UNCITRAL Comparison. IX. The Secured Party and Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNCITRAL Comparison. X. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNCITRAL Comparison. The UNCITRAL Legislative Guide (hereinafter, the “Guide”) encompasses many secured transactional law regimes and attempts to define what is meant by the term “Security Agreement”. Similar, to Article 9, the Guide sets forth the definition of the Security Agreement: an agreement to create a right to security in the present, between the creditor and the debtor or, in cases where security is provided by a third party, the grantor becomes a party having a security right. However, the Guide contemplates oral Security Agreements, whereas Article 9 excludes oral Security Agreements, except in the instance of an oral pledge.11 Even though oral Security Agreements are permissible, with respect to third parties, the Guide states that a written Security Agreement may “usefully serve evidentiary purposes and prevent fraudulent antedating, at least with respect to non-possessory security rights.”12 The Guide makes the point that, “An additional act (i.e.: delivery of possession, notification, registration or control) is required in most, but not all, countries, in some countries, the Security Agreement, accompanied by an additional act, produces proprietary effects against all parties. In those countries, quasi security devices, such as retention-of-title arrangements, produce proprietary effects…which may be even oral. In other countries, the Security Agreement has proprietary effects only between the parties, third-party effects being subject to an additional act.”13 11 A pledge is a bailment, or a delivery of personal goods or a deposit of personal property to a creditor as security for some debt or engagement. A pledge is a personal property security device. There is no requirement under the UCC that the Security Agreement conferring possession of the collateral be in writing, instead a verbal Security Agreement sufficient to create a pledge may be adequate.
UNCITRAL Comparison. 20 See, UCC §9-205, Official Comment 9. As in the formation of the Security Agreement, the Guide encompasses the ideas and structures of various legal regimes in order to provide an overview of how the varied legal systems approach the concept of attachment- making the security interest enforceable as against the debtor. The Guide states broadly, that in some countries a fully effective security interest only comes into effect upon the conclusion of the Security Agreement and completion of an additional act, (i.e.: delivery, possession, notification, registration or control). However, the Guide mentions that in some countries, a retention of title clause is effective vis’-a-vis’ third parties upon the conclusion of the sales agreement in which it is contained. A security interest will be effective, under some countries’ regimes, where an assignment of receivables is accomplished by way of security (under some countries, this assignment is effective even without notification of the debtor of the receivable). The Guide stresses the concept of proprietary requirements in making a security interest enforceable as against a debtor. These proprietary requirements give rise to the ability of a grantor of security to convey its security interest – in this situation, a sub-issue arises as to when the grantor does not have the ownership or the power to dispose of the assets, but the secured creditor can nevertheless acquire the security right in good faith. In some legal systems, the Guide instructs, good faith is determined on a subjective basis and is supported by objective indicia of ownership, e.g.: where the creditor has extended or is about to extend credit to the debtor, or the grantor is registered as the owner of the assets to be encumbered or holds the assets and transfers possession thereof to the creditor.21 The Guide outlines four (4) ways of producing proprietary effects of a security interest as against third parties. They are transfer of possession, control, notification and publicity. Possessory pledges are transferred by a change in the possession of the security interest, either by transfer of ownership through agreement or by a physical transfer. Transfer of negotiable instruments would contemplate a transfer by delivery with an endorsement according to the rules of the particular countries law on negotiable instruments. Security interests in intangibles are created by agreement and transfer of control in much the same way as UCC Article 9 proscr...
UNCITRAL Comparison. In the Guide, there is no separate topic entitled “Perfection,” like under Article 9 of the UCC. Instead, the Guide’s approach to perfection is subsumed in the concept of creation of a security interest.
UNCITRAL Comparison. The Guide covers a number of areas with regard to the creation of a filing system in each countries’ secured transactions law regime, including: (i) the authorization of the grantor, as opposed to a requirement of a signature, (ii) whether the filing system will be a notice or a document filing, (iii) the importance of identifying the entry by the grantor as opposed to categorizing the filing system by other identifiers, (iv) proper identification of the secured creditor, (v) adequate description of the assets covered in the notice, (vi) including the maximum amount of secured credit, (vii) pre-filing requirements,
UNCITRAL Comparison. The Guide focuses on two policy issues that dictate the parties’ obligations towards one another and towards third parties. These two principles are: (a) party autonomy and the extent to which the parties should be free to fashion their own Security Agreement containing their own pre-default remedies and (b) the type and number of default rules to be included in the Security Agreement. The first principle UNCITRAL suggests following stems from the initial vision of the working group, to allow the parties to a secured transaction to create a long-lasting, un-restrictive secured transaction to meet their own needs and circumstances, within certain limitations, emanating from the precepts of good faith and fair dealing.43 There are certain default guidelines presented in the Guide which define a set of policies to be used by each participating country. For instance, similar to what is legislated by Article 9, the party in possession of the encumbered asset should have a duty of preservation and care in order to preserve the value of the encumbered collateral. Also, as under the strictures of Article 9, there is a duty imposed upon the debtor to bear the reasonable expenses incurred by the secured creditor. Other duties required under Article 9 of the Code are included in the Guide, such as: (a) the right to make reasonable use of the encumbered asset; (b) the duty to keep the encumbered assets identifiable; (c) the duty to take steps to preserve the debtor’s rights,
UNCITRAL Comparison. The Guide suggests formulating priority rules based upon either the First-to-file priority rule (identical to the Article 9 primary rule), priority based on possession or control (in the case of possesory security rights) or an alternative priority rule (a rule priority based upon when the security interest was created, or when the third party is notified of the security right, rather than when the interest was first filed, or perfected, under the UCC Article 9 term.)47 The Guide does go into some detail in this section regarding different types of secured lending situations and attempts to set forth certain firm guidelines and rules to refer to. Nevertheless, the Guide does support the idea of freedom of contract and permits, in the area of priority subordination agreements. In the case of Purchase Money Security Rights, the equivalent of the PMSI of Article 9, the grantor of this security has priority over all other creditors, as is the general rule under Article 9. The Guide also introduces the concept of reclamation rights and asks that some consideration be given to allow a supplier that sells goods on unsecured credit to reclaim the goods from the buyer within a specified period of time if the supplier discovers within that time that the buyer is insolvent. Without delving into the specifics of a parallel 47 UNCITRAL Addendum 7, at ¶¶ 6,11 and14. process under Article 9, suffice it to say, that the concept does exist. See Section IX, The Secured Party and Bankruptcy (infra).48 The Guide also broaches the area of sales outside the ordinary course of business of the grantor by addressing that in many countries sales of encumbered assets outside the ordinary course of business of the grantor does not destroy any security rights that the secured creditor has in the assets, unless the secured creditor consents. A similar concept appears under Article 9, see supra. As for sales of inventory made in the ordinary course of business of the grantor, there is a commercial expectation that the buyer of the encumbered asset will take free and clear of any existing security rights.
