Bypassing pari passu

case4 that this would be contrary to public policy whether or not the contractual provision was expressed to take effect only on insolvency.5 Effect would not be given to a contractual arrangement that attempted to avoid collectivity by purporting to allow certain creditors to opt out of pari passu distribution of the residual estate to their advantage.6 British Eagle7 was a member of an International Air Transport Association (IATA) clearing house scheme in which moneys due from airlines to each other would be netted out each month. When British Eagle went into liquidation it owed money to a number of airlines but it had a claim against Air France, which the liquidator sought to recover. Air France

4British Eagle International Airlines Ltd v. Compagnie Nationale Air France [1975] 1 WLR 758, [1975] 2 All ER 390 (‘British Eagle’). See also Re Rafidain Bank [1992] BCLC 301; D. Milman and C. Durrant, Corporate Insolvency: Law and Practice (3rd edn, Sweet &

Maxwell, London, 1999) ch. 8; D. Capper, ‘Direct Payment Clauses and the Pari Passu Principle’ [1998] CfiLR 54. On the British Eagle principle’s application, in Australia, not only to liquidations but universally to bankruptcy regimes, including administrations and company arrangements, see the Victorian Court of Appeal in Ansett Australia Holdings Ltd v. International Air Transport Association [2006] VSCA 242, 10 November 2006.

5 See also Carreras Rothmans Ltd v. Freeman Mathews Treasure Ltd [1985] 1 Ch 207 at 226; M. Simmons, ‘Avoiding the Pari Passu Rule’ (1996) 9 Insolvency Intelligence 9. On the principle against divestiture (or deprivation principle), providing that an agreement to divest a person or company of an asset in the event of bankruptcy or liquidation is void for public policy (and its making no difference that no formal insolvency proceedings had begun), see Fraser v. Oystertec plc [2004] BCC 233; L. C. Ho, ‘The Principle against Divestiture in Insolvency Revisited: Fraser v. Oystertec’ (21 November 2005) SSRN; and for criticism of this approach: R. Henry, ‘The Impurity at the Heart of the Oystertec Decision Considered’ (2004) Company Law Newsletter 1; A. Henderson, ‘Fraser v. Oystertec and the Principle Against Divestiture in Insolvency: An Unprincipled Departure’ (2004) 25 Co. Law. 313. It may be the case that if the insolvent estate is deprived of property as a result of an arrangement that was not designed to escape insolvency rules, the courts may allow that deprivation as an exception to the British Eagle principle: see Neuberger J in MMI v. LSE [2001] 4 All ER 223; G. Stewart, ‘The British Eagle has Landed’ (2001) Recovery (December) 7–8. (A company was liquidated and the London Stock Exchange (LSE), in accordance with the LSE articles, deprived the company of its shares on the Exchange. Neuberger J noted that there was no coherent set of rules to enable one to assess where a ‘deprivation’ provision fell foul of the British Eagle principle but he extracted ten propositions derived from case law. On the facts of the case before him Neuberger J concluded that the deprivation provision fell within an exception to the general British Eagle principle and the liquidator could not sustain his claim.) On third party purchases as distinct from contracting out, see Commissioners of Inland Revenue v. Wimbledon Football Club [2004] BCC 638.

6Contracts that prevent property from entering the estate – i.e. contracts with proprietary effect such as retention of title clauses – will be recognised, as will be seen. For decisions focusing on the intent, rather than the effect, of a contract see Ex parte Mackay (1873) LR 8 Ch App 643; F. Oditah, ‘Assets and the Treatment of Claims in Insolvency’ (1992) 108 LQR 459 at 466.

7See [1975] 2 All ER 390.

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argued that British Eagle’s liquidator was bound by the contractual regime of the clearing house scheme and could only collect the sum due after netting out the claims of those creditors who were creditors of British Eagle. The liquidator successfully contended that such a process would breach the pari passu principle because it would remove from British Eagle’s estate the sum due from Air France – a sum that, otherwise, would be available to the body of British Eagle’s general creditors. In accepting this contention, a bare majority of the House of Lords accepted crucially that British Eagle’s claim against Air France was a direct one, with IATA acting simply as a collecting agent, rather than a mere element in British Eagle’s net balance with the principal IATA.8

