Secured Transactions Law Reform

Principles, Policies and Practice

Louise Gullifer, Orkun Akseli, Louise Gullifer, Orkun Akseli

• Publisher: Hart Publishing
• Year: 2016
• Print ISBN: 9781509927517
• eBook ISBN: 9781509903122
• Edition: 1
• Topic: Jura
• Subtopic: Gesellschaftsrecht

Secured transactions law has been subjected to a close scrutiny over the last two decades. One of the main reasons for this is the importance of availability of credit and the consequent need to reform collateral laws in order to improve access to finance. The ability to give security effectively influences not only the cost of credit but also, in some cases, whether credit will be available at all. This requires rules that are transparent and readily accessible to non-lawyers as well as rules that recognise the needs of small and medium-sized enterprises. This book critically engages with the challenges posed by inefficient secured credit laws. It offers a comparative analysis of the reasons and the needs for a secured transactions law reform, as well as discussion of the steps taken in many common law, civil law and mixed law jurisdictions. The book, written under the auspices of the Secured Transactions Law Reform Project, informs the debate about reform and advances novel arguments written by world renowned experts that will build upon the existing literature, and as such will be of interest to academics, legal practitioners and the judiciary involved in secured transactions law around the world. The text considers reform initiatives that have taken place up to the end of April 2016. It has not been possible to incorporate events since then into the discussion. However, notable developments include the banks decree passed by the Italian Government on 29th June 2016, and the adoption of the Model Law on Secured Transactions by UNCITRAL on 1st July 2016.

1

Introduction

LOUISE GULLIFER

The importance of secured transactions law to the economic development of a country is well established. Numerous studies show a correlation between an efficient law for the creation, protection and enforcement of security interests, and increased access to credit, as well as a reduction in the cost of credit.¹ The World Bank, in its ‘Doing Business’ rankings of economies, includes an assessment of secured transactions laws in the data used in the ranking category of ‘Getting Credit’.² It is perhaps not surprising that economies which have modern, integrated secured transactions regimes rank highly in that category, including many which have recently reformed their secured transactions law.

It is not difficult to work out why having an efficient secured transactions law increases access to credit. A creditor is more likely to want to lend to a business or an individual if it can be sure of being repaid, and being able to take an effective security interest in an asset, which can be protected against other claimants to that asset and enforced easily and quickly, is bound to reassure a creditor that it is likely to be repaid, even if the borrower becomes insolvent. A system for taking security, at least over some kinds of asset, has existed in most countries for many years. Over that period, the law is likely to have been developed in a piecemeal way, either through case law or legislative intervention, or a mixture of both. The resulting law, which is often complex, fragmented and inconsistent, is heavily path dependent. To understand it properly, one needs to be a historian, not just of the law, but of the economic imperatives which have shaped a particular country.

Given the benefits which come from an efficient secured transactions law, it is not surprising that many countries either have recently reformed their law, or are considering it. In addition to the basic reason discussed above, there are often other factors driving reform. One is the shift in the type of collateral available, first from immovable property (land) to movable property, and, more recently, from tangible property (goods and equipment) to intangible property (receivables, intellectual property and securities). Another is the ever-increasing ability of information technology to receive, hold and process information, so that many things which were not possible when a register had to be paper based (such as links between registers) are now part of the toolkit available to the reformer. A third is the growth of international business and the global markets. It is not only necessary, now, to take account of the law of secured transactions of a country’s immediate neighbours: notice must be taken of international and transnational law reform and harmonisation initiatives. It is not conducive to global business to have a secured transactions law which is difficult to understand, or which is very different from the prevailing norms.

This volume provides an account of reform of the law of secured transactions in a number of important jurisdictions.³ It is, in a sense, a snapshot of what is happening at the time of writing. The jurisdictions discussed include representatives of many different stages in the cycle of reform. Some jurisdictions, such as the United States and Canada, have had a reformed law for many years, and the concerns, therefore, are about points of detail which are uncertain or which themselves require reform. Others, such as New Zealand, Australia and France, introduced wide-ranging reforms more recently, and now are in a position to evaluate the impact of those reforms.⁴ Others, such as Jersey, Belgium, Lithuania and Malawi, have had very recent wholesale reform, some of which is still ongoing, and there is still some time to go before a full evaluation is possible. More limited reform has recently taken place in Ireland, and in England and Wales: the chapters on these jurisdictions criticise these reforms and consider whether they have gone far enough. Further, there has been some piecemeal reform in Spain and Italy, and a more wholesale overhaul is being considered. Finally, there is Germany, which has never had legislative reform, and, indeed, does not even have a registration system. Even here, it seems that changes in the availability and structure of funding, and increasing globalisation, may soon have the effect of raising reform further up the legislative agenda.

The volume grew out of a conference hosted by the Secured Transactions Law Reform Project,⁵ under whose auspices the volume is produced. The aim of this project is to look at the need for and shape of future reform of English law, involving all who are interested in this area of law: bankers, practising lawyers, judges and academics. The point of the conference, therefore, was to use the experience of other jurisdictions to inform the reform debate in relation to English law. There is a huge amount that can be learnt from the experience of other jurisdictions, as to both the benefits and pitfalls of reform, and the process of reform. The jurisdictions represented at the conference were chosen for their closeness, both legally and geographically, to England and Wales. For this volume, the scope has been widened to include significant European civil law countries, such as France, Germany, Italy and Spain as well as European countries in which there has been recent reform, such as Belgium and Lithuania. Malawi was also included, as representing a country where recent reform has been informed by the UNCITRAL Legislative Guide on Secured Transactions.⁶ As mentioned earlier, transnational law reform and harmonisation initiatives can be an important factor driving reform, and can also assist in the execution of such reform. Some of the international initiatives over the last 25 years are explored in the volume: there are chapters on the work of the European Bank for Reconstruction and Development, on the influence of the UN Convention on receivables financing and on the UNCITRAL Legislative Guide on Secured Transactions and the resulting Model Law, which is still at the drafting stage. Other harmonisation initiatives, such as the Cape Town Convention on International Interests in Mobile Equipment and the EU Financial Collateral Directive, are discussed in some detail in the individual chapters, both as drivers for reform and as an example of how national reform has to take account of international developments as well as interrelating areas of national law, such as insolvency and corporate law.

