Revised Article 9, Securitization Transactions and the Bankruptcy Dynamic
37 Pages Posted: 11 Sep 2010
Date Written: January 2, 2001
The article examines the changes to Article 9 of the Uniform Commercial Code approved in 1998, and a proposed change in the Bankruptcy Code affecting business debtors, and their impact on securitization transactions and bankruptcy. The article describes the history of securitization, its impact on and place in the commercial credit markets, and its distributive effects. The article predicts the effect that a further proliferation of securitization will have on the bankruptcy dynamic. The article continues by describing the proposed amendment to sec. 514 of the Bankruptcy Code affecting business bankruptcies, which proposes to exclude from a debtor’s "estate" assets transferred in securitization transactions. While characterized as a "clarification," this redefinition, if enacted, will fundamentally alter the essence of business bankruptcy. Such a change will undermine the relationship between state and federal law by creating a federal property right. In addition, this propose revision would carve assets out of a debtor's estate that may be necessary to facilitate the debtor's reorganization, pay priority claimants and unsecured creditors, thus thwarting the long-standing bankruptcy principle encouraging the reorganization of viable businesses. This article concludes with the observation that revised Article 9 did not reflect the concerns of those who thought that a further proliferation of securitization would have distributive consequences. Moreover, proposed section 514 of the Bankruptcy Code’s exclusion of securitized assets from the bankrupt originator’s estate will adversely affect business debtors’ chances of reorganization.
Keywords: Securitization, Article 9, Bankruptcy, Estate, Estate Property, True Sale, Account, Payment Intangibles, Promissory Notes, General Intangibles, After-Acquired Receivables, Proceeds, Preferential Transfers, Fraudulent Conveyances
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