Creditors may not be able to contract out of the pari passu principle to their advantage but they can take a series of other steps that will bypass pari passu. In taking these steps they are taking advantage of the fact that it is only the assets in which the company has a beneficial interest that are available to creditors. Property held, for instance, on trust by the company will not enter the estate and where the company has granted security over property the asset enters the estate only to the extent of the equity of redemption (the difference between the value of the asset and the sum of the secured indebtedness). Here, as Goode notes, the distinction between property rights and personal rights is vitally important for insolvency purposes: the holder of a property right can enforce it ahead of the general body of creditors, whereas the holder of a personal right can only prove for a dividend in competition with other creditors.9

As will be seen below, there may be a strong case for the law allowing holders of property rights to enforce these ahead of creditors’ rights in the insolvency estate. As we will also see, however, the ability to make assets available to a company while avoiding entry of those assets into the corporate estate leads to a deterioration in the position of the ordinary unsecured creditor. ‘Every new property right, every added security

8The absence of mutuality precluded set-off of third-party claims. If the House of Lords had treated IATA as a principal then set-off would have been applicable: see R. M. Goode, Principles of Corporate Insolvency Law (3rd edn, Sweet & Maxwell, London, 2005) p. 223. For criticisms of British Eagle see Oditah, ‘Assets’, p. 466; R. Mokal, ‘Priority as Pathology: The Pari Passu Myth’ [2001] CLJ 581 at 598–601. For a discussion of amendments made to the IATA clearing house scheme in the wake of British Eagle and of the Australian High Court’s decision in International Air Transport Association v. Ansett Holdings

[2008] HCA 3 see M. Bridge, ‘Clearing Houses and Insolvency’ (2008) Law and Financial Markets Review 418.

9R. M. Goode, Commercial Law in the Next Millennium (Sweet & Maxwell, London, 1998) p. 62.

interest, every proprietary restitutionary remedy, every equity has eroded his or her stake in the insolvency process.’10

It is time to consider in detail the devices that can be used to avoid entry into the residual estate and thereby to bypass pari passu distribution.

Security

If creditors take security over loans they will take and keep property rights for themselves by way of such security. The property subject to the secured claim thus belongs to the secured claimant to the value of the claim and accordingly it does not enter the insolvency estate and become available for distribution.11 Such arrangements may involve fixed or floating charges. As was noted in chapter 3, the institution of security can be supported on broad efficiency grounds, though elements of inefficiency are involved in so far as risks may be loaded excessively upon unsecured creditors. The earlier discussion of attendant issues will not be rehearsed here but the further question of whether security taking involves unfairness should be addressed at this point.12

To give priority to secured creditors and to allow the bypassing of pari passu can be argued to lead to no unfairness to unsecured creditors. This contention rests on three main arguments: that the security has been freely bargained or contracted for; that it does not deprive the company of value; and that relevant parties are given due notice of security arrangements and so cannot, with justice, complain.13

The essence of the ‘bargain’ justification is as follows.14 When a debtor company grants a security interest to a creditor this will increase the risks faced by the other creditors because it reduces their expected value in an insolvency. Other creditors will, however, be aware of this risk and will

10Goode, Principles of Corporate Insolvency Law, p. 58.

11Statute may, however, make certain debts (e.g. preferential ones) payable from the estate in priority to rights to property that is not part of the estate (e.g. that forming the subject of a floating charge). On floating charges see also ch. 3 above.

12This discussion draws on V. Finch, ‘Security, Insolvency and Risk: Who Pays the Price?’ (1999) 62 MLR 633 at 660–7.

13See J. Hudson, ‘The Case Against Secured Lending’ (1995) 15 International Review of Law and Economics 47 at 55; R. M. Goode, ‘Is the Law Too Favourable to Secured Creditors?’ (1983–4) 8 Canadian Bus. LJ 53.

14See T. H. Jackson and A. T. Kronman, ‘Secured Financing and Priorities Among Creditors’ (1979) 88 Yale LJ 1143 at 1147–8; F. Buckley, ‘The Bankruptcy Priority Puzzle’ (1986) 72 Va. L Rev. 1393; Salomon v. A. Salomon & Co. Ltd [1897] AC 22 at 52: ‘Every creditor is entitled to get and to hold the best security the law allows him to take’, per Lord Macnaghten.

In this position, particularly, are tort victims. When parties agree security arrangements, they expropriate value that otherwise would rest, at least partly, with the body of involuntary creditors.

