учебный год 2023 / Hamwijk, Public Filing with Regard to Non-possessory Security Rights in Tangible Assets as Contemplated by the DCFR. Of No Benefit to Unsecured (Trade) Creditors

European Review of Private Law 5-2011[613–630] Kluwer Law International BV | Printed in the Great Britain

Public Filing with Regard to Non-possessory Security Rights in Tangible Assets as Contemplated by the DCFR: Of No Benefit to Unsecured (Trade) Creditors

DEWI HAMWIJK

Abstract: The public filing system as proposed by the Draft Common Frame of Reference (DCFR) will not benefit unsecured (trade) creditors. The contrary assumption, from which some legal scholars would seem to proceed, would appear to be fostered by an understanding of how banks provide credit and how suppliers behave, which is not consistent with reality. In addition, there would seem to be a broadly felt sympathy for the position of unsecured creditors (in or outside bankruptcy). In this article, I will argue that no matter how pitiful the position of unsecured (trade) creditors may seem to be, it is a mistake to think that their position would be enhanced by the introduction of a public filing system. When considering the need to introduce such system, the position of (unsecured) trade creditors should, therefore, not put any weight in the scale.

Re´sume´: Le syste`me de classement public tel que propose´ par le DCFR ne be´ne´ficiera pas les cre´anciers commerciaux (non se´curise´). L’hypothe`se contraire `a partir de laquelle diffe´rents juristes semblent proce´der, semble ˆetre base´e sur une mauvaise compre´hension `a propos du processus des de´cisions de cre´dit par les banques et de la manie`re dont se comportent les fournisseurs. En outre, il semble qu’il y a une sympathie pour la position des cre´anciers non se´curise´ (en ou en dehors de faillite) qui est largement ressenti. Dans cet article, je soutient que peu importe `a quel point la situation des cre´anciers commerciaux (non se´curise´) peut sembler ˆetre pitoyable, c’est une erreur de penser que leur position serait renforce´e par l’introduction d’un syste`me de classement public. En conside´rant la ne´cessite´ d’introduire un tel syste`me, la position des cre´anciers commerciaux (non se´curise´) ne devrait conse´quemment pas ˆetre d’importance.

Zusammenfassung: Ungesicherte (Lieferanten)gla¨ubiger werden aus dem vom DCFR vorgeschlagenen o¨ffentlichen Archivierungssystem keinen Nutzen ziehen. Die gegenteilige Annahme von welcher manche Rechtswissenschaftler auszugehen scheinen, basiert demnach auf einem Mißversta¨ndnis bezu¨glich des Kreditentscheidungsprozesses von Banken und wie Lieferanten agieren. Außerdem scheint eine allgemeine Sympathie gegenu¨ber der Position von ungesicherten Gla¨ubigern zu herrschen (innerhalb und außerhalb der Insolvenz). In diesem Artikel mo¨chte ich zeigen, daß ganz gleich wie mitleidig die Position von ungesicherten (Lieferanten)gla¨ubigern scheint, es ein Irrtum ist anzunehmen, daß ihre Position durch die Einfu¨hrung eines o¨ffentlichen Archivierungssystems gesta¨rkt werden ko¨nnte. Die Position von ungesicherten Lieferantengla¨u- bigern sollte daher nicht ins Gewicht fallen, wenn die Notwendigkeit eines solchen Systems abgewa¨gt wird.

Mw. Dewi Hamwijk is a Legal Researcher at the Centre for the Study of European Contract Law (CSECL), University of Amsterdam. A Dutch version of this contribution has been published earlier in the journal Tijdschrift voor Insolventierecht 2011, 07, pp. 6–13.

