Real impetus for reform and research into English law on secured transactions

Could English law secured transactions benefit from research into reform in other jurisdictions by the Secured Transactions Law Reform Project (STLRP)?

Background

Last week saw a gathering of lawyers in London and Durham from a number of different jurisdictions, all joined to share their own experience on reforming the law on secured transactions. The conference ‘Secured Transaction Reform in other jurisdictions’ was run by the STLRP and was chaired by Rt Hon Lord Saville of Newdigate. It focused on reform in Australia, Jersey, Scotland, Ireland, Canada and the US with commentary on points of English law from Professor Louise Gullifer from the University of Oxford and Dr Magda Raczynska from the University of Bristol.

What was the focus of the conference of the STLRP?

The STLRP was established under the executive directorship of Professor Sir Roy Goode, and is now spear-headed by Professor Louise Gullifer of Oxford University Law Faculty, as executive director. It involves interested parties considering:

  • the current English law on security and secured transactions
  • alternative ways English law could be improved to meet the needs of the modern, commercial and financial world, and
  • whether English law should adopt a statute similar to the Personal Property Security Acts (PPSA) of Australia or Canada or the Security Interests (Jersey) Act 2012, or look at the best parts from each

From the presentations on the laws on security in other jurisdictions, what were some of the key concepts that could be considered for reform of the secured transactions under English law?

There were some excellent presentations and comments from the floor but there were some common themes relating to security over intangible moveables. At this stage the members of the STLRP are examining the law in different jurisdictions and gathering views on what works well and what not so well, so they can consider these concepts in detail in relation to English law.

A few of the themes that came up included:

  • whether English law could dispense with the distinction between fixed and floating charges and various other security devices and opt for one ‘security interest’ concept as in Jersey and Australia
  • whether assignments, currently perfected from equitable to legal (ie statutory) assignments by notice, could be perfected by registration instead—and whether this could this mean in practice that, in addition to registration, notice may be needed to get the payment instruction correct
  • whether English law could adopt a system of registration for perfection for all security rather than the various methods available now
  • how control for financial collateral should be dealt with
  • whether we can really pinpoint what ‘control’ means for a variety of assets and concepts including new assets and intangibles under English law
  • whether there could and should be a concept of a ‘deemed security interest’ (as in the Australian PPSA) requiring registration of a transaction covering the likes of an operating lease or sale of receivables, but without recharacterising the transaction as a security interest
  • whether retention of title should be registered to perfect it—it could be very cumbersome considering the retention of title provisions in many suppliers’ standard terms and conditions and supply contracts
  • if a system similar to PPSA were adopted for English law, whether it could, in fact, impose registration requirements on more bodies, including individuals financing vehicle purchases
  • whether adopting an even simpler method of electronic registration would be more efficient and smarter for business—while the new English law rules on registration of charges came into force in April 2013, and similar rules are on the way in Ireland, they could be made simpler still as in other regimes
  • when an asset is realised by sale or appropriation and sale, and changes its nature into cash, whether the security created originally should also cover the proceeds—some jurisdictions, such as Scotland, look at the asset and the proceeds of realisation as different types of asset so a lender would need security over the asset and separately over the cash and over the bank account
  • whether a security interest should follow its proceeds or not and whether a security interest follow the fruits of the asset as part of the secured asset or not
  • whether English law could simplify taking a charge over rights in a bank account and proceeds through legislation and confirm that the concept is recognised in law, so control over a deposit account be defined in law and not just left to the practicalities of how a particular bank operates its business
  • whether the business world will agree that keeping the floating charge is desirable as it gives freedom to businesses to carry on using and profiting from assets while everything is going well
  • whether there could be a clear intention in law as to whether a licence or quota is an asset, which could be provided as collateral, whether transferable or not (a licence is often the key asset for a small business undertaking an activity licensed by a city council or local authority)—the US and Canada have different views on how the Canadian PPSA and the US Uniform Commercial Code rules consider licences, and
  • whether some assets could be carved out of a registration system for security—for example, set-off, repos, stock lending, subordination, charges arising by operation of law, retention of title, sale of accounts as part of a business sale and the sale of receivables

Were there any key themes emerging on priority of security interests?Yes, there were a few common concepts. English law seems to have one of the most complex system of rules on priority.The key themes were that:

  • English law could adopt a ‘notice filing’ system for registration providing a priority period for registration (as considered originally by the Law Commission) with priority ranking according to the date of the initial filing
  • while notice filing in some jurisdictions is voluntary, if the transaction is not registered it will not be effective on insolvency thereby making it compulsory in practice to register the transaction
  • notice filing, however, could clog up the register with incomplete notices which never came to full registration, causing more administrative headaches for parties searching the register, as was discussed during reform in the Republic of Ireland
  • English law could afford to simplify its complex rules on priority by adopting the date of registration as the determining factor, and
  • a ‘super priority’ concept could be adopted to trump registration as a the priority for:
    • financial collateral by ‘control’, and
    • purchase money security interests—ie any security in favour of the financier providing the funding to purchase the asset which is being provided as collateral

Where would I find out more about the STLRP and the conference?

The STLRP would be interested to hear from solicitors in practice, barristers, academics or any other party with an interest in this important area of law to create an impetus for reform. The STLRP arranges conferences and meetings on different topics relating to secured transactions so lawyers can focus on the area relevant to them. Publications of the members of the group will be posted on the STLRP’s website.

The papers and presentations from the conference will shortly be available on the Project’s website.

Jacqueline Cook from the Lexis Banking & Finance team attended the conference in London last week and is now liaising with Professor Gullifer, the executive director. The LexisPSL Banking & Finance team will be monitoring further developments in the STLRP’s work over the coming months.

First published on LexisPSL Banking & Finance. Click here for a free trial.

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