There are few reasons, furthermore, for treating freedom of contract as sacrosanct. The law has a long history of laying down the kinds of security that can be agreed to (all of which stipulations curtail the contractual freedoms of parties) and Parliament has clearly recognised that the right of a creditor to take security needs to be constrained if a fair balance is to be drawn between the interests of all creditors.19

A final concern is that the ‘bargain’ argument might have impetus where all affected parties are included in the bargaining process but it has little persuasive power when a bargain between a creditor and debtor imposes costs on others: ‘freedom of contract arguments have force only with respect to arrangements that do not create direct externalities … [W]hen the contract directly impinges on the rights of third parties, there is no prima facie presumption of freedom of contract.’20 Arrangements that allow debtors to increase the insolvency share of one party, and which come at the expense of other parties, involve externalities. Priority seeking is, after all, central to security taking.21

The ‘value’ argument offers a response to the last point. It asserts that when a creditor takes security for new value22 this does not prejudice third-party unsecured creditors because the secured creditor is not withdrawing from the company more than he or she paid in.23 A particular difficulty, however, is that after-acquired property clauses may draw assets into the original security

19See Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (‘Cork Report’) pp. 335–6. Freedom of contract is ignored, for example, when avoiding pre-insolvency transactions: Insolvency Act 1986 ss. 238–41, 245; preferential creditors are given priority even though they have not ‘bargained’ for it: Insolvency Act 1986 ss. 40, 175, 386, 387 and Sch. 6, paras. 8–11, 15A: see chs. 13 and 14 above.

20L. Bebchuk and J. Fried, ‘The Uneasy Case for the Priority of Secured Claims in Bankruptcy’ (1996) 105 Yale LJ 857 at 933; cf. A. Schwartz, ‘Taking the Analysis of Security Seriously’ (1994) 80 Va. L Rev. 2073 at 2082.

21See Cork Report, ch. 35. Indeed, some US commentators describe the grant of security as the issue of insolvency rights: see A. Schwartz, ‘Security Interests and Bankruptcy Priorities: A Review of Current Theories’ (1981) 10 Journal of Legal Studies 1; Buckley, ‘Bankruptcy Priority Puzzle’, who argues (at p. 1406) that unsecured creditors should not demand insolvency distribution rights for which they have not paid. See also Bridge, ‘Quistclose Trust’, pp. 340–1.

22I.e. contemporaneous or subsequent value: see further Goode, ‘Is the Law Too Favourable to Secured Creditors?’, pp. 60–3.

23See ibid. This assumes the terms of the loan are not unreasonable and thus do not require adjustment or setting aside.

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arrangement.24 As each new asset is acquired by the debtor, more and more security builds up without the injection of fresh value by the original secured creditor. That creditor enjoys the windfall benefit of diminishing risks of default and the existing interest rate proves increasingly advantageous to them. New assets do not enter the pool for the potential benefit of unsecured creditors but create such windfalls. The floating charge has thus long been criticised as a device that unfairly allows a charge upon all future property25 and Cork suggested that: ‘The matter for wonder is that such a device should ever have been invented by a Court of Equity.’26

The ‘notice’ argument urges that security is justified when other creditors are duly apprised of the situation.27 These creditors, it is contended, can be in no position to complain about secured loans when they have been supplied with adequate information. This justification, however, fails to give due consideration to the position of involuntary creditors or to those voluntary creditors who cannot reasonably be expected to adjust their terms to the granting of security. Particular problems, moreover, arise with the floating charge. As Cork noted, the requirement that such charges be registered does little to assuage the feelings of grievance generated by such charges since the register gives very inadequate information to the trade creditor.28 Where

24See Holroyd v. Marshall [1862] 10 HL Cas 191; I. Davis, ‘The Trade Creditor and the Quest for Security’ in H. Rajak (ed.), Insolvency Law: Theory and Practice (Sweet & Maxwell, London, 1993); M. G. Bridge, ‘Form, Substance and Innovation in Personal Property Security Law’ [1992] JBL 1.

25See Buckley J in Re London Pressed Hinge Co. Ltd [1905] 1 Ch 576 at 583; Cork Report, para. 107.

26See Cork Report, para. 107.

27See Goode, ‘Is the Law Too Favourable to Secured Creditors?’, p. 63.