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1.Introduction

In Europe, there is a growing call1 to introduce a notice filing2 system with regard to security rights in tangible and intangible assets similar to the notice filing system of Article 9 of the Uniform Commercial Code (UCC).3 Many European jurisdictions have adopted a public filing system,4 and the notice filing system of Article 9 UCC has often been cited in European literature as a shining example for future European private law. This is illustrated by many national,5 European,6 and international7 regulatory frameworks. In European context, the most important initiative

1See, among many others, E.-M KIENINGER (ed.), Security Rights in Movable Property in European Private Law, vol. 4 of The Common Core of European Private Law, Cambridge University Press, Cambridge 2004 (hereinafter ‘KIENINGER, 2004’). In Dutch law, it is mainly Professor Strucyken who pleads for ‘Americanization’ of Dutch law. See, for example, his preliminary advice: T.H.D. STRUYCKEN, ‘Zekerheidsrechten en registratie’, in Zekerhedenrecht in Ontwikkeling (preadvies voor de Koninklijke Beroepsorganisatie), Sdu Uitgevers, Den Haag 2009.

2The American way of registration as laid down in Art. 9 UCC is referred to as ‘notice filing’ because only one page – a so-called financing statement – is to be filed, which has the purpose of giving subsequent creditors a warning on potential existing security rights. On a financing statement, only the name of the debtor, the name of the secured party, and an indication of the collateral are indicated. The purpose of this is to facilitate an efficient way of conducting legal transactions.

3The Uniform Commercial Code is one of the seven uniform acts that have been established by the National Conference of Commissioners on Uniform State Laws (hereinafter ‘NCCUSL’ or ‘the Conference’) and the American Law Institute (hereinafter ‘ALI’ or ‘the Law Institute’), with the purpose of providing uniformity in business laws among the United States. The law with regard to security rights in goods, that is, Secured Transactions Law, has been laid down in Art. 9 UCC.

4The Netherlands and Germany are two important exceptions to the rule. Germany has no register of security interests. This seems to be inspired by the belief that practice operates fine without such a system. In the Netherlands, there is only a requirement for (confidential) filing of certain transactions with the tax authorities. Despite this, the discussion on filing seems to be brought back to life: Recently, a commission (the ‘Commissie Pandregister & Aandeelhoudersregister’) has been appointed with the purpose of investigating whether adopting a public filing system would be desirable and attainable.

5There are many European jurisdictions that have (recently) modified their national laws by adopting a notice filing system with regard to security rights in goods.

6The European Bank for Reconstruction and Development (EBRD), to name just one example, was established in 1991. The EBRD is an international financial institution, whose aim is to support projects from Central Europe to Central Asia, mainly by providing funding to private companies in these areas that are not able to get funding in the market themselves. In 2004, it has adopted the Model Law on Secured Transactions. This Model Law was strongly inspired by Art. 9 UCC, which is illustrated by, for example, its adoption of a public filing system.

7An important international harmonization attempt in this respect is the United Nations Commissions on International Trade Law (UNCITRAL), established by the General Assembly of the United Nations in 1966. Its primary goal is to harmonize and modernize law in the field of international trade and finance. In addition, the International Institute for the Unification of Private Law (Unidroit) should be mentioned, which issued the Unidroit Convention on International Interests in Mobile Equipment in 2001 (hereinafter ‘Cape Town Convention’). This Convention provides an international legal framework regulating security rights in expensive goods, such as airplanes, satellites, trucks, etc. In the same year, the Protocol to this Convention, the Protocol on Matters Specific to Aircraft Equipment, was adopted and six years later, in 2007, the Protocol on Matters

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in this respect is the Draft Common Frame of Reference (DCFR). In the DCFR, the part on security rights in goods is based almost entirely on Article 9 UCC.8

This article argues that such a public filing system will be of no benefit to those who, in insolvency, are often left empty-handed and, accordingly, are considered most pitiful: the unsecured (trade) creditors.9

2.The Basic Assumption as Regards the Need for a Public Filing System

An important motive behind the introduction of a public filing system seems to be, in addition to harmonization of the law in the different legal systems – and hence of different kinds of security rights within those systems – the desire to do justice to the principle of publicity, which, in most European jurisdictions, is regarded as a key principle of property law.10 The principle of publicity is based on the idea that property rights (should) only have effect vis-`a-vis third parties if they are actually public to, that is, can be known by, such third parties:

Because property rights affect third parties, natural justice requires that such rights should only arise in circumstances where they are apparent to third parties. In other words, property rights should be public.11

‘Third parties’ are normally considered to be (potential) creditors that take part in business dealings.12 Information about security rights in the assets of the debtor would give them the opportunity to decide whether to enter into a (credit) relationship, and if so, under what conditions. Within this category of (potential)

Specific to Railway Rolling Stock. Key to this conventions and protocols is, again, a filing system that is inspired by the American filing system.

