Assignment by Way of Security
Definition
An assignment by way of security is the legal mechanism used to create a legal mortgage over intellectual property, whereby the borrower transfers title to the IP to the lender as collateral while retaining an equitable right to have it reassigned once the debt is repaid. Unlike an outright assignment, an assignment by way of security is conditional and reversible, and it is almost always accompanied by a licence-back so the borrower can carry on using the assigned patents, trade marks or designs in the ordinary course of business. This structure gives the lender the highest-ranking security available over an intangible asset, sitting above a fixed charge and well above a floating charge in the insolvency waterfall, where fixed security is paid ahead of insolvency expenses, preferential creditors and unsecured claims. It matters to lenders because it converts an intangible into a genuinely realisable form of collateral: on default the lender already holds title and can move to sell or license the asset without first perfecting a transfer. For borrowers, it is what unlocks the best terms in IP-backed lending, but it demands a clean, documented chain of title, IP kept in force through paid renewals, and searches confirming no prior charges. As a UK example, an engineering SME raising finance against its patent portfolio might assign those patents to the lender by way of security, retaining a licence-back to keep manufacturing. The transaction must be registered at Companies House within 21 days under section 859A of the Companies Act 2006 and recorded at the UK Intellectual Property Office, failing which the security is void against a liquidator. Because operating cash flow remains the primary repayment source, the assignment is enforced only as a fallback, with realisation valued on an orderly-liquidation premise.
Complementary Terms
Concepts that frequently appear alongside Assignment by Way of Security in practice.
A legal mortgage over intellectual property is the strongest form of security a lender can take over an intangible asset, in which legal title to the IP is transferred to the lender as collateral, subject to the borrower's right to have it returned once the loan is repaid. In practice a legal mortgage ip security is created by an assignment by way of security, almost always paired with a licence-back so the borrower can continue to exploit the very patents, trade marks or registered designs it has charged.
A licence-back is a licence granted by a lender back to a borrower that has assigned its intellectual property as security, permitting the borrower to continue using that IP in its business for the life of the loan. A licence-back arrangement is the practical companion to a legal mortgage or an assignment by way of security: the borrower transfers title to the lender as collateral, and the lender immediately licences the rights back so day-to-day operations, manufacturing and sales carry on uninterrupted.
The legal process by which a creditor's security interest in collateral becomes enforceable against third parties, typically through registration (UCC filing, PPSA registration, or Companies House filing), possession of the collateral, or control over financial assets. Perfection establishes the creditor's priority ranking relative to other secured parties.
Security priority ranking is the order in which competing creditors are paid from a charged asset when a borrower defaults or becomes insolvent. In IP-backed lending it determines how much a lender can realistically recover from intangible collateral, and so it directly shapes the loan-to-value the lender is prepared to offer.
A security interest granted by a borrower over its intellectual property assets — including patents, trademarks, copyrights, and trade secrets — as collateral for a loan or other financial obligation. IP charges must typically be registered at both the relevant IP registry (such as the UK Intellectual Property Office or USPTO) and the general security interests registry (Companies House, UCC, or PPSA).
Royalty income lending is a financing structure in which a loan is advanced against, and serviced from, the licence royalties that an intellectual property asset generates. Royalty income lending is widely regarded as the cleanest form of IP-backed credit because it aligns repayment with a contractually defined, recurring cash stream rather than with the uncertain resale value of the underlying right.
A sale-and-licence-back is a financing structure in which a business sells its intellectual property to a funder or special-purpose vehicle for cash, then immediately takes a licence back to keep using that IP in its operations. The sale and licence-back arrangement raises capital against otherwise illiquid intangible assets while leaving the business's day-to-day use of its brands, patents or technology undisturbed, because the licence-back grants continued rights of exploitation.
Separability is the degree to which an intangible asset can be sold, licensed or otherwise transferred on its own, apart from the business that owns it. As a lender test — the separability collateral test — it asks a blunt question: if the borrower failed, could this asset be lifted out and disposed of to a third party, or is it so bound into the going concern that it has no independent realisable value? Separability is one of the three tests, alongside saleability and legal strength, that lenders weigh together and apply to a conservative orderly-disposal value to decide how much they will advance.
Further Reading
IP Finance in the UK: How to Borrow Against Intangible Assets in 2026
How IP-backed lending works in the UK — which assets qualify, valuation methods banks accept, typical loan terms, and how to prepare your application for IP finance.
Read more →Related FAQ
What is a legal mortgage over intellectual property?
A legal mortgage over IP transfers legal title of the rights to the lender as security, with a licence-back so you keep using them; it is the strongest form of IP security and is discharged when the loan is repaid.
Read full answer →Why does chain of title matter for an IP loan?
Chain of title matters because a lender can only take security over IP the borrower genuinely owns. Gaps, such as unassigned contractor or employee work, can void the collateral and stop the loan.
Read full answer →How does a sale-and-licence-back of IP work?
In a sale-and-licence-back, a company sells its IP to a funder for cash, then immediately licences it back so it can keep using the IP in its business — releasing capital without losing operational use.
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