More than just Title Series - Part six

Protecting Legal and/or Beneficial Ownership in Share and Unit Transactions

Did you know that DUAL’s Title Insurance offering is not only limited to transactions involving real estate? We can also insure transactions involving the sale of shares in a company, units in a unit trust or comparable ownership interests. 

In such transactions, legal ownership is often assumed - but is not always guaranteed. A Title to Securities (TTS) insurance policy helps bridge this gap by protecting buyers against unknown risks affecting legal and/or beneficial title, including defects in past transfers, missing approvals, third-party claims or gaps in corporate records. Particularly valuable in complex transactions or where due diligence has limitations, TTS cover helps to reduce uncertainty and strengthen buyer protections at completion, and beyond.

What is 'Title to Securities'

A TTS policy is intended to protect buyers against risks that impact on legal and/or beneficial title to shares in a company or units in a unit trust (or similar ownership interests).

While registration in a share or unit register is prima facie evidence of ownership, it does not provide indefeasible title in the same way land registration does in jurisdictions like Australia and New Zealand. Defects in past share or unit allotments, transfers, or corporate record-keeping can leave residual risks. Third parties may also assert competing rights. For example, a beneficial owner claiming an interest not shown in the register. Other risks include breaches of pre-emptive rights, invalid approvals for transfers or unknown encumbrances. A TTS policy can provide protection against these risks, subject to policy terms, conditions, and exclusions.

What are some of the main drivers behind buying a Title to Securities policy?

• Risk averse buyers looking for increased protection and certainty.
• Transactions involving (i) large or fragmented seller groups and/or (ii) a large number of subsidiaries in the target group.
• Sales led by a liquidator, receiver or administrator, and where limited or no warranties are provided under the sale agreement.
• If the transaction perimeter involves sellers and/or target group members across different jurisdictions and full due diligence may not have been carried out in all relevant jurisdictions.
• Sellers seeking a clean exit, particularly if they are looking to wind up the seller vehicle or fund and distribute proceeds to investors.
• When cover up to 100% of the enterprise value for title and capacity matters is required (subject to available policy limits and underwriting).

What does it cover?

Key insured events include:

• A seller lacking legal and/or beneficial title to the sale securities.
• The transfer of sale securities being invalid due to fraud, forgery, undue influence, duress, or similar grounds.
• A seller lacking authority or capacity to sell.
• A seller or target group entity not being validly incorporated or existing under applicable law.
• Third-party claims affecting ownership of the sale securities (e.g. options, pre-emptive rights).
• The sale securities being encumbered or not free from third-party rights.
• The share or unit capital structure of the target not being as represented.
• The sale securities not being fully paid or properly credited as fully paid.
  
  

For more information and a recent case study, download our TTS fact sheet.

Chris Hammond Head of Title Insurance +61 (0)481 130 382 [email protected]

Edward Birrell Senior Underwriter - Title Insurance +61 (0)450 363 361 [email protected]