One obvious model for any common law jurisdiction considering reform to consider is that of the Uniform Commercial Code Article 9/Personal Property Security Act notice filing system, and the volume includes chapters from a number of jurisdictions where versions of that model have been enacted. In order to prevent each chapter explaining that model in detail, there is a chapter giving a generalised account of such a system. As a result, each other chapter can concentrate on the particular concerns of that jurisdiction in relation to the model. In relation to US, Canadian and English law, specific current issues are discussed, which are picked up again in the discussion of other jurisdictions.

The aim of this volume is to provide a resource both for those interested in the reform of English law, including the Secured Transactions Law Reform Project, and those involved in law reform throughout the world.

¹Recent examples, some of which are referred to in Ch 21, are: R Haselmann, K Pistor and V Vig, ‘How Law Affects Lending’ (2010) 23(2) Review of Financial Studies 549; G Affaki, ‘Increasing Access to Credit: Reforming Secured Transactions Laws’ (2010) International Trade Centre; C Calomiris, M Larrain, J Liberti and J Sturgess, ‘How Collateral Laws Shape Lending and Sectoral Activity’, Working Paper, Draft, 2014.

²See www.doingbusiness.org/methodology/getting-credit.

³There has been reform in many other jurisdictions which are not included in the book. Short descriptions of reform in a large number of jurisdictions are included on the Secured Transactions Law Reform Project website at http://securedtransactionslawreformproject.org/reform-in-other-jurisdictions.

⁴Indeed, there has been a statutory review of the Australian reforms which reported in March 2015, and which is referred to extensively in Ch 7.

⁵See http://securedtransactionslawreformproject.org/.

⁶There are a number of other jurisdictions where reform has recently been based on the UNCITRAL legislative guide, such as Ghana, Liberia and Jamaica, as well as many others where reforms have been based on similar models, such as the Organisation of American States’ Inter-American Model Law on Secured Transactions (Mexico, Colombia, Costa Rica, El Salvador and Honduras). The UNCITRAL guide also influenced the reforms in Belgium, see Ch 18 M.

Part I

Modernisation of the Law of Secured Transactions in Common and Mixed Law Jurisdictions

2

An Outline of a Typical PPSA Scheme

HUGH BEALE

A.Introduction

The aim of this chapter is to provide the reader who is not familiar with any of the Personal Property Security Acts (PPSAs) or with Article 9 of the Uniform Commercial Code (‘Article 9’) with a short summary of the features that are typical of most of the PPSA schemes.¹ The chapters following this will consider the schemes in specific jurisdictions, and will therefore build on this basis analysis.²

The Canadian PPSAs follow fairly closely the original version of Article 9. However, the earlier schemes—notably the Ontario Personal Property Security Act of 1967—contain a number of significant differences from the later ‘Western’ model adopted in, for example, Saskatchewan.³ The more important of these differences will be noted in this chapter, as will a few of the major amendments made in the revised version of Article 9 now in force in all the United States. The differences between the Canadian PPSAs and the PPSAs adopted in New Zealand and, particularly, Australia are much more substantial and are the subject of other chapters in the volume.

B.General Coverage

The typical PPSA covers most aspects of the law of secured transactions, dealing in particular with the following:

1.Aspects of the creation of a security interest. This is in the negative form that a security agreement will be enforceable as between the parties even though the debtor has not signed a security agreement or given possession of the collateral to the secured party.⁴

2.What is necessary for the security interest to become enforceable against a third party (such as another creditor claiming a security interest in the collateral): the debtor must either have given the secured creditor possession of the collateral or have signed a security agreement that describes the collateral in one of a number of ways,⁵ and the security interest must have ‘attached’ to the relevant collateral. Attachment requires that the debtor has rights in the collateral and that the secured creditor has given value.⁶

3.Perfection of the security interest, so that it will be effective against, for example, execution creditors and in the debtor’s insolvency. The principal methods of perfection are by registration or by taking possession of tangible collateral. Revised Article 9 provides that in the case of certain types of intangible collateral—broadly, what in England and Wales would be referred to as financial collateral—perfection may be by taking control of it.⁷

4.Priority of security interests, as against other security interests in the same collateral and as against buyers and lessees of the property.

5.The rights and duties of the parties before default.

6.Remedies on default.

7.Provisions for private international law issues.

C.Scope of Application

(i)Debtors

The scheme typically applies to security interests created by any debtor whether a company, a sole trader or partnership or a consumer (though many of the requirements are different for security interests created by consumers).

(ii)Types of Security

(a)Traditional Forms of Security

Obviously the scheme will cover traditional security devices such as pledges, mortgages, charges and contractual liens. ...

Table of contents

• Cover
• Title Page
• Foreword
• Contents
• List of Contributors
• Table of Cases
• Table of Legislation
• Table of International Instruments
• 1. Introduction
• Part I: Modernisation of the Law of Secured Transactions in Common and Mixed Law Jurisdictions
• Part II: The Current State of Affairs: the English Law of Secured Transactions
• Part III: Modernisation of the Law of Secured Transactions in Selected European Civil Law Jurisdictions
• Part IV: The Potential Influence of International Legislative Texts on Law Reform
• Part V: Conclusions and Recommendations
• Index
• Copyright Page