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You are here: BAILII >> Databases >> The Law Commission >> Company Security Interests (Consultation Paper) [2004] EWLC 176(appendix b) (13 August 2004) URL: http://www.bailii.org/ew/other/EWLC/2004/176(appendix_b).html Cite as: [2004] EWLC 176(appendix b)

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APPENDIX B

CHANGES NEEDED TO THE DRAFT REGULATIONS TO OMIT TITLE RETENTION DEVICES

B.1     In this consultative report we have provisionally recommend the introduction of a scheme that will go beyond charges and other 'traditional' securities. It should include at least sales of receivables, for which there was strong support. We have asked consultees whether they agree with our provisional recommendation that the scheme should also include title-retention devices; this is much more controversial.
B.2     The scheme set out in Parts 3-5 and the draft regulations covers all these elements, so that consultees can evaluate the scheme in full detail. It is not, however, a question of 'all or nothing.' We would recommend a limited reform rather than none at all. In this Appendix we indicate what changes would be needed, or might be made, to the draft regulations were title-retention devices to be excluded from the scheme, so that it would apply only to traditional securities and sales of receivables.
B.3     A limited scheme would not necessarily look very different from that set out in Appendix A. The vast majority of the individual provisions in the current draft could nonetheless apply even if title-retention devices were excluded.

Necessary changes

B.4     The main change that would be necessary would be to DR 3, and the meaning of 'security interest'. Although we would continue to use the term 'security interest', the definition would in effect be limited to mortgages, charges, pledges and sales of accounts. Thus DR 3(1), (2), (3)(b)-(d) and (4) would be removed, and a limitation to charges, mortgages and pledges, together with DR 3(a), drafted. DR 3(5) would remain.
B.5     The removal of leases (both finance and operating) and consignments from the definition of an SI would bring a number of consequential changes, by removing references to these concepts or the parties to these transactions in the following provisions:

(1) DR 2(1) (Interpretation),

(2) DR 4(1)(c)-(d) (Meaning of PMSI),

(3) DR 5(1)(b)-(d) (Meaning of debtor),

(4) DR 8 (Meaning of 'lease for a term of more than one year'), and

(5) DR 9 (Meaning of 'commercial consignment').

B.6     In addition, DR 12(1)(b) (rights of set-off) would be removed. DR 56(1) would have to be amended to match the new provision relating to the definition of SI. Sales of accounts would still be excluded from the statement of rights and remedies. There would also need to be consequential amendments to the transitional provisions in DR 74.

Provisions that might be omitted

PMSIs

B.7     The main application of the provisions relating to PMSIs is to title-retention devices, although their impact would be reduced. Were the provisions on PMSIs retained, specific loans for the acquisition of new assets, secured by a charge on the asset itself, would still amount to PMSIs; but these are relatively rare. We would welcome views on whether the retention of specific provisions on interpretation and priority of PMSIs would be justified in a scheme that did not include title-retention devices.

The statement of rights and remedies

B.8     All of the provisions contained in the statement of rights and remedies (Part 5 of the draft regulations) would still be appropriate in a scheme that covered traditional securities and sales of accounts. However, one of the main reasons for including it was to make it clear which rules applied to quasi-securities, and to provide a single set of remedies for title-retention devices and traditional securities. Were title-retention devices to be excluded, the remedies provisions, which in broad terms replicate the law applicable to traditional securities, would have less impact. Sales of accounts, though within the scheme for the purposes of perfection and priority, would (with the exception of DR 60(5)) continue to be outside the statement of rights and remedies. However, we think a statement of the rights and remedies would still be useful. It would make clear which provisions apply to mortgages, pledges and charges and which to sales of accounts; and it would provide an up-to-date and somewhat simplified statement of the law. We would welcome the views of consultees as to whether 'Part 5' would be worth retaining in a scheme that did not include title-retention devices.

Consultation question

B.9     If the draft regulations were amended to apply only to traditional securities and sales of accounts, and not to title-retention devices, we ask whether consultees think that the draft regulations should continue to contain:

(1) provisions relating to PMSIs,

(2) the statement of the rights and remedies set out in Part 5 of the draft regulations.

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