Principles of Corporate Finance Law by Eilis Ferran & Look Chan Ho

Author:Eilis Ferran & Look Chan Ho [Ferran, Eilis]
Language: eng
Format: mobi
Publisher: Oxford University Press, USA
Published: 2014-02-15T00:00:00+00:00

Consensual Security Interests

The scope of the term ‘security interest’ is a matter of some uncertainty but in Bristol Airport plc v Powdrill53 counsel acting for one of the parties described real security in the following terms: ‘Security is created where a person (‘the creditor’) to whom an obligation is owed by another (‘the debtor’) by statute or contract, in addition to the personal promise of the debtor to discharge the obligation, obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor’s obligation to the creditor.’ Browne-Wilkinson V-C declined to hold that this was a comprehensive definition of security but confirmed that the description was certainly no wider than the ordinary meaning of the word. One way in which it may be too restrictive is that it fails to acknowledge that a third party may grant rights over its property by way of guarantee to secure the loan to the debtor.54 The description does highlight the essence of security, namely, that it gives the creditor proprietary and not merely personal rights in respect of a debt.

The proprietary nature of security was emphasized by Lord Jauncey in Armour v Thyssen Edelstahlwerke AG:55

A right in security is a right over property given by a debtor to a creditor whereby the latter in the event of the debtor’s failure acquires priority over the property against the general body of creditors of the debtor. It is of the essence of a right in security that the debtor possesses in relation to the property a right which he can transfer to the creditor, which right must be retransferred to him upon payment of the debt.

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