Insolvency Law as Credit Enhancement and Enforcement Mechanism: A Closer Look at Global Modernization of Secured Transactions Law

This essay revisits earlier work on the relationship between insolvency law and secured credit, the role of secured transactions law reforms, and the benefits of secured credit. These complex relationships require a holistic approach toward reforms of secured transactions law and insolvency law. Merely enacting sensible secured transactions laws and insolvency laws may be insufficient to produce the intended benefits from either set of laws. The essay is informed by an ongoing qualitative empirical study of business credit in Japan—the Japanese Business Credit Project. The JBCP involves interviews of representatives of Japanese financial institutions and governmental bodies and legal practitioners and academics. The essay draws further insights from a February 2017 invitational conference on the coordination of global reforms of secured transactions laws. The essay offers a synopsis of the 2017 Coordination Conference and the JBCP. The essay outlines a set of principles (Modern Principles) that personal property secured transactions law should follow. The Modern Principles are based on UCC Article 9 and its many progeny, including the UNCITRAL Model Law on Secured Transactions and other recent reform efforts. The essay summarizes the principal theses of both the advocates and critics of the Modern Principles. Critics notwithstanding, the Modern Principles reflect a global consensus on the optimal features of secured transactions laws. The obstacles and challenges to the implementation of Modern Principles-based secured transactions law reforms are under-studied and under-theorized and warrant more rigorous investigation and analysis. The essay also considers links between both insolvency law and private international law (e.g., choice-of-law rules) and secured transactions law. It argues that both bodies of law play roles that are vital to the operation of secured transactions in the business credit markets and that each should feature prominently in the processes of adoption and implementation of secured transactions law reforms.