8See Book IX (‘Proprietary Security Rights in Movable Assets’) in C. VON BAR et al. (eds),

Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR): Full Edition, Sellier European Law Publishers, Munich 2009 (hereinafter ‘DCFR (Full Edition) 2009’).

9This contribution is based on Dutch law but common sense dictates that many of the concepts discussed herein are of similar application in other European legal systems.

10See, e.g., J.H.M. VAN ERP, ‘European and National Property Law: Osmosis or Growing Antagonism’, Sixth Walter van Gerven Lecture (Leuven Centre for a Common Law of Europe, Ius Commune Research School), Europa Law Publishing, Groningen 2006, p. 13. See also the report from the ‘Working Group VI (Security Interest)’ instituted by the General Assembly of the United Nations (advice of 20–24 May 2002, A/CN.9/512, nr. 64; hereinafter ‘Rapport Working Group VI, UN 2002’), p. 16, where one speaks of a universal principle of publicity and transparency.

11J. BENJAMIN, Interests in Securities, a Priority Law Analysis of the International Securities Markets, Oxford University Press, Oxford 2000, pp. 105–106.

12See M. BRIDGE, ‘The Scope and Limits of Security Interests’, in H. Eidenmu¨ller & E.-M Kieninger (eds), The Future of Secured Credit in Europe, special vol. 2 of European Company and Financial Law Review, De Gruyter Recht, Berlin/New York 2008. For Dutch law, see T.H.D. STRUYCKEN, ‘De betekenis van het Anglo-Amerikaanse zekerhedenrecht, in het bijzonder de floating charge en

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creditors, the unsecured creditors are those who would also13 – or even particularly14 – benefit from such a filing system. In this context, the term ‘false appearance of wealth’ is regularly used: Without such public information – as is the case in Dutch and German laws – the debtor would be able to make believe the goods it holds are (still) available to take recourse on.15 In other words, the debtor would seem wealthier than it actually is. See, for example, the comments to the DCFR:

While a security provider may appear wealthy, persons intending to grant unsecured credit can access the register in order to obtain information as to whether assets held by the security provider would in fact be available to satisfy their claims in the event of the latter’s default or whether these assets are already encumbered in favour of other creditors.16

Hence, the argument goes, business partners would be induced to enter into a relationship by supplying (supplier) credit without having had the opportunity to stipulate additional (protective) conditions, such as taking collateral or asking for a higher price.

First of all, the question is how the introduction of non-possessory security rights may have contributed to a ‘false appearance of wealth’. After all, a tangible good can be the subject of several (proprietary) interests, and in addition, it is a fact of common knowledge that commodities and inventory are often pledged to the bank.17 Be this as it may, this contribution approaches this point from a different

Article 9 Uniform Commercial Code: over bepaaldheid en publiciteit’, 47. Ars Aequi 1998, p. 67. These (and other) ‘third parties’ are also referred to by the term ‘the world at large’; see, for example, R. GOODE, Commercial Law, Penguin Group 2004, p. 648 and U. DROBNIG, ‘Present and Future of Real and Personal Security’, 5. European Review of Private Law 2003, p. 644.

13See, for example, STRUYCKEN, 1998, p. 67 and STRUYCKEN, 2009, p. 175.

14See A. DUNHAM, ‘Inventory and Accounts Receivable Financing’, 62. Harvard Law Review 1949, p. 610. Dunham was one of the drafters of the American UCC. For Dutch law, see E.M. MEIJERS,

Eigendomsoverdracht tot zekerheid (preadvies Broederschap der notarissen 1936), Correspondentieblad van de Broederschap der notarissen, vol. 39, 1936, pp. 237–284, also published in Bibliographie Meijers, Leiden 1957, pp. 250–296, mainly p. 291. See also the Parliamentary History of the New Civil Code (Parlementaire Geschiedenis NBW) (Explanatory Notes by Meijers), pp. 382–383.

