that the only substantial category of assets for which the bank can take only a floating charge will be raw materials, work-in-progress and stock- in-trade (inventory), in view of the impracticability of banks controlling the use and consumption of such assets.

C. The future of English law

On a number of occasions, official reports have called for a reform of the English law of security along the lines of Article 9.37 Nevertheless, the Department of Trade and Industry has in the past, after canvassing practitioner and commercial opinion, demonstrated a clear preference for the existing approach to security. This was the case after the law on company charges was reformed in 1989 along lines that were consistent with a movement in the direction of an Article 9 type of security.38 The legislation providing for this, however, never came into force as certain features of it were adamantly opposed by user groups.

A new consultation process has recently taken place39 and has led to proposals to effect significant changes to existing law.40 Since only company charges were on the agenda, and not bills of sale granted by individuals and partnerships, the adoption of a general statute along the lines of Article 9 is not an active prospect. Nevertheless, while it is always difficult to predict with any accuracy future legislative developments, the current signs are that notice filing, instead of the filing of particulars coupled with the instrument of charge, is a likely prospect for future law reform. Carried to its logical conclusion, a system of notice filing would permit filing to take place ahead of the grant of a charge and would permit one single filing to cover all future advances, whether or not pursuant to prior commitment. This would certainly facilitate the registration of reservation of title clauses41 in those cases where trade

37Report of the Committee on Consumer Credit (the Crowther Report 1971, Cmnd 4596 (Part V)); Department of Trade and Industry, A Review of Security Interests in Property (the Diamond Report 1989); Report on Insolvency Law and Practice (the Cork Report 1982, Cmnd 8558).

38See Bridge, Journal of Business Law 1992, 1.

39See the Consultation Document of the Company Law Steering Group of the Department of Trade and Industry, ‘Registration of Company Charges’ (9 Oct. 2000) (accessible at http://www.dti.gov.uk/consultations/closed.htm).

40Modern Company Law for a Competitive Economy (June 2001). (http://www.dti.gov.uk/cld/ review.htm) (chapter 12).

41If registration were to be extended to reservation of title in general, it would be relatively simple to impose a registration requirement for financial leases.

suppliers deliver goods to the debtor on credit terms on repeated occasions. Nevertheless, if reservation of title clauses were without more ado made registrable, the current rules on tacking42 would prevent trade suppliers from protecting themselves by means of one single filing for all future supplies. These rules grant priority to a secured creditor (SC1) for future advances, over another secured creditor (SC2) intervening between the grant of the first security and the future advance, in limited circumstances only. Specifically, discretionary advances made after notice43 of an intervening security of SC2 are subordinated to SC2’s security. The problem here for suppliers of goods is that individual supplies, commonly made on a small scale, are rarely made pursuant to earlier and long-standing commitment. To give full effect to future advances financing, SC1’s priority position should extend to discretionary future advances.

As and when notice filing is introduced, English law will move some way in the direction of Article 9. For a really substantial movement to take place, there would also have to be a requirement that all reservation of title clauses be registrable, coupled with a change to the tacking rules to encourage future advances financing. Neither of these latter developments is likely to occur in the short to medium term. Nevertheless, if these developments did occur, what else would be needed to complete the transition to Article 9? There would have to be a commitment to the concept of purchase money security ranking ahead of a prior registered charge. This would not be a difficult pill to swallow, echoing title and tending to favour smaller classes of secured creditor. The concept certainly exists already in embryo;44 moreover, the rule that reservation of title ranks ahead of mortgages and charges granted by the debtor buyer45 provides mute support for the existence in English law of a concept of purchase money security.

If reservation of title clauses were made registrable, then, provided they were not statutorily deemed to be charges, there would be no necessity to create a special rule of statutory priority in their favour, so as to rank them ahead of even prior registered charges. Nevertheless,

42See s. 94 Law of Property Act 1925.

43See note 49 below for the rule on constructive notice arising out of registration of a charge.

44See Re Connolly Bros. Ltd (No 2) [1912] 2 Ch 25.

