The Bahamas recognizes several different types of security interests in property. Learning about the different security interests can be helpful for businesspeople, creditors, investors, and even people taking out home or car loans. Essentially, security interests in property give one person (the lender) a legal right to the property while a second person (the borrower) owes money in respect of that property or has some other unmet obligation. When the borrower pays all the money back or meets the obligation, the lender's legal right to the property ends.
The main types of security interests recognized in The Bahamas are:
- Promissory notes
Mortgages are transfers of interests in property from a mortgagor to a mortgagee, subject to a right to redeem by the mortgagor. They are commonly used to convey, assign, or pledge land as security for the repayment of money. If the mortgagor does not repay all the money, the mortgagee retains possession of the land. When the mortgagor repays all the money, the land can be reconveyed, reassigned or released. Many people use mortgages to fund their purchase of a house or business and the underlying land. Mortgages must be registered in accordance with the Companies Act, the Registration of Records Act, and the Conveyancing and Law of Property Act to have legal effect
Liens are legal rights permitting creditors to possess assets until the debtor pays the creditor back. Usually the debtor owes the creditor money for services the creditor provided to the debtor. Once the creditor receives payment, the debtor takes back possession of the assets.
Pledges are deposits of goods as security for a debt, according to the terms of a contract. The right to the goods pledged belongs to the creditor, but only to the extent necessary to secure the debt – meaning that if the depositor does not pay the debt, the creditor may take full possession of the goods. For example, a company could pledge a number of shares as security for a debt to a supplier.
Charges give people certain rights over property as security for a debt. Usually, charges are associated with debentures (see below) and specify which assets will serve as security. Charges can be fixed, meaning they specify exactly which assets are the security and prohibit sale of those assets by the company, or they can be floating, meaning they can cover types of assets that can be sold, such as shares in the company. If a company defaults on a debt subject to a charge, a floating charge becomes fixed and the creditor can take possession of or sell the assets to satisfy the debt.
Promissory notes, also called bills of exchange, are written documents in which one person or company promises to pay another person or company money in exchange for something else. Often, promissory notes correspond with mortgages, as the mortgagor promises to pay the mortgage back for money given to pay for property.
Finally, debentures are longer-term securities usually issued by companies and secured by the companies' assets. Like mortgages, debentures must be registered in accordance with the Companies Act, the Registration of Records Act, and the Conveyancing and Law of Property Act to have legal effect.
To find out more about security interests in property, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.