English law is too generous to secured creditors. Discuss - Essay Example

For clarity, a definition of secured and unsecured creditors will first be established. Then, the discussion will proceed to the various laws and case laws proving that indeed, the laws of UK favours secured creditors. Likewise, the newer laws that are supposed to reform these unfair legislations favouring secured creditors will be addressed. Finally, a conclusion will be formed on the basis of the laws presented whether or not the adage is true. Secured and Unsecured Creditors To define well what secured creditors are, it would be best to first define its anti-thesis, the unsecured creditors.

Unsecured creditors are individuals or companies owed money by other individuals or companies which have no recourse for an asset, collateral or fund for repayment in cases wherein default of debtor's payment occurs. On the other hand, secured creditors are generally those that have the benefit of having a security interest over the debtor’s assets. With regards to the English law, particularly in relation to the administration of liquidation of companies, insolvency and bankruptcy, the creditors that claims share in the asset are classified into two, i.e., the unsecured and the secured creditors.

The former stands pari passu to the later in the event of insolvency or administrative receivership or liquidation. Simply put, secured creditors are treated favourably over unsecured ones in terms of recourse against debtor assets including employees ((Rapalje & Lawrence, 1997). Pertinent Laws on Secured Creditors English law referred to secured creditors numerous times since time immemorial. Most of these references showed favour towards them as opposed to unsecured creditors. The United Kingdom’s security law for instance, has weighed heavily in secured creditors’ favour.

Likewise, in cases of insolvency, unsecured creditors rank behind the secured ones. Additionally, secured creditors having qualifying floating charge may have control over the manner of security to be enforced. Moreover, the English law allows secured lenders to enforce said security and step in via a business take over and run the debtor’s business in accordance to their preferences without any due notice given to other unsecured creditors. With these few examples alone, the adage “English law is too generous to secured creditors” is already being justified.

In legislation, secured creditors are given the right to appoint their own “administrative receiver” in the same manner that they could also block an administrator should they find it necessary (Insolvency Act, 1986). As such, it becomes impossible for them to acquire the business without the intervention of 3rd parties. To prove further that the “English law is too generous to secured creditors”, several case laws will be discussed as evidence of this adage. All these cases basically revolves around the pursuit of one party to disregard the pari passu law that favors secured creditors over unsecured one, all to no avail.

First case in point is the British Eagle International Air Lines Ltd v Cie Nationale Air France (1975). This is a case of English insolvency law that involves a company that winded up and disputes among creditors ensued. This judgment for this case decided it against public policy to vary insolvent estate’s claims and declare unlawful to contract against Insolvency Act of 1986. Thus, the sum due to Air