Cf. E.-M. KIENINGER, Mobiliarsicherheiten im Europa¨ischen Binnenmarkt – Zum Einfluss der Warenverkehrsfreiheit auf das nationale und internationale Sachenrecht der Mitgliedstaaten, Nomos, Baden-Baden 1996, p. 172.

15See, for example, MEIJERS, p. 296: ‘If someone finds himself in the position that he is unable to obtain any more funding unless he uses those goods as security, he must give up those goods, he must if necessary go bankrupt, he must scale down his business, but he must not create false appearance . . . ’ (freely translated).

16Cf. DCFR (Full Edition) 2009, pp. 5495–5496.

17See, among many others, E.-M. KIENINGER, ‘Evaluation: A Common Core? Convergences, Substituting Differences and Possible Ways for Harmonisation’, in Kieninger, 2004, pp. 653 and 654. J. HELMAN, ‘Ostensible Ownership and the UCC’, 83. Commercial Law Journal 1978, p. 25, N.W.M. VAN DEN HEUVEL, Zekerheid en voorrang, Boom Juridische Uitgevers, Den Haag 2004,

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angle, namely the presumed need of unsecured creditors for this kind of information. After all, this so-called ‘false appearance of wealth’ is not only constituted by whether the debtor factually contributes to this false appearance but also and perhaps rather by the question in what precise respect these unsecured creditors are deceived. To put it differently: this contribution discusses the actual interest of unsecured creditors in such public information. This perspective is interesting, the more so, because the false appearance of wealth doctrine is more and more considered to be outdated. By some, this fact has even been turned to promote such a filing system: ‘If possession does not tell us anything (anymore), surely we need another source to provide us with necessary information?’, so the argument goes. Hence, even when one acknowledges that third parties would not so much run the risk of being misled by possession of the assets held by the debtor, the premise remains that they would, nonetheless, run the risk of being victimized by the lack of public information on security rights or that it would, in any event, be ‘convenient’ for them to provide for such information.18 My view on this matter must be clear by now: These arguments hold no ground.

3.The Purported Need of Public Information as Regards Existing Security Rights, for Unsecured (Trade) Creditors

A public register is considered to be beneficial to several types of creditors, among which unsecured creditors. In the words of Van den Heuvel:

The safeguard offered by publicity is that potential creditors, by consulting the register, can find out whether, and if so to what extent, the assets are already encumbered with security rights in favour of other creditors. This information is important for creditors who, before proceeding to grant credit, want to find out the scope of their right of recourse in concreto. On the basis of this, they can decide not to grant credit because of the lack of unencumbered assets, or to take

p. 91, F.G. SCHELTEMA, ‘Het stelsel van roerend goed in het B.W. van 1838 tot heden’, in P. Scholten & E.M. Meijers (eds), Gedenkboek Burgerlijk Wetboek 1838–1938, W.E.J. Tjeenk Willink, Zwolle 1938, p. 404. To the contrary, Sigman argues that the fact that ‘everyone knows’ that the debtor’s assets are encumbered with property and/or security rights of others produces, in effect, a ‘false [appearance of] poverty’. H.C. SIGMAN, ‘Perfection and Priority of Security Rights’, in H. Eidenmu¨ller & E.-M Kieninger (eds), The Future of Secured Credit in Europe, special vol. 2 of European Company and Financial Law Review, De Gruyter Recht, Berlin/New York 2008, pp. 143–165.

18See, for example, Company Security Interests (Consultation Paper No. 296, Cm 6654, 2004) produced by the English Law Commission, p. 2. In the latter case, what it often boils down to is that the ‘possession-does-not-say-anything’ argument is used to plead in favour of a filing system (instead of against it) to provide the necessary information. See, for example, E.M. KIENINGER, ‘Evaluation: A Common Core? Convergences, Substituting Differences and Possible Ways for Harmonisation’, p. 653.

