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SECURED TRANSACTIONS, EQUIPMENT FINANCE, and GUARANTEES Chapter 15 Is Concerned with Secured Transactions As Understood Under English Law

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SECURED TRANSACTIONS, EQUIPMENT FINANCE, and GUARANTEES Chapter 15 Is Concerned with Secured Transactions As Understood Under English Law PART D SECURED TRANSACTIONS, EQUIPMENT FINANCE, AND GUARANTEES Chapter 15 is concerned with secured transactions as understood under English law. It also examines certain matters that are similar to or associated with such transactions. After an introduction dealing with matters that are relevant in a general sense to secured transactions, it then moves to consider concepts of property, interests in property and dealings therein, future property and attachment of proprietary interests, accretions to and the proceeds of assets, the forms of security, floating charges, security in financial assets, security over intellectual property, security over credit balances, rights of set-off, Quistclose trusts, registration requirements for corporate security, priorities, subordination of unsecured debt, upsetting prior transactions, and enforcement of security. Chapter 16 is concerned with equipment finance, sometimes called title finance. It examines the methods by which a financier might acquire title in equipment, the forms of transaction by which equipment is made available by the financier to its customer, the financier’s statutory responsibilities for the equipment and the effectiveness of attempts to exclude or restrict that responsibility, the rights and obligations of the parties following a default by the customer, the effect of the customer’s insolvency, the financier’s rights against third parties, and insurance arrangements. Chapter 17 concerns guarantees. It looks at the nature of a guarantee as contrasted with other types of instrument, preliminary matters in taking a guarantee, State guarantees under EC law, the types of guarantee, Export Credits Guarantee Department (ECGD) cover, the rights of the guarantor, reasons for the discharge of the guarantor, and provisions to save the beneficiary’s position under the guarantee. Chapter 18 relates to the case for reform of secured transactions under English law. It discusses the reasons why reform is needed and then reviews proposals that were put forward by the Law Commission to effect reform of the law. 14 SECURED TRANSACTIONS 14.1 Introduction and Preliminary Matters 14.1 14.1.1 The nature of security 14.1.1.1–14.1.1.2 14.1.2 The equitable right to redeem 14.1.2.1 14.1.3 The reasons for taking security 14.1.3.1–14.1.3.4 14.1.4 The liabilities that may be covered by security 14.1.4.1–14.1.4.3 14.1.5 Non-recourse security 14.1.5 14.1.5.1 Other methods of non-recourse financing 14.1.5.1.1– 14.1.5.1.3 14.1.6 Third party security 14.1.6 14.1.7 Security held by a trustee 14.1.7 14.1.8 Intention to create security 14.1.8.1 14.1.9 Contractual impediments to the creation of security 14.1.9 14.1.9.1 Negative pledges 14.1.9.1.1–14.1.9.1.2 14.1.9.2 Restrictions within a contract upon dealing with rights arising under the contract 14.1.9.2.1–14.1.9.2.2 14.1.9.3 Other types of restriction 14.1.9.3 14.1.10 Conflict of laws and cross-border issues 14.1.10.1 14.2 Concepts of