45Because the prior charge can only attach assets to the extent that the debtor buyer has a property interest in them. For the same reason, (genuine) reservation of title clauses are peculiarly powerful in insolvency cases.

if it were felt that all priority rules (including title reservation versus charge) should be contained in one statute, it would aid clear thinking to embrace charge and reservation of title under the general umbrella of security interest. The incremental convergence of English law to Article 9 would thus become even more apparent.

There is a further major consideration. At present, filing under Article 9 is a priority point. In English law, registration of a charge on the company charges register is a perfection point in that, unless registration takes place, the charge is liable to be defeated at the hands of stated individuals such as company liquidators, administrators and competing secured creditors.46 It remains perfectly valid as between chargor and chargee47 and as against purchasers (including factors). A charge that has been registered and is therefore not liable to defeasance depends for its priority, not upon any rules in the Companies Act, but upon uncodified rules of common law and equity. One of these rules is that registration under section 395 of the Companies Act 1985 amounts to constructive notice of the charge.48 At present, it is hard to be precise about the scope of constructive notice. Plainly, not everyone dealing with the company has constructive notice. One such exception should be the outright buyer of property subject to a fixed charge imposing restrictions on the manner and circumstances of the sale of that property. The informality and dispatch of outright sales ought not to be compromised by a practical requirement to search the register of security interests. Another exception should be the bank that has taken a security for an overdraft facility granted under a current account.49 If this rule of constructive notice were to be adequately defined and rendered in statutory form, then English law would indeed be a close cousin of Article 9. An Article 9 purist would, however, say that if all property contests, involving liquidator, purchaser, unpaid seller and chargee, were embraced within one statute, there would be no need to speak of constructive notice. It would simply be a matter of comprehensively ordering priority conflicts

46S. 395 Companies Act 1985.

47See Mace Builders (Glasgow) Ltd v Lunn [1987] Ch 191.

48Wilson v Kelland [1910] 2 Ch 306.

49Where the normal rule concerning current accounts is in operation, each drawing on an overdrawn account constitutes a fresh advance by the bank. Because banks do not make such advances pursuant to commitment, they may not freely tack such advances to their earlier security so as to rank ahead of other chargees intervening between the grant of security to the bank and the fresh advance made by the bank. If the bank had to scrutinise the register each time it honoured a cheque on an overdrawn account, the business of banking would become intolerable.

according to the fact of registration (along with other methods of perfection, namely taking possession or control of certain assets). Proposed changes to the registration of company charges, shifting from registration being a perfection point to a priority point, are a clear step in this direction.50

D. Summary

In this short study, I have tried not to present a general summary of the English law of security but rather to capture its flavour. English law, as might be expected, shows on the surface its historical antecedents. Despite all the twists and turns of statutory innovation and commercial ingenuity, the law today is fundamentally the law as it was laid down more than a century ago. If the resistance to modernisation seems to some English lawyers irksome, it may be explained in part by the fact that the common law of England has always been sympathetic to commercial needs and expectations so that there is no perceived need for a major reform going to the legal roots of the credit system. The floating charge has long encouraged credit to be advanced to companies. It may now have shrunk in the company of various fixed charges over defined types of asset but its existence demonstrates that business and credit in England have not suffered at the hands of an obstructive property law. Concern has long been expressed in England about the shortage of credit available for small and medium enterprises. Whatever the reasons for this, they do not include the inadequacy of legal protection afforded to banks seeking security for their advances. The absence of statutory modernisation is by no means confined in English law to security. It affects numerous areas of commercial law such as sale of goods and bills of exchange. One of the great obstacles to modernisation is the absence of Parliamentary time for the reform of private law, which is hardly likely to engage the passions of partisan groupings in the House of Commons. In the absence of Parliamentary reform, it is difficult to see a way of dealing with this problem.

Finally, no reference to English law would be complete if mention were not made of the powerful remedies it affords to secured creditors in the event of the debtor’s default. The law does not inhibit the contractual freedom of debtor and creditor to provide, without having to go

50Modern Company Law for a Competitive Economy (June 2001) (http://www.dti.gov.uk/ cld/review.htm) (chapter 12).