Asset Covered Securities Act, 2001

Designated credit institution not to create security interest in cover assets if claims of preferred creditors would be adversely affected.

88.—(1) If asset covered securities are outstanding, or a cover assets hedge contract is in existence, in relation to a designated credit institution, the institution shall not create a security interest in respect of any cover assets that are included in a cover assets pool if the interest would, but for this Part, adversely affect the priority conferred by this Part of preferred creditors in respect of those assets. If the institution creates any such security interest, the interest is void and any money secured by it is repayable immediately.

(2) Subsection (1) does not prevent a designated credit institution from creating a security interest in respect of cover assets included in a cover assets pool maintained by the institution if—

(a) the relevant assets are located outside the State, or are financial obligations of an entity referred to in section 5 (1)(e), and

(b) the person who, directly or indirectly, has the benefit of the interest is the same person as the person who is entitled to security over those assets in accordance with the order of priority prescribed by this Part.

(3) If a cover asset included in a cover assets pool maintained by a designated credit institution is subject to a security interest and the creation of the interest would contravene subsection (1), the institution shall, in accordance with section 35 or 50 (as appropriate), replace the asset with one or more assets that are not subject to such a security interest.

(4) In this section—

“security interest” includes mortgage, charge, pledge, lien and encumbrance.