APPENDIX A

Material shown below in a box like this indicates the paragraph of the consultative report at which the particular topic is discussed and provides cross-references to other draft regulations (DRs) that are directly relevant, and other information.

DRAFT REGULATIONS

STