While historically most bank lending in Hong Kong has been done on an unsecured basis, the rise in leveraged finance transactions and securitization has seen an increase in transactions that require consideration of security concepts and credit enhancement techniques such as guarantees under Hong Kong law.

Types of security and guarantees

Generally Hong Kong law mirrors English law in the type of security that can be taken and the restrictions imposed on companies granting security. The four forms of security that may be taken under Hong Kong law are the pledge, lien, charge or mortgage.

Pledges and liens are commonly used in relation to manufacturing, warehousing and distribution industries. Mortgages can be applied both to tangible and intangible assets and can be either legal or equitable. Charges can either be fixed or floating.

Guarantees are increasingly common in finance transactions and lenders will often make a loan to a PRC...