Property, Interests in Property, and Dealings in Property: An Introduction 14.2.1 14.2.2 Concepts of property 14.2.2.1 14.2.3 Legal and equitable interests in assets 14.2.3 14.2.3.1 Legal interests 14.2.3.1.1–14.2.3.1.4 14.2.3.2 Equitable interests 14.2.3.2.1–14.2.3.2.7 14.3 The Concepts of Future Property and Attachment 14.3.1 14.3.2 Future property 14.3.2.1–14.3.2.4 14.3.3 Attachment 14.3.3.1–14.3.3.2 14.3.3.3 Goods 14.3.3.3.1–14.3.3.3.2 14.3.3.4 Intangible property 14.3.3.4 14.3.4 Security bills of sale 14.3.4 14.3.5 Static and transient assets 14.3.5 14.4 An Asset, Fruits of and Substitutions for the Asset, and the Proceeds of Sale of the Asset 14.4.1 14.4.2 Fruits and substitutions 14.4.2 14.4.3 Proceeds of sale of an asset 14.4.3 14.5 Forms of Security 14.5.1 14.5.2 Possessory security 14.5.2 14.5.2.1 Pledges 14.5.2.1.1–14.5.2.1.2 14.5.2.2 Contractual liens 14.5.2.2 14.5.3 Non-possessory security 14.5.3 14.5.3.1 Legal mortgage 14.5.3.1.1–14.5.3.1.4 14.5.3.2 Equitable mortgage 14.5.3.2.1–14.5.3.2.4 14.5.3.3 Equitable lien 14.5.3.3.1–14.5.3.3.2 14.5.3.4 Equitable charge 14.5.3.4.1–14.5.3.4.2 14.5.3.5 Debenture 14.5.3.5 14.6 Floating Charges 14.6 14.6.1 Introduction 14.6.1.1–14.6.1.4 14.6.2 The importance of the distinction between fixed security and floating charges 14.6.2 14.6.2.1 Advantages 14.6.2.1.1 14.6.2.2 Disadvantages 14.6.2.2.1–14.6.2.2.4 14.6.3 The nature of a floating charge 14.6.3.1–14.6.3.4 14.6.4 The essential characteristic of a floating charge 14.6.4.1–14.6.4.2 14.6.5 The liberty to deal 14.6.5.1–14.6.5.2 14.6.6 Fixed v floating security in the context of particular transactions 14.6.6.1 14.6.6.2 Book debts (receivables) 14.6.6.2.1–14.6.6.2.6 14.6.6.3 Other assets 14.6.6.3 14.6.6.4 Plant and equipment 14.6.6.4 14.6.6.5 Equipment leases or hire purchase transactions and rental payable under them 14.6.6.5.1–14.6.6.5.2 14.6.6.6 Insurance policies 14.6.6.6 14.6.6.7 Shares in a company 14.6.6.7.1–14.6.6.7.3 14.6.6.8 Contractual rights 14.6.6.8 14.6.6.9 Intellectual property 14.6.6.9.1 14.6.6.10 Real property 14.6.6.10.1–14.6.6.10.2 14.6.7 Crystallisation 14.6.7 14.6.7.1 The circumstances in which crystallisation may occur 14.6.7.1.1–14.6.7.1.3 14.6.8 Priorities 14.6.8.1 14.6.8.2 Transactions that take place before crystallisation 14.6.8.2.1–14.6.8.2.4 14.6.8.3 Transactions that take place after crystallisation 14.6.8.3.1–14.6.8.3.3 14.6.8.4 Statutory priorities 14.6.8.4.1–14.6.8.4.2 14.7 Taking Security Over Shares and Other Financial Securities 14.7.1– 14.7.1.3 14.7.2 Equitable interests in shares 14.7.2 14.7.3 Certificated securities and physical instruments 14.7.3.1–14.7.3.2 14.7.4 Uncertificated securities 14.7.4 14.7.4.1 The CREST system 14.7.4.1.1–14.7.4.1.4 14.7.5 Intermediated Securities 14.7.5.1 The legal analysis of intermediated securities 14.7.6. The Financial Collateral Arrangements (No 2) Regulations 2003 14.7.6 14.7.6.1 Definitions 14.7.5.1.1–14.7.5.1.4 14.7.6.2 Modifications to formal and registration requirements under English law 14.7.5.2 14.7.6.3 Modifications to English insolvency law 14.7.5.3 14.7.6.4 The right to use 14.7.6. The right to appropriate financial collateral 14.7.6.4.1–14.7.6.4.2 14.8 Taking Security over Intellectual Property 14.8.1–14.8.1.5 14.8.2 Taking security over statutory IP rights in the UK 14.8.2 14.8.2.1 Registered rights 