Some obligations are secured only by a security right in a particular designated asset, and liability for repayment of the debt is limited to the asset itself, without further claims against the debtor. These are called «non-recourse obligations». Another form of security that flourished in the United States in the late 19th century and the first half of the 20th century was conditional selling, the precursor to what American lawyers now call the Purchase Money Security Interest (PMSI). [30] It was popular with believers during this period for two reasons. [30] First, most U.S. states had imposed many repeated restrictions on movable mortgages to protect debtors (at one time, debtor prisons were abolished but which most people living at the time still remembered), and second, all U.S. citizens. During this period, states also had strict anti-usury laws. [30] Conditional sales were considered exempt from both issues, at least initially.
[30] A borrower`s rights vis-à-vis third parties, such as the right to receive payments for debts from their own books, can be transferred to a third party to sell those rights – this is an absolute or direct assignment. It is also possible to make an assignment in the form of security on the rights implemented by a borrower – rights to which the borrower is entitled under contracts – as security for the debts of this borrower. As with any assignment, a security assignment can be legal or equitable. An assignment is legal if it is: a royalty does not include the transfer of ownership or ownership of an asset. For practical reasons, most lenders will not want to take possession of the borrower`s assets and the borrower will not want to lose control of them, especially if these assets are used in day-to-day business operations. As a result, a (charged) lender will instead want a guarantee by obtaining rights to certain assets of the borrower (chargor) as collateral for the loan. The defendant then has the right to fall back on this asset to repay the debt. The following discussion of the types of security rights focuses on English law. English security law has been followed in most common law countries, and most common law countries have similar ownership laws[12] that govern common law rules. Security rights under customary law are either possessive or insurmountable, depending on whether the secured party must actually take possession of the security. Alternatively, they occur by agreement between the parties (usually through the conclusion of a security agreement) or by legal force. Laws relating to the adoption and enforcement of security rights vary from country to country and depend on whether they derive from the common law or the civil law.
[34] Floating charges are indeed similar to fixed equity charges once they have arisen (usually at the beginning of liquidation proceedings against the cost carrier), but before that, they «float» and do not relate to the royalty debtor`s assets, and the fee debtor remains free to deal with or dispose of them. The U.S. equivalent is the floating privilege which, unlike the floating charge, can be given by any type of debtor, not just by corporations. The second definition is increasingly used commercially and is arguably preferable, as traditional English legal usage makes little sense except for the relatively rare authentic legal hypothec (very few other security rights require additional steps to bind to the asset. Security rights often require some form of registration to be enforceable in the context of bankruptcy by fault). This resulted in Article 9 of the Uniform Commercial Code (CDU), which regulates security rights in personal property (as opposed to immovable property) and establishes a uniform concept of security right as a right in the assets of a debtor that secures the payment or performance of an obligation. [41] A security right gives the holder the right to take corrective action in respect of the asset in the event of certain events, such as the non-payment of a loan. The creditor may take possession of these assets in order to fulfil the underlying obligation. The owner will sell these properties at a public auction or through a private sale and will use the proceeds to fulfill the underlying obligation. If the proceeds exceed the amount of the underlying obligation, the debtor is entitled to the excess. If the proceeds are insufficient, the security holder is entitled to a default judgment that allows the security holder to bring an additional lawsuit to claim the full amount, unless it is a non-recourse debt, as is the case with many mortgages in the United States.
To complete a legal hypothec, it is usually necessary for ownership of the assets to be transferred to the name of the secured party, so that the secured party (or its candidate) becomes the legal holder of title to the asset. If a legal hypothec is not entered into in this way, it usually takes effect as a fair mortgage. Due to the obligation to transfer ownership, it is not possible to take out a legal hypothec on future real estate or more than one legal hypothec on the same assets. However, hypothecs (legal and equitable) are non-titled security rights. As a general rule, the party granting the mortgage (the mortgage debtor) remains in possession of the mortgaged asset. [e] Most security rights are granted by the person who owns the asset to secure his or her own debt. However, it is also possible for a person to provide security on their assets as security for another person`s debts (often referred to as a third-party guarantee). [5] For example, a parent could grant security in their home to support a business loan to their child. Similarly, most security rights are used to secure debts or other direct financial obligations. But sometimes security is provided to guarantee a non-financial obligation.
For example, a performance guarantee in the construction sector can ensure satisfactory compliance with non-financial obligations. Lien sur actions are slightly amorphous forms of security that arise only as of right in certain circumstances. Academically, it has been established that there does not appear to be a truly unifying principle behind the circumstances that cause them. [28] For this reason, many jurisdictions restrict the ability of secured creditors to enforce their rights in the event of bankruptcy. In the United States, Chapter 11 creditor protection, which completely prevents the enforcement of security rights, is intended to keep businesses in business at the expense of creditors` rights and is often strongly criticized for this reason. [c] In the United Kingdom, an administrative order has a similar effect, but it is less broad and restricts the rights of creditors. European systems are often presented as creditor-friendly, but many European jurisdictions also set limits on the time limits that must be met before secured creditors can assert their rights. The most draconian jurisdictions that defend the rights of creditors are usually located in offshore financial centers, hoping that through a legal system heavily focused on secured creditors, they will encourage banks to lend to offshore structures at lower interest rates, and thus encourage companies to use them to obtain cheaper funds. [d] Collateral (sometimes referred to as collateral) is a form of security of possession and, therefore, assets that are pledged must be physically delivered to the beneficiary of the pledge (the pledge). Privileges are used in commercial contexts in trading companies (especially physically in commodity trading) and are still used by pawnshops who, contrary to their old world image, remain a regulated lending industry. In turn, international development experts realized in the mid-1990s that security law reform was one of the main reasons for the prosperity of Canada and the United States, as it had allowed their companies to finance their growth through forms of secured loans that simply did not exist elsewhere. [44] The International Monetary Fund, the World Bank and other international lenders have begun to encourage other countries to follow Canada`s lead in the structural adjustment process (a consultation process often required as a condition of their loans).
Canadian PPSAs were then followed by the New Zealand Personal Property Securities Act 1999, the Vanuatu Personal Property Securities Act 2008, the Personal Property Securities Act 2009 in Australia, the Security of Personal Property Act 2012 in Papua New Guinea, the Jersey Security Interests Law 2012 (which only covers intangible personal property), the Samoa Personal Property Securities Act 2013 and the Jamaica Security Interests in Personal Property Act 2013. For obvious reasons, lenders will not want to take possession of the assets and a borrower will not want to lose control of them, especially if they are used in the day-to-day operations of their business. Instead, lenders typically want to take collateral by obtaining rights to certain assets from a borrower as collateral for a loan. Although the term «commission» is a term often used for all types of security rights, it is actually an agreement between two or more parties in which one party (the royalty payer) provides security on one asset to another (the debtor) without transferring or ownership of that asset (comparison of a lien or privilege). This agreement stipulates that if the principal does not comply with an obligation, the taxpayer can use the asset to repay his debts […].