1. Disappearance of distinction between fixed and floating charge

There is no more need in the distinction between fixed and floating charge. Floating charge does not anymore play any significant role for its holder:

• It is very weak as a priority instrument (Mokal shows on the basis of statistics that recovery rates in case of insolvency are very low for floating charge holders)√

• After the introduction of the Enterprise Act 2002 a holder of floating charge cannot appoint a receivership and have to follow the collective administrative procedure.

Thus, Mokal claims that floating charge does not perform any social role and should be abolished as an exploitative instrument. It does not provide any benefits except some distant prospect of priority advantages. The limited functions which floating charge still enjoys in insolvency law (e.g., in defining a main creditor) do not justify the retention of the floating charge.√

Even if the distinction remains, the law should be changed in relation to the ability to release the part of the fixed charge. After the decision in Re Spectrum it appears that such release cannot be pre-agreed by the parties in a contract. However, such pre-agreement might be commercially essential, for example, in case of machinery, which requires update from time to time. I do not see why such release, with further substitution, should be inconsistent with the nature of fixed charge.

Disappearance of distinction between floating and fixed charge was proposed by the Law Commission in its original reform proposal (papers 2002, 2004), which was not supported in its final proposal in 2005.√

2. Making registration and priority rules clear and simple

I support the reform proposed by the Government to amend Pt 25 of the Companies Act:

• All charges created by the company will be registable unless expressly provided otherwise

• Electronic filling

• Short list of particulars to be included in the register (including whether it contains a negative pledge covenant or not), and

• Inconclusive nature of certificate of registration.

I also support two ideas expressed by the Law Commission in its Report 2005: to abolish 21 day period and provide for clear priority rules based on filing.

Gullifer and Payne illustrate the wholesale reform on the experience of other common law countries that recently implemented the changes (USA, New Zealand, Canada, Australia). This wholesale reform involves three perspectives:

1. Functional approach: all interests created with the function of security are included within the scheme (pledges, liens, mortgages, charges, title retention devices) because these transactions have a common function and have to be treated alike (Ziegel).

2. Registration:

• Electronic submission

• No need to provide many information to the register; it serves only as notice of registered charge which enable interested parties to make further enquiries

• Risk of any errors is on the person submitting documents are on the person submitting it

• Information can be filed any time before or after the creation of security which removes the problem of the invisible period. The debtor should be notified of the filing to avoid the risk of a filing being entered if no security interest is actually granted.

3. Priority

• Determined by the date of perfection which is usually the date of registration

• Since the default priority is by date of registration, there is no need for negative pledge covenants and automatic crystallization.

There could be two main arguments against such reform:

1. The system is not broken enough to warrant costs of the reform. However, I agree with the view of Gullifer and Payne that the costs of reform are immediate while the reform lasts for generation.

2. Such reform undermines freedom of contracts. I do not agree, since this system provides only default rules which mostly can be varied by the parties. The default rules should represent the position which is usually the most favorable for parties, thus reducing the costs of negotiating a contract.

To conclude, the wholesale reform appeals to me as the only way to achieve making it simple, quick and cheap to render the security, ensure the rights of the subsequent security holders, and provide for effective enforcement of security (this is what businesses are entitled to expect according to the Secured Transactions Law Reform Project).√

This is an excellent, extremely thorough and accurate review of the issues. You maintain a nice balance between technical analysis and broader understanding of the underlying policy issues.

There is the question of how you would replicate work of this quality under exam conditions. Putting that to one side, and simply judging this answer on its merits, it is first class – 150/high 1st