Vol 6 (2009) - Issue 2

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The Cross-Jurisdictional Perfection of Security

International insolvency measures have never had greater practical importance than in this market. The main principle governing insolvency proceedings internationally is the equality of creditors in the distribution of the assets. This is usually subject to the priority afforded by a security interest in the assets. Therefore it is key that a secured creditor is confident that his security is enforceable.

The volume of cross-border transactions has increased owing to:

(a) the expansion of multinational syndicates to finance loans and projects too large for the banks of any one country;

(b) the increasing size of projects and financing;

(c) the development of multinational enterprises with global assets;

(d) the internationalisation of securities markets; and

(e) the growing participation of emerging economies in international trade.

Another factor is the huge amount of liquidity which used to be available prior to the current crisis. Ensuring the enforceability of security in cross-border transactions has therefore become urgent.

The diversity of security: an impediment to cross-border transactions

1.1. Multiplicity of security instruments

One of the main obstacles to enforceability is the diversity of security instruments.

1.1.1. Multiplicity of definitions

Security may be personal, by suretyship or indemnity of a third party, real or proprietary, by devoting specific assets for the satisfaction of the creditor’s claim for the repayment of his loan credit. Collateral may take various forms: real estate or movables. The latter consists of tangible assets or intangible movables (rights). In practice, the most important difference is between collateral which remains in the debtor’s possession, and collateral which is handed over to a creditor.

1.1.2. Civil law jurisdictions

Civil law jurisdictions are cautious in their approach to non-possessory security. 'Historically, the Romans relied mainly on the possessory pledge (pignus), and in the nineteenth century this became the main, if not the only, model of security in movables.' However, possessory security implies many disadvantages, the debtor not being able to utilise the collateral for his business purposes.