28Cork Report, para. 109. In 2005 the Law Commission produced proposals for a new regime of electronic registering of company charges. The Government decided not to implement the Commission’s proposals – which would have allowed the checking of details to be carried out online and, following registration, would have made information available instantly. All charges, unless exempted, would have been covered and the regime would have applied to sales of receivables. Registration would not have been compulsory and there would have been no time limit for registering but, if the company had become insolvent before a charge had been registered, the charge would have been ineffective against the administrator or liquidator. It would also have been ineffective unless the filing preceded the ‘onset of insolvency’. Until it had been registered, furthermore, a charge would have lost its priority to a subsequent charge since priority would have depended on the date of filing. For the proposals see Law Commission, Company Security Interests (Law Com. No. 296, August 2005); Law Commission Draft Company Security Regulations 2006; and generally G. McCormack, ‘The Law Commission and Company Security Interests – A Climbdown’ (2005) 18 Company Law Newsletter 1; ‘The Law Commission Consultative Report on Company Security Interests: An Irreverent Riposte’ (2005) 68(2) MLR 286; M. Bridge, ‘The Law Commission’s Proposals for the

floating charges secure bank overdrafts29 the amount outstanding on the latter may fluctuate daily. It is, accordingly, impossible to tell from the register how much the floating charges secure. Even the latest company balance sheet offers little further assistance on this front since it is usually out of date by some months and will be unlikely to disclose contingent liabilities such as guarantees of the overdrafts of associated companies, which may also be secured by the floating charge. The twenty-one-day time limit as a condition of validity has, indeed, been dubbed ‘inappropriate’, since the proper sanction for failure to make a timely filing is subordination to a subsequent interest before the filing and (in the case of eve of insolvency filing) voidability as a preference.30

Registration and notice requirements in English law are further weakened by their non-applicability to retention of title under a conditional sale or hire purchase agreement. Where unsecured creditors are not informed about such quasi-security devices, they are unaware of the additional risks they face and the force of the notice argument is again spent.31

To summarise: the bargain, value and notice arguments are used in asserting the fairness of bypassing pari passu by excluding secured property from the insolvency estate. There are, however, material problems concerning the inequalities, competitive conditions and third-party effects of secured credit bargains, not to say their relevance to involuntary creditors. The value argument is undermined by such provisions as relate to afteracquired property and the notice contention is unconvincing in relation to involuntary creditors or to those who cannot adjust, suffer from poor information or are affected by a quasi-security device.

If abolishing security would be inadvisable on efficiency grounds, as was discussed above in chapter 3, what could be done to make the balance between secured and unsecured creditors fairer? Looking, first, to the problems of unequal bargaining, the 10 per cent fund was proposed by Cork32 with reference to floating charges and was advocated on fairness grounds, as a response to the ‘real injustice’33 that floating charges were

Reform of Corporate Security Interests’ in J. Getzler and J. Payne (eds.), Company Charges: Spectrum and Beyond (Oxford University Press, Oxford, 2006) p. 267.

29Most companies grant floating charges to their bankers to secure ‘all sums due or to become due’ on their current overdrafts.

30Goode, ‘Is the Law Too Favourable to Secured Creditors?’, p. 64. On preferences see Insolvency Act 1986 s. 239 and ch. 13 above. On the registration of charges see Companies Act 2006 Part 25, ss. 860 and 874 of which render charges void for non-registration.

31See ch. 3 above and pp. 642–8 below on ROT clauses.

32See Cork Report, paras. 1523–49. 33 Ibid., para. 1527.

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Enterprise Act 2002, secured creditors were free to enforce their secu

35Where debtors anticipate the need for routine asset substitution they are very likely to agree to the grant of a floating charge.

36See ch. 3 above, pp. 108–9; J. Armour, ‘Should We Redistribute in Insolvency?’ in Getzler and Payne, Company Charges, pp. 223–4.

37Medforth v. Blake [1999] 3 All ER 97. See ch. 8 above.

38See Palk v. Mortgage Services Funding plc [1993] Ch 330 (Sir Donald Nicholls VC); R. M. Goode, ‘Proprietary Rights and Unsecured Creditors’ in B. Rider (ed.), The Realm of C om p a n y L aw (Klu wer, L ondo n, 199 8), pp . 1 92– 3.

all securit y and quasi-security interests along North American lines. T

on the subject of registering company charges (Modern Company Law for a Competitive Economy: Registration of Company Charges (URN 00/1213) (October 2000)). It invited views, inter alia, on the merits of going over to the North American approach of a ‘notice filing’ system under which priority is determined by the date of filing. The CLRSG Final Report of 2001 (ch. 12) advocated the introduction of a notice-filing system. See also Law Commission, Consultation Paper No. 164, Registration of Security Interests: Company

Charges and Property other than Land (July 2 002); Law Co mmission, C o m p a n Interests: A Consultative Report (Law Com. No. 176, September 2004); Law Commission,

Company Security Interests (Law Com. No. 296, August 2005). The Law Commission’s initial proposals were wide ranging and adopted a functional approach to security along the lines of UCC Article 9 and recommended by the Crowther and Diamond Reports. See also ch. 3 above.