14.8.2.1 14.8.2.2 Unregistered rights 14.8.2.2 14.8.3 Companies Act registration 14.8.3 14.9 Taking Security over Receivables 14.9.1–14.9.2 14.10 Taking Security over Credit Balances and Other Obligations Owed by a Creditor 14.10.1–14.10.1.1 14.10.2 The reasons for preferring security to set off 14.10.2.1 14.10.3 The conceptual impossibility argument 14.10.3.1–14.10.3.4 14.10.4 Insolvency set-off relating to the deposit taking by the bank 14.10.4.1–14.10.4.2 14.10.5 ‘Flawed asset’ provisions 14.10.5.1–14.10.5.3 14.11 Set-off 14.11.1–14.11.1.1 14.11.2 Pre-insolvency set-off 14.11.2 14.11.2.1 Legal set-off 14.11.2.1.1 14.11.2.2 Equitable set-off 14.11.2.2.1.1–14.11.2.2.4 14.11.2.3 Contractual set-off 14.11.2.3.1–14.11.2.3.3 14.11.2.4 The banker’s right of set-off 14.11.2.4.1–14.11.2.4.3 14.11.2.5 Precluding the exercise of rights to set-off 14.11.2.5.1– 14.11.2.5.4.1 14.11.2.6 Negotiable instruments 14.11.2.6.1–14.11.2.6.3 14.11.3 Insolvency set-off 14.11.3.1–14.11.3.3 14.11.3.4 Set-off in bankruptcy 14.11.3.4.1–14.11.3.4.4 14.11.3.5 Set-off in a winding up 14.11.3.5.1–14.11.3.5.3 14.12 Quistclose Trusts 14.12 14.12.1 The Quistclose case 14.12.1.1–14.12.1.2 14.12.2 Other cases 14.12.2 14.12.3 The type of trust 14.12.3.1 14.12.4 The questionable need for protection 14.12.4 14.12.5 Sufficient intention or purpose 14.12.5 14.12.6 Acceptance of the principle 14.12.6 14.12.7 Judicial analysis of Quistclose 14.12.7 14.12.8 Money received when the recipient has stopped trading 14.12.8 14.13 Company Registration Requirements 14.13.1–14.13.1.1 14.13.2 Registrable charges 14.13.2.1–14.13.2.3 14.13.3 The process of registration 14.13.3.1–14.13.3.4 14.13.4 The consequences of a failure to register 14.13.4.1 14.13.5 Other entries on the register 14.13.5.1–14.13.5.2 14.13.6 Late registration 14.13.6.1–14.13.6.3 14.13.7 The power to make secondary legislation 14.13.7.1–14.13.7.2 14.13.8 Security given by a registered overseas company 14.13.8.1– 14.13.8.3 14.13.9 Re-characterisation 14.13.9.1 14.14 Priorities 14.14.1–14.14.1.2 14.14.2 Some general principles 14.14.2 14.14.2.1 The role of notice 14.14.2.1 14.14.2.2 Purchaser for value of the legal estate 14.14.2.2.1– 14.14.2.2.2 14.14.2.3 The nemo dat rule 14.14.2.3 14.14.2.4 Competing equitable interests 14.14.2.4.1–14.14.2.4.2 14.14.2.5 The purchase money security interest 14.14.2.5 14.14.2.6 Floating charges 14.14.2.6.1 14.14.2.7 Priority agreements 14.14.2.7 14.14.3 Goods 14.14.3.1–14.14.3.3 14.14.4 Debts 14.14.4 14.14.5 Further advances 14.14.5.1–14.14.5.2.5 14.15 Subordination 14.15 14.15.1 Introduction 14.15.1.1–14.15.1.5 14.15.2 Types of subordination arrangement 14.15.2.1 14.15.2.2 Turnover subordination and subordination trusts 14.15.2.2 14.15.2.3 Contingent debt subordination 14.15.2.3 14.15.2.4 Situations outside the insolvency of the debtor 14.15.2.5 14.15.3 Legal issues that arise in connection with subordination 14.15.3 14.15.3.1 Pari passu distribution in a winding up of the debtor 14.15.3.1.1 14.15.3.2 Insolvency set-off as between the insolvent debtor and the junior creditor 14.15.3.2.1–14.15.3.2.3 14.15.3.3 Participation of the junior creditor in the prescribed part of floating charge property 14.15.3.3 14.15.3.4 Subordination trusts by way of security 14.15.3.4.1– 14.15.3.4.3 14.15.3.5
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