United Nations Commission on International Trade Law texts on Secured Transactions Jae Sung LEE Secretariat Legal Officer, International Trade Law Division Office of Legal Affairs, United Nations
Importance of getting credit Access to credit is essential for businesses and thus, important for economic growth and sustainable development Then, why is it difficult for businesses to get credit? Lack of collateral which would be accepted by financial institutions (strong preference for immovable property) Legal framework to facilitate lending based on movable asset needed to reduce the perceived risks of creditors and thus, to promote the availability of credit at a more affordable rate
World Bank Doing Business indicator on Getting Credit
World Bank Doing Business indicator on Getting Credit Assessment based on the the legal framework for secured transactions by examining whether collateral and bankruptcy laws facilitate lending (strength of legal rights index); and the coverage, scope and quality of credit information available through credit registries and bureaus (depth of credit information index)
Strength of legal rights index Movable assets as collateral (non-possessory security rights) Security right in a single category of movable assets Security right in all assets of the grantor Security rights in future assets Extension of security rights to proceeds Types of secured obligation Registry in operation Resolution of priority conflict among competing claimants Enforcement
EoDB Ranking Getting credit Ranking Strength of legal rights (0-186) (0-10) Malaysia 6 1 10 Australia 11 1 10 Singapore 1 3 10 Republic of Korea 7 13 8 Japan 27 28 7 India 134 28 8 Nepal 105 55 8 China 96 73 5 Sri Lanka 85 73 5 Thailand 18 73 5 Pakistan 110 73 6 Bangladesh 130 86 7 Maldives 95 109 4 Bhutan 141 109 3 Based on 2014 ranking
The need for reform To increase transparency and certainty of rights To balance the interest of the parties involved To increase level of access to credit To decrease the cost of credit A legislative framework to support a modernized, well-functioning secured transactions system is key Especially important for small and medium sized businesses New law or reforms of the existing law(s)
Six Working Groups The Commission Working Groups The Secretariat I. Micro, medium & small-sized enterprises II. Arbitration III. Online Dispute Resolution IV. Electronic Commerce V. Insolvency Law VI. Security Interests
Texts Convention Model Law Legislative Guide Negotiated with universal participation and reflect balance of national, regional, economic, legal and other interest Drafted with a view to ensuring compatibility with the various legal traditions Not necessarily international, texts may be implemented domestically
Texts Convention Model Law Legislative Guide Conventions - Designed to unify law by establishing binding legal obligations Model Law - A legislative model text to be enacted as domestic law Legislative Guide - A set of principles and legislative recommendations for legislators to consider in the enactment of domestic law
Creating a favourable environment for access to credit 2001 2007 2010 2013. United Nations Convention on the Assignment of Receivables in International Trade Legislative Guide on Secured Transactions Legislative Guide on Secured Transactions: Supplement on Security Rights in Intellectual Property Guide on the Implementation of a Security Rights Registry Model Law on Secured Transactions (forthcoming) [Explanatory text], Hague Conference and Unidroit Texts on Security Interests: Comparison and analysis of major features of international instruments relating to secured transactions (2011)
Legislative Guide on Secured Transactions To assist States and national legislators in the development and modernization of their secured transactions laws To increase access to and provide businesses with an alternative source of affordable credit
Key elements of a successful secured transactions law Enhances availability of secured credit Allows debtors to utilize the full value in their assets to support credit Enables parties to obtain security rights in a simple and efficient manner Establishes clear and predictable priority rules Facilitates efficient enforcement of creditor s rights Allows parties maximum flexibility in negotiating the terms of the secured transaction
Structure of the Legislative Guide A legislative guide flexible soft law approach A set of principles or legislative recommendations Commentary to discuss the advantages and disadvantages of different policy choices 12 chapters of commentary followed by a set of legislative recommendations General recommendations Asset-specific recommendations (receivables, bank accounts, negotiable instruments, negotiable documents)
Questions being answered What should be the scope of application? What is a security right? all forms of transactions for security purposes all types of movable asset (tangible or intangible, present or future, inventory, equipment ) Intellectual property ( ), Aircraft, space objects, ships (X), securities (X), immovable property (X) all persons all types of secured obligation (present or future, determined or determinable) Functional, integrated and comprehensive approach
Questions being answered How is a security right created? Agreement with no need for transfer of possession Does the security right extend to proceeds? Yes How is a security right made effective against third parties? Registration, transfer of possession, control, specialized registration How is a security right publicized? Where do you register and what? A notice (not document) in general SR registry
Questions being answered How do you determine priority among competing claimants? As against transferees, judgment creditors and insolvency representatives? What are the rights and obligations of parties to the secured transactions and third-party obligors? For example, a debtor of a receivable? How do you enforce a security right? Out-of-court procedures available? How are other parties protected? How do you treat acquisition secured creditor (purchase-money security interest)?