41The new form of security interest, even if described as ‘floating’, would be a fixed security interest and the floating charge would have disappeared as a distinct security device: see

Company Security Interests: A Consultative Report; R. M. Goode, ‘The Case for Abolition of the Floating Charge’ in Getzler and Payne, Company Charges, p. 17.

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provide an opportunity to state that the interests of unsecured creditors should not give way to those of secured creditors where this would be unfair in the substantive or the procedural senses.42 With the Law Commission’s final report of 2005, however, there came a hesitancy regarding potential impacts on insolvency law which led to an abandonment of the recommendation to remove the fixed/floating charge distinction and the opportunity for such wholesale reform was again missed.43

Changes might also be made so as to reinforce the ‘value’ justification for security, which holds that security is fair when it does not dilute the interests of others. One such reform would be to outlaw secured lending on existing corporate assets (while allowing it on new assets). As noted in chapter 3, however, such a severe restriction on the raising of finance might lead many companies into difficulty. A less draconian step would be to echo Article 9 of the US Uniform Commercial Code,44 again, and provide that priority would be given to ‘purchase money security interests’ (PMSIs)45 as against earlier creditors with perfected securities.46

42Policy decisions would have to be made concerning the position of preferential creditors (who now rank before floating, and after fixed, charge holders in priority). On Diamond’s position see Diamond Report, p. 85.

43The entire programme of company security reform had to be geared to the timing of the introduction of what is now the Companies Act 2006 and ‘there was simply no time to go working over the insolvency effects of abolition of the floating charge’. The outcome of the Law Commission’s report (and their subsequent Draft 2006 Regulations) amounts to ‘conceptual confusion’ since floating charges, instead of being subordinate to subsequent fixed charges, have priority according to the time of filing, ‘thus obliterating the primary distinction between fixed and floating charges’: Goode, ‘Case for Abolition of the Floating Charge’, p. 20.

44See Bridge, ‘Form, Substance and Innovation’, p. 14; Jackson and Kronman, ‘Secured Financing’, p. 1171; Diamond Report, paras. 11.7.5–11.7.7.

45On English judicial efforts in this direction see Abbey National Building Society v. Cann [1991] 1 AC 56; Re Connolly Bros. Ltd (No. 2) [1912] 2 Ch 25. See further J. Jeremie, ‘Gone in an Instant: The Death of “Scintilla Temporis” and the Growth of Purchase Money Security Interests in Real Property Law’ [1994] JBL 363; J. de Lacy, ‘The Purchase Money Security Interest: A Company Charge Conundrum’ [1991] LMCLQ 531; de Lacy, ‘Retention of Title, Company Charges and the Scintilla Temporis Doctrine’ [1994] Conv. 242; H. Bennett and C. Davis, ‘Fixtures, Purchase Money Security Interests and Dispositions of Interests in Land’ (1994) 110 LQR 448; A. Schwartz, ‘A Theory of Loan Priorities’ (1989) 18 Journal of Legal Studies 209. (Note also the proposals of the DTI/IS,

Company Voluntary Arrangements and Administration Orders: A Consultative Document

(October 1993) and the Insolvency Service’s Reviews of Company Rescue and Business Reconstruction Mechanisms (1999) and (2000) for statutory super-priority for providers of capital during a rescue/reconstruction procedure giving these lenders priority over all existing lenders.) See further ch. 9 above.

46I.e. those who had registered their interests or given possession of the asset to the debtor.

The PMSI is a security interest that favours a creditor who advances sums to fund the acquisition of a particular asset when those sums are in fact so used. Such an interest prevails over all others in a priority conflict.47 Recognising PMSIs would mean that where a financier provides new assets to the company, the assets would not be drawn into the scope of the floating charge covering after-acquired property. This would reduce the unfairness involved in the floating charge holder gaining the windfall benefit of security in after-acquired assets and doing so at the expense of the later creditor. The PMSI holder can also point to the new value added to the company and the lack of any attendant prejudice to other creditors’ security interests. This is because purchase money loans contemplate payments that correspond to the new asset’s depreciation and so repossession normally satisfies the PMSI creditor. The cushion of free assets that protects earlier lenders against default is accordingly unaffected.48

