A Sea Change in Creditor Priorities

46 Pages Posted: 1 Aug 2014 Last revised: 16 Dec 2014

See all articles by Kristen van de Biezenbos

Kristen van de Biezenbos

University of Calgary Faculty of Law & Haskayne School of Business

Date Written: July 29, 2014

Abstract

This Article argues that the operation of maritime law undermines a primary justification for creditor priorities under U.S. law. Under current law, when a debtor becomes insolvent, its secured creditors will be paid the full amount of their debt to the extent of their security interest, even if it means there is nothing left to pay unsecured creditors. This is controversial with respect to involuntary unsecured creditors, particularly those with tort claims against the debtor. Defenders of this scheme of priorities have argued that allowing greater priority to involuntary creditors would hinder the availability or increase the cost of credit. However, involuntary creditors have long enjoyed priority over secured creditors under maritime law, and it does not appear that firms subject to maritime law have experienced these predicted negative effects. Experience with the priority scheme under maritime law may thus provide support for efforts to reform current U.S. law to give greater priority to involuntary creditors more generally.

Keywords: Secured Transactions, Article 9, Uniform Commercial Code, Commercial Law, Admiralty Law, Comparative Law

Suggested Citation

van de Biezenbos, Kristen, A Sea Change in Creditor Priorities (July 29, 2014). University of Michigan Journal of Law Reform, Vol. 48, 2015. Available at SSRN: https://ssrn.com/abstract=2473692

Kristen Van de Biezenbos (Contact Author)

University of Calgary Faculty of Law & Haskayne School of Business ( email )

Murray Fraser Hall
2500 University Dr. N.W.
Calgary, Alberta T2N 1N4
Canada

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