Questions being answered How do you deal with the transition? Are security rights created under previous law valid? Which law applies in international transactions? What happens when the grantor become insolvent? Is party autonomy recognized? To what extent? Is the use of electronic communication allowed?
Supplement on Intellectual Property To make credit more available and at a lower cost to intellectual property right holders, thus enhancing the value of intellectual property as collateral & Without interfering with fundamental policies of intellectual property law
Structure of the IP Supplement Intellectual property refers to copyrights, trademarks, patents and other assets considered to be IP under the domestic law or international agreements Provides explanation on how the Legislative Guide would apply in an intellectual property context Illustrates the interaction between the secured transactions law and intellectual property law Incorporates six new asset-specific recommendations applicable to intellectual property
How does the legislative framework for IP financing interact with IP law? It should not interfere with the objectives of IP law nor inadvertently change basic rules of IP law. How is a security right created in intellectual property? Does it extend to tangible assets with respect to which the IP is used? No Can you create a security right in a future IP? Where do you register the security right in IP? In the general security rights registry or a specialized registry? How are they coordinated? Questions being answered
Questions being answered What kind of an effect does a transfer of the IP have on a registered notice? Who has priority? A secured creditor with a security right in the licensor s retained rights or a licensee who was granted the license after the creation of the SR? Is the secured creditor entitled to take steps to preserve the encumbered IP? Could you enforce a security right by collecting royalties or other fees under the license agreement? Which law is applicable for the creation, effectiveness and priority of a security right in IP? lex protectionis
The Registry Guide To provide recommendations on issues relating to the establishment and operation of an efficient publicly accessible security rights registry The registry provides information to the public about the potential existence of a security right
Structure of the Registry Guide Supplements the Legislative Guide and addresses practical issues that need to be addressed to implement a modern security rights and registration regime Promotes the harmonization of national security rights registration regimes and easier coordination among national security rights registries, thus facilitating crossborder recognition of security rights Guidelines for registry services, for both registration and searching, in a simple, clear manner
Questions being answered What should be the key functions does the registry? Electronic or paper-based? Who may access the registry and how? How is a notice registered? Who may register? With whose authorization? When is the notice effective and for how long? When can you register? How are the notices indexed and organized? By grantor, secured creditor or asset? What are the duties of the registry? Liability? What are the duties of the registrant?
Questions being answered What information should be included in a notice? How do you describe the encumbered asset? How do you amend or cancel a notice? How are these amendments and cancellations organized? What if there was an error or if the cancellation was not authorized by the secured creditor? Who can search and on what criteria? What are the fees for registration and for searching? How would the registration and search forms look like? What elements need to be included in such forms?
, Hague Conference and Unidroit Texts on Security Interests Numerous instruments concern or directly affect transactions creating rights in movable assets Notwithstanding coordination efforts to ensure that there is no overlap and instruments complement each other, questions arise on how the various instruments fit together which instruments would serve the policy goals whether implementing (or declining to implement) one instrument precludes implementing another whether the instruments need be implemented in a particular order.
, Hague Conference and Unidroit Texts on Security Interests The joint publication summarize the scope and application of these instruments; shows how the instruments work together; and provides a comparative understanding of the coverage and basic themes of each instrument.
Working Group VI VI. Security Interests Preparing a simple, concise Model Law on Secured Transactions based on the Legislative Guide, Registry Guide and the IP Supplement (since fall of 2013) Next meeting 8 14 December 2014 (Vienna) Working papers available at http://www.uncitral.org/uncitral/en/commission/worki ng_groups/6security_interests.html Also preparing with the World Bank a joint set of principles on secured transactions
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