Secured Transactions Law Reform Project—Update

Dr Magda Raczynska, a lecturer in Law at Bristol University and deputy executive director of the Secured Transactions Law Reform Project (the Project) recently gave us an update on the Project.

Secured Transactions Law Reform Project (the Project) continues its work on the need and shape of the reform of the law security interests in personal property and title-based devices. It is driven by a thought that modern English law ought to be responsive to the needs of the commercial and financial community. This is of particular importance given the role of London as one of the world’s leading financial centres and of English law as one of the world’s leading systems of transactional law and enforcement of rights. Of equal significance is the growing number of jurisdictions, which are updating their secured transaction laws across the world. Click here for some recent developments.

Continuous engagement with practitioners and users of the law of all sectors is at the heart of the Project. This takes place through:

  • meetings of the Project’s four working groups;
  • seminars and conferences;
  • online consultation on provisional recommendations (coming soon to via the Project website).

The Project’s working groups, whose members are drawn from legal practice, academia and financial industry, focus on issues of creation and perfection of security (Working Group A); priorities (Working Group B); enforcement and insolvency (Working Group C) and financial collateral (Working Group D). All working groups look at the current law through the prism of objectives that a modern secured transactions regime ought to fulfill, which have broadly been identified in the ‘Case for Reform’ document. Of particular interest has been the recent work of the first two groups.

Working Group A considered to what extent the current law measures up to, among others, the following key objectives:

  • All businesses should have equal opportunities to grant security, whether or not the business is incorporated.
  • It should be simple, quick and cheap to make the security effective in the debtor’s insolvency and against other creditors.
  • Any interested party should be able to readily find out whether the debtor’s apparent property is subject to a security interest.

The discussions, which commenced in Spring 2012, have led to identification of provisional recommendations in relation to three key areas:

  • Methods of perfection of security that would provide maximum efficiency and transparency; in particular, the working group looked at the role of registration of security as compared to perfecting by taking possession.
  • Granting of security by unincorporated businesses as compared to the opportunities open to companies. This involved consideration whether Bills of Sale Acts 1878-1882 should be abolished.
  • The scope of registrable interests, including the issue of recharacterisation of interests as security.

Working Group B focused on issues of priority bearing in mind that:

  • The law should ensure that the provisions on publicity and priority apply to a wide range of transactions in the interest of transparency.
  • The rules should be as clear and as simple as possible.

The discussions of these objectives led Working Group B to discuss the following (among others):

  • Whether registration of security should take place by way of notice-filing or transaction-filing, including the extent to which it should be possible to file an advance notice of security on the register and to what extent the register should be self-clearing;
  • The extent to which subordination agreements ought to be registered
  • The extent to which sales of receivables should be registered.

Both Working Group A and B are currently finalizing their online consultation papers, which set out problems and inefficiencies and provisionally suggest ways to overcome these.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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

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