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account of the increased risk due to those security rights by increasing the price of the credit they grant.19

In describing the motives for adopting a register in English law in 1900, Bridge illustrates that not only Dutch law is familiar with this assumption:

A clear motivation behind the duty to register from the outset was the belief that the concealment of secured credit was an evil calculated to mislead those dealing with the company. The requirement of registration was designed for the protection of those doing business with the company so that they might see how much of a company’s assets would be available for distribution in any insolvent liquidation.20

However much, in practice, it is mostly trade creditors21 who are defined as unsecured creditors, in my view, it is true for all potential creditors that – as far as they decide to enter into the relationship on an unsecured basis – their decision is not influenced by the question of whether the debtor has already encumbered his assets.

3.1 Critical Remarks

It is an absolute truism that the availability of the debtor’s assets tells something about whether creditors will be satisfied in the abstract. After all: the more assets are ‘free’ to take recourse on, the more proceeds can be used to pay creditors by means of attachment or execution of the assets. However, it is quite another thing to assume that this information would actually give guidance as to whether these creditors should enter into the relationship on a secured or unsecured basis, or against a higher price.22 This cannot be true for two reasons. First, an unsecured creditor always ranks behind another creditor from the moment the latter takes a

19VAN DEN HEUVEL, p. 91 (freely translated). In addition, Van den Heuvel adopts a critical attitude towards this basic assumption.

20See BRIDGE, p. 186. Bridge describes furthermore that registration would also (hence, apparently not mainly) do much to clarify the rights of secured creditors if the company debtor went into liquidation and the rights of those purchasing the company’s property, since it avoids the evils of backdated documents and provides the charge with a badge of authenticity.

21In this contribution, when using the term ‘trade creditors’ or ‘general creditors’, I refer to suppliers of goods (and services). The term ‘unsecured trade creditors’ is understood to mean suppliers of goods who do not have benefit of a security interest or a retention of title. In American and European literature, the terms ‘general creditors’, ‘unsecured creditors’, or ‘trade creditors’ are used interchangeably.

22See, for example, Schwartz: Secured creditors will charge lower interest rates because security reduces their risks, but unsecured creditors will raise there rates because security reduces the assets on which they levy, and so increases their risks. A. SCHWARTZ, 37. Vanderbilt Law Review 1984, p. 1051.

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security interest.23 Hence, the quantity of unencumbered assets that prospective creditors can see at the time of supplying credit says nothing about whether they will still be unencumbered in the future, when they have become a creditor. The pool of assets can and will contract or swell every day and creditors in fact are, or should be, aware of that. See, in this sense, also Baird:

The general creditor whose debtor falsely indicates that a piece of property is unencumbered is ultimately no worse off than one whose debtor later encumbers the property in violation of an express promise not to.24

If creditors do not opt for security by means of a right of pledge or a retention of title, they choose to accept the risk that comes with extending (supplier) credit.25 In this discussion, it is often put forward as a counterargument that this risk would be addressed by the introduction of a public filing system, because unsecured (trade) creditors – despite the risk they have chosen – would be able to check the register every day.26 Yet, this signal will always come too late: They already run the risk from the moment they extend unsecured credit.27 More important, however, is my second critical remark, namely that information on the availability of assets of the debtor scarcely says anything about whether the debtor will be able to pay its debts when these fall due. More subtly said: the question of whether or not assets are encumbered with security rights does not mean that there is a greater risk that these creditors will not be paid. Even if the pledging of goods indicates that the debtor finds himself in financial difficulties, this may still happen in the context of extension or even increase of a credit line. In Dutch law, for example, the pledging of the debtor’s assets will often mean that trade creditors will continue to be paid, since it proves that there is (still) a bank that is willing to fund the business.28

23Such a security right can secure both new and existing debt.

24D.G. BAIRD, ‘Notice Filing and the Problem of Ostensible Ownership’, 12. Journal of Legal Studies 1983, pp. 60–61.

25See also VAN DEN HEUVEL, pp. 91–92.

26Otherwise, credit rating agencies that consult the register on their behalf. See s. 4.4 about this.

27Baird about unsecured creditors in this respect: ( . . . ) a general creditor ( . . . ) does not look to a particular piece of property to satisfy its debt. Even if he did, he could not effectively prevent the debtor from later encumbering or disposing of the property, because any promises that the debtor makes not to encumber the property are not enforceable against subsequent good faith purchasers. In American law, the term ‘purchasers’ is understood to include parties that take a security interest. BAIRD, p. 60.