The Law Commission’s consultative report of 2004 in fact recommended recognition of PMSIs49 but their final report of 2005 noted simply that the priority rules on PMSIs were included in the Consultative Report on the assumption that title retention devices were to be covered, and, given the fact that the initial stages of reform would not include such devices, PMSI rules would also be excluded.50

A further way to reinforce the value justification for security is to strengthen preference rules. These rules are designed to prevent insolvent companies from preferring one creditor to another within a specific period leading to a winding up.51 At present, these rules are subjectively phrased in looking to whether the company desired to confer a preference in giving a security. A strengthening of the law would involve a move in the direction of the Australian and US regimes and the adoption of an objective

47For a definition of the PMSI see Article 9:107 UCC. On procedural requirements to obtain ‘perfection’ see Article 9:312(3). On the operation of simple ROT clauses as PMSIs see Diamond Report, pp. 88–9.

48See Davies, ‘Trade Creditor and the Quest for Security’, pp. 57–8.

49Company Security Interests: A Consultative Report (Law Com. No. 176, September 2004) – the PMSI would outrank an earlier general creditor whose security interest extended to the latter property.

50See Company Security Interests (Law Com. No. 296, August 2005) paras. 1.29 and 3.146; McCormack, ‘Law Commission and Company Security Interests’, p. 3. On title retention see pp. 641–8 below.

51See Goode, ‘Proprietary Rights and Unsecured Creditors’. On preferences generally see, inter alia, D. Milman and R. Parry, A Study of the Operation of Transactional Avoidance Mechanisms in Corporate Insolvency Practice, ILA Research Report (1997); A. Keay,

‘Preferences in Liquidation Law: A Time for Change’ [1998] 2 CfiLR 198. See also ch. 13 above.

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approach.52 The issue would then be whether the effect of granting the security was to improve the position of one creditor at the expense of others, and the company’s desires would drop out of account.53

Turning to the issue of notice, unfairness can be reduced by improving information flows to unsecured creditors. As noted, proposals have been made that secured creditors might have to go beyond mere registration and take reasonable steps to inform unsecured creditors of their intentions if they are to place the latter in a subordinate position.54 Again, however, it should be emphasised that such requirements may increase costs and the supply of information and notice is only of value to certain unsecured creditors. It is of little assistance to involuntary creditors or to those who are unable to adjust for the variety of reasons already discussed.55

To summarise, then, it can be said that bypassing pari passu by excluding secured property from the insolvent company’s estate is diffi- cult to justify in fairness terms with reference to arguments based on bargaining and freedom of contract, supply of value and sufficiency of notice: at least this is so given the present state of English law. Inequalities of bargaining positions, information asymmetries, impositions of externalities and enforcement biases undermine the free bargaining rationale. After-acquired property clauses and weak preference rules detract from claims to the supply of new value, and inadequacies of registration processes and inabilities to adjust place question marks against assertions that notice is adequate.

Steps can be taken to reduce unfairness on most of the above fronts and in some cases the same reforms would also improve overall efficiency. Certain reforms have moved in this direction – as with the Insolvency Act 1986

52On these regimes see Keay, ‘Preferences in Liquidation Law’; M. Shanker, ‘The American Bankruptcy Preference Law: Perceptions of the Past, the Transition to the Present, and

Ideas for the Future’ in J. Ziegel (ed.), Current Developments in International and

Com parativ e C or porate Insolvency Law ( Cl a rendon Press , Oxford, 19 94) .

53See Keay, ‘Preferences in Liquidation Law’; Goode, ‘Proprietary Rights and Unsecured Creditors’, p. 187: defences such as good faith or change of position would still, however, be relevant. An objective approach to preferences is likely to facilitate the prevention of unfair grantings of security on past rather than new value; cf. Re M. C. Bacon Ltd [1990] BCC 78. See further ch. 13 above.

54See LoPucki, ‘Unsecured Creditor’s Bargain’, p. 1948; S. Block-Lieb, ‘The Unsecured Creditor’s Bargain: A Reply’ (1994) 80 Va. L Rev. 1989. Article 9 filing of a security agreement will not, in itself, ensure that detailed information flows to other creditors since a filing notice may give bare outlines only: it is the right to call for particulars of the security agreement that yields valuable information. See Bridge, ‘Form, Substance and Innovation’, p. 15; Diamond Report, p. 94.

55See pp. 607–14 above.