Optimizing English and American Security Interests

By LoPucki, Lynn M.; Abraham, Arvin I. et al. | Notre Dame Law Review, April 2013 | Go to article overview
Save to active project

Optimizing English and American Security Interests


LoPucki, Lynn M., Abraham, Arvin I., Delahaye, Bernd P., Notre Dame Law Review


C. Rights in Insolvency Proceedings

Both English and American insolvency laws generally yield to and enforce the non-insolvency rights of security interest holders. (186) The creditor's "secured claim" is defined in the United States as the amount of the debt owed to the creditor that is secured by collateral. (187) Any excess over the value of the collateral is treated as an unsecured claim and will rank pro-rata with the claims of other unsecured creditors. (188) English law takes the same approach. A creditor has a "secured claim" for purposes of insolvency law "to the extent that [the creditor] holds any security for the debt ... over any property of the person by whom the debt is owed." (189) If the creditor "realizes [its] security [it] may prove for the balance of [its] debt, after deducting the amount realized" (190) for which it will rank pro-rata along with the unsecured creditors, (191)

Both systems, however, also modify those rights in some respects. In this section, we compare the functions of English fixed charges and American security interests in connection with insolvency proceedings. Although general differences in the insolvency procedures of the two countries may indirectly affect secured creditor recoveries, we confine our discussion to differences that directly affect secured creditor recoveries.

In the United States, three proceedings are commonly employed by business debtors: (1) Chapter 7 (liquidation), (2) Chapter 11 (reorganization), and (3) Chapter 13 (debt adjustment). We omit Chapter 13 debt adjustment from our comparison, because only individuals (natural persons) can file under Chapter 13.

In England, four proceedings are commonly employed by business debtors: (1) Winding-up (liquidation), (2) Administration (reorganization), (3) Administrative Receivership (reorganization), and (4) Bankruptcy (distribution of bankrupt's estate and discharge), (192) We omit Administrative Receivership from our comparison, because recent legislation has sharply curtailed its use. (193) We also omit Bankruptcy from our comparison, because a bankruptcy order can only be made against individuals (natural persons). (194)

Thus, following Segal, (195) we make essentially two comparisons. The first is of liquidation under American Chapter 7 with English Winding-up. The second is of reorganization under American Chapter 11 with English Administration.

In theory, floating charges crystallize upon the commencement of an insolvency proceeding and so become fixed charges. But for purposes of insolvency proceedings, the metamorphosis seems to make little difference. The Insolvency Act defines a floating charge as a charge that was a floating charge at the time of its creation, (196) and continues to treat the floating charge differently in many respects. Accordingly, in this section we compare the insolvency treatment of charges that were created as fixed charges with American security interests. The comparison of charges that were created as floating charges with American security interests is the subject of Part IV.C. below. There are, nevertheless, many respects in which floating charges are treated the same as fixed charges. For economy of presentation, we mention some of them here.

The insolvency treatment of English fixed charges is highly similar to the insolvency treatment of American security interests. We describe the similarities in subsection 1 before we turn to the differences in subsection 2.

1. Similarities in Treatment

Initiation. Secured creditors commonly initiate English insolvency proceedings. (197) They seldom do so directly in the United States. In the United States, unsecured creditors--which include secured creditors for the amounts by which their claims exceed the amounts of their collateral--have the legal right to initiate "involuntary" insolvency cases. (198) But American law is hostile toward direct creditor-initiation.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Optimizing English and American Security Interests
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?