to challenge as selfdealing, or as a clog on the equity of redemption, or as a foreclosure not authorised by the court. The remedy of appropriation was created by regulation 17 of the FCARs originally in the following terms: Where a legal or equitable mortgage is the security interest created or arising under a security financial collateral arrangement on terms that include a power for the collateral-taker to appropriate the collateral, the collateral-taker may exercise that power in accordance with the terms of the security financial collateral arrangement, without any order for foreclosure from the courts.
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