Lloyd's Maritime and Commercial Law Quarterly
‘‘Quasi-securities’’ and the Law Commission Consultation Paper on security interests—a brave new world
Gerard McCormack *
The recent Law Commission Consultation Paper on
Registration of Security Interests is to be welcomed as a major contribution to the law of security interests in England. The Law Commission recommend that the present system of transaction filing for company charges should be replaced by a notice filing system under which priorities would be determined by the time of registration, subject to an exception for purchase-money security interests. It is also recommended that the new rules should be extended to ‘‘quasi-securities’’, reservation of title clauses and assignment of receivables. The article suggests that caution should be exercised before reform proposals are enacted, lest trade creditors be unduly disadvantaged
.
The Company Law Review Steering Group in its final report Modern Company Law for a Competitive Economy
1
suggested that the law relating to registration of company charges is of real importance to the capital markets as it guards against fraud and facilitates commercial borrowing. Nevertheless, the Steering Group provisionally concluded that the present system should be replaced with a system based on the ‘‘noticefiling’’ model employed in the United States under the Uniform Commercial Code, Art. 9.2
This conclusion has now been endorsed by the Law Commission in a recent Consultation Paper.3
Most types of security interest created by corporate borrowers in England require registration in order to make sure that the security interest is valid in the event of the borrower’s going into liquidation or administration. The list of registrable
* Professor of Law, University of Manchester. The author is grateful to the Leverhulme Trust for facilitating some of the research on which this paper is based. Earlier versions were presented at seminars organized by QMW London and the Norton Rose Centre of Commercial and Banking Law at the University of Bristol; I am grateful to participants for their thoughts.
1. (July 2001), para. 12.1. Lord Hoffmann was a bit more sceptical about the merits of the company charge registration procedure in the Cosslett Contractors
case—Smith
v. Bridgend County Borough Council
[2002] 1 A.C. 336, 348: ‘‘It was intended to give persons dealing with a company the opportunity to discover, by consulting the register, whether its assets were burdened by floating and certain fixed charges which would reduce the amount available for unsecured creditors in a liquidation. Whether this was a realistic form of protection and whether the choice of registrable charges was entirely logical is not presently relevant.’’ For an extended discussion of the deliberations of the Company Law Steering Group pertaining to company charges see the essay by John De Lacy in John De Lacy (ed.), The Reform of UK Company Law
(2002).
2. Article 9 was first drafted in the 1950s by two sponsoring organizations, the American Law Institute and the National Conference of Commissioners on Uniform State Laws. It has been revised on many occasions since with the most recent revised version (1998) coming into force on 1 July 2001. Article 9 has been adopted by all the states in the United States, including even Louisiana, which has a civil law inheritance. For access to the text see http://www.nccusl.org. See also Corinne Cooper (ed.), The New Article 9
, 2nd edn (2000) and also J. Honnold, S. L. Harris and C. W. Mooney, Security Interests in Personal Property
, 3rd edn (2001).
3. Registration of Security Interests: Company Charges and Property other than Land
: LCCP No. 164 (July 2002).
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