28Obviously, in practice, this is not so black and white. There are cases in which a bank pulls the plug at a time this is convenient for the bank but not for the trade creditors. However, for the most part, the pledging of goods of the debtor indicates that the debtor receives credit. This credit keeps the business running, precisely because the general creditors are paid from this. On the perceived problem that banks have too much power over companies, see, for example, D.J.Y. HAMWIJK, ‘Op naar een ‘‘reorganisatie-wet’’: het doel voorbij?’, 5. NJB (Nederlands Juristenblad) 2008, pp. 264–271.

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3.2 Interim Conclusion

From the moment creditors have chosen to enter into the relationship without stipulating security, the only thing that they should – and probably will – be interested in is the cash flow from which they will have to be paid. The fact that the debtor’s assets are pledged cannot induce existing creditors to tighten up their conditions29 or to take action, simply because this does not provide information about (the decrease of) the debtor’s creditworthiness.30 For the same reason, it cannot be true that potential creditors (should) feel inclined to stipulate a retention of title clause or a security right because the assets of the debtor have been pledged already.31 In practice, it is not likely that it works like that.

4.In Practice

One often seems to proceed from the assumption that every creditor weighs up the following options: either I extend credit against collateral or – if that is no(t) (longer) possible – I extend credit at a higher price. However much obtaining collateral protects against the risk of non-payment, in my view, not every creditor will be led by this logic. It is true that all creditors are unsecured before they enter into the relationship; within this category, a distinction should be made between banks, on the one hand, and trade creditors, on the other. If we make this distinction, it will turn out that the decision whether to supply credit – irrespective if this concerns the granting of a loan or delivery of goods on credit terms – should be distinguished from the conditions (against collateral or a higher price) subject to which credit will be made available. The distinction into categories between banks and trade creditors appears to be relevant only with regard to the second question.

4.1The Question of whether a Relationship Should Be Entered into

The decision whether or not to enter into a commercial relationship – here too: irrespective if this concerns the granting of a loan or delivery of goods on credit terms – is primarily taken by every creditor on the basis of its confidence in the debtor’s ability to pay. Hence, this choice comprises a risk assessment in respect of every individual debtor. Such risk assessment is hardly influenced by the question of

29To the extent feasible: creditors should have negotiated such term.

30This does not imply that unsecured creditors will have no interest in receiving a signal as regards a decrease of the assets, while bankruptcy is approaching. I will come back on this in s. 6.

31Some American authors assume that the purpose of introducing a public register was precisely to protect the general, unsecured creditors. In their view, a notice filing system has little added value because there are already so-called credit rating agencies (such as Dun & Bradstreet and Graydon) that provide these creditors with information about a business’s creditworthiness. See HELMAN, pp. 25 and 32–33. Other authors, e.g., Philips, actually argue the opposite, namely that in order to protect unsecured creditors more information should be included in the register, because information about whether assets are encumbered or not says nothing about the business’s creditworthiness. See PHILIPS, ‘Flawed Perfection: From Possession to Filing under Art. 9 – Part II’, 59. Boston University Law Review 1979.

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whether assets have already been pledged to a creditor.32 This is illustrated by the fact that in jurisdictions where a public filing system is in place banks do not postpone the decision to supply credit or under what terms until after they have checked the register. This decision is made beforehand, and the register is only checked upon consummation of the transaction. This is so since their decision is based on other factors.33

4.2The Question of What Conditions Shall Apply to the Commercial Relationship

The decision on what conditions shall apply to the commercial relationship entered into – again: irrespective whether this regards the supply of credit or the supply of goods – is, in my view, dictated by other factors than the extent to which a creditor relies on the financial stability of the debtor’s business. It is not in first instance made with a view to the identity of the debtor but depends much more on the type of creditor that enters into the relationship. In this respect, the distinction between banks and trade creditors is of great importance.

