Optimizing English and American Security Interests
88 Notre Dame Law Review 1785 (2013)
98 Pages Posted: 2 Apr 2012 Last revised: 27 Aug 2013
Date Written: April 1, 2012
Since the adoption of Uniform Commercial Code Article 9 in American jurisdictions in the 1960s, scholars have debated the desirability of the extraordinary priority given to secured creditors. Through a point-by-point comparison of English and American security interests, this article provides a new perspective on that long-running debate. The comparison reveals that security functions in strikingly similar manners in the two jurisdictions, while differing sharply in one crucial respect. In contrast to the absolute priority given secured creditors under American law, English law subordinates floating charges to administrative expenses, preferential creditors, and a prescribed share for unsecured creditors. Other, less important differences exist. The English and American filing systems and requirements generate secret liens in different ways with respect to different types of collateral. The English filing system is company-based, while the American filing system is name-based. The English system recognizes a public interest in the availability of filing system information, while the American system assumes that only debtors and their secured creditors have legitimate interests. English insolvency estates cannot grant lenders priority over pre-insolvency liens while American insolvency estates can. Lastly, the comparison reveals that English phoenix sales may provide a functional substitute for American cramdown – thus eliminating what some had considered an important difference between the two systems.
Keywords: security interests, floating charges, fixed charges, England, attachment, perfection, priority, insolvency, execution liens, cramdown, carve-out, bankruptcy, bankruptcy priority, administration, reorganization, prescribed share, administrative expenses, preferential creditors, false wealth
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