The Secured Transactions Law Reform Project Releases a Draft Policy Paper
ABOUT THE SECURED TRANSACTIONS LAW REFORM PROJECT
The Secured Transactions Law Reform Project was set up by Professor Sir Roy Goode to examine the English law relating to secured transactions and to consider the need for and shape of future reform. The project involves interested parties from academia, the professions and the relevant sectors of finance, commerce and industry in order to consider the effectiveness of the current law, and the ways in which it can be improved. It is currently led by Professor Louise Gullifer.
THE CURRENT APPROACH OF THE PROJECT
This work, building on discussions with stakeholders, has led to the development of the project’s current approach, which is to identify the irreducible core aspects of a modern secured transactions law, and the parameters for debate in relation to other (non-core) issues. A draft policy paper setting out the core aspects and the matters for debate has been published on the project’s website, and will be followed by detailed papers addressing the various matters open to debate.
AN OVERVIEW OF THE DRAFT POLICY PAPER
The paper explains that the secured transactions regime under English law needs to be ‘best in class’ in order to compete in today’s global markets. This means that the regime needs to be modern, efficient and as forward-looking as possible. An ideal secured transactions law is one that is clear, certain and easily accessible. A creditor should be able to obtain a security interest over any asset, including future assets, as cheaply as possible. There should be transparency, to enable others to know about the existence of a security interest, and the system’s rules should enable a creditor to know with certainty the priority position of his interest. It should also be possible to enforce a security interest effectively whether or not the borrower is insolvent. Lastly, although it should be possible for creditors to contract out of most default rules in relation to priority and enforcement, that default position should be the one most likely to be required in general, so as to minimise transaction costs.
The project has determined the core aspects of a modern secured transactions law in light of these principles and as a result of consideration of the common features of reform of secured transactions law in other jurisdictions around the world. These aspects are:
- a simplified and codified law of secured transactions;
- adoption of a single concept of a (consensual) security interest;
- a regime of secured transactions which enables security to be taken over any asset, present and future;
- a regime of secured transactions, including registration, which covers security interests granted by all debtors (whether corporate or non-corporate), although there could be different rules for consumers;
- a fully electronic system of registration, where registration takes effect without human intervention; and
- a set of clear priority rules based on rational distinctions, and, at its core, a rule that priority between registered interests is by date of registration.
The paper identifies the areas for debate, and also sets out the areas where it is not proposed to change English law and to indicate how it is proposed that these will fit within a reformed regime. Some of the areas for debate have already been addressed by papers which are on the project’s website, while others are in the process of being prepared. The areas covered are as follows:
- the registration system;
- priority and taking-free rules;
- whether registration of assignments of receivables is voluntary or compulsory, and whether the inclusion of assignments of receivables is limited (eg to trade receivables);
- treatment of asset finance devices (finance leases and hire-purchase agreements);
- treatment of ROT clauses;
- whether security interests created by consumers should be included in the same regime as those created for business purposes (a paper on non-corporate debtors has already been produced by the STR);
- to what extent should perfection by possession be permitted? This is already considered in a paper produced by the STR;
- the priority on insolvency of persons who presently have priority over floating chargees (this is being considered by the project’s working group C);
- precisely what amounts to ‘control’ (this is being considered by the project’s working group D);
- the extent to which a security interest in an asset extends to its proceeds;
- the precise scope of a statutory statement of remedies;
- balance between secured creditor rights on enforcement and protection for the borrower;
- reform of law relating to security over IP;
- various issues in relation to security over financial collateral.
Comments and views on the approach set out in the paper would be very welcome. Contact details are here.
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