In the first place, the nature of the relationship of a debtor with trade creditors is very different from that with banks. While a debtor enters into relationships with many trade creditors contemporaneously, it is usually served by only a few banks. Even when a trade creditor does business with the debtor on a regular basis, the relationships with trade creditors will only last as long as the payment term. The relationship with banks, by contrast, which usually finance most of the working capital (from which many trade creditors will be paid) will normally be of a much more protracted nature. The consequence of this is that banks – both as regards the duration and amount – run a concentrated risk on the debtor, while a trade creditor only runs the risk for its own supply.

The solvability and liquidity rules banks need to comply with contain specific rules designed to limit these risks. These rules have a direct influence on the type and content of the credit that they can provide.34 For instance, unsecured credit results in a higher risk weighting, and a higher percentage of capital that must be held against it on the bank’s balance sheet, than secured credit.35 In an oversimplified form, one can say that a bank, when selling its products and services, needs to find a match with the customer that satisfies the profile that goes with that product. Trade creditors, on the other hand, are not dependent on restrictions as

32See also BAIRD, p. 60.

33The filing system solely offers the possibility to double check the information provided by the debtor. Baird also, in this sense, states that: The information in the filing system primarily provides reassurance that all is as it appears to be and that the debtor does not have unannounced encumbrances on its assets. BAIRD, p. 66.

34See the Basel Accords, especially Basel II and Basel III on <www.basel.int>.

35This does not mean to say that banks would only be willing to lend on a secured basis; profit margin and product diversity are important considerations in this respect.

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regards the construction of their balance sheet. Whether they stipulate a security right or retention of title rather depends on the sector in which they operate.36

4.3 Interim Conclusion

The foregoing leads to the following interim conclusion. However much, in the abstract, creditors with security run less credit risk than those without security, it is usually not the case that a creditor will ask for collateral solely on the basis that it does not have complete confidence in his prospective debtor. If a creditor has confidence in his prospective trading partner, then he will, in principle, be willing to provide the loan or supply the goods on credit terms. The conditions under which credit is extended will partly be dictated by external factors such as, for trade creditors, the sector in which they operate and, for banks, the supervisory rules to which they are subject. If, on the other hand, creditors do not have confidence in the prospective trade partner, then they will simply not enter into the commercial or credit relationship. It can naturally turn out that a loan will still not be provided if the debtor does not accept or cannot fulfil the conditions under which the credit is granted. However, the reverse does usually not apply: that the bank will determine the specific conditions on the basis of the generic confidence that it has in that debtor. If a bank decides to lend against security, and the debtor is unable or unwilling to provide this, then the bank will usually provide him with a different credit instead. Because of the higher risk profile, this will usually be a more expensive form of credit.37 The consequence of this is that the dogma ‘either I give credit against collateral, or – if that is not possible – at a higher price’ applies in practice only for banks.38 For trade creditors, it does not apply.39

36See also VAN DEN HEUVEL, p. 91.

37This, therefore, means not only the same credit under different conditions (such as a higher price) but also a different kind of credit. Although ‘credit’ is usually understood to refer to a specific amount of money, from the bank’s perspective the concept is decidedly more complicated. Because the conditions under which the credit is provided affect its balance sheet structure, the bank distinguishes different forms of credit. Thus, for a bank, a loan of a specific amount against collateral is a fundamentally different (form of) credit than a loan of the same amount without collateral.

38See also Dutch authors F.E.J. BEEKHOVEN VAN DEN BOEZEM & C.E. GOOSMANN, ‘Centraal pandregister voor roerende zaken’, 6860. Weekblad voor Privaatrecht: Notariaat en Registratie

2010a, p. 753 and F.E.J. BEEKHOVEN VAN DEN BOEZEM & C.E. GOOSMANN, ‘Centraal pandregister voor roerende zaken schiet zijn doel voorbij!’, in Bancaire zekerheid (Liber Amicorum, serie Onderneming en Recht, deel 58), Kluwer, Deventer 2010b, p. 52.

39While a bank that has doubts about the debtor’s creditworthiness will simply not enter into the credit relationship at all, the trade creditor will not need to make the decision not to supply: He can demand cash payment against delivery. This is actually standard practice if the supplier knows the debtor is having payment difficulties. It would not be logical for the supplier, having noted the presumed increased credit risk, to increase the price instead.

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