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This chapter explores the way in which the shifts in the fields of finance and non-financial corporates discussed in Chapters 3 and 4 have led to changes in US secured transactions law. It examines the way in which these changes have, in turn, shifted bargaining power towards secured creditors when a debtor attempts to reorganize its debt and equity finance. However, the argument is made that this gives rise to different issues from the traditional concern for secured creditor liquidation bias when it is set in the wider organizational and institutional environment which the book has begun to examine. Turning to England, the chapter explores how the English courts have generally supported the allocation of control rights in distress to senior financial creditors. It reveals why this has, once again, made English corporate reorganization law particularly well adapted to the demands of the past decade.

This chapter examines the impact of insolvency proceedings recognized by the Regulation on the rights of secured creditors, particularly the rights of such creditors to enforce their security and participate in the relevant insolvency proceedings. It also considers the impact of the Regulation on banks which hold security/quasi-security, addressing in particular the cross-frontier security rights of banks which hold security over the assets of companies or persons who enter into insolvency proceedings regulated by the Regulation, and the effect of those insolvency proceedings on the banks’ security interests. The chapter identifies those Articles of the Regulation which are particularly relevant to the position of a bank as a secured creditor, addresses the interpretation of those provisions (including the identification of difficult points of construction), and considers the practical aspects and the issues which are likely to face banks seeking to enforce security following the Regulation coming into force.

The presence of a charge over a company’s property will reduce the likelihood of an unsecured creditor obtaining payment, or at least a substantial dividend, in the insolvency of the company. The prudent unsecured creditor will bear this in mind in assessing whether to advance credit to a company, and at what level. For this reason a system of charges registration has long been employed, initially with a separate scheme for England and Wales and another for Scotland, in order that unsecured creditors can be aware of the presence of charges. This system has recently been revised and simplified and a single scheme now applies in the UK with effect from 6 April 2016. Charges created by UK companies prior to that date remain subject to the previous regime.

The key issue in considering entitlements to any sums realized as a result of an avoidance action is whether the recoveries will be caught within the scope of any fixed or floating charge that the company has granted. This vexed question has now been addressed under statute with the insertion of section 176ZB into the Insolvency Act 1986, so that where an office holder has brought a claim, or made an assignment of an avoidance action to recover, in England and Wales, a preference, transaction at an undervalue or extortionate credit transaction or, in Scotland, a gratuitous alienation or unfair preference, any sums recovered will not be treated as part of the company’s net property and so they will be unavailable to meet the claims of floating-charge holders. The position is the same in relation to actions for fraudulent trading and wrongful trading claims.