The “double decker structure” – creating valid security for preference shares

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Notwithstanding a positive credit analysis at the onset, occasionally businesses or projects are unsuccessful and this sometimes leads to liquidation. Given the potential for liquidation, funders should carefully consider whether they will provide funding through loan facilities or by subscribing for preference shares in investees. While both methods of funding have their respective advantages, they have disparate legal consequences in the event of liquidation, because of the difference in the nature of the funding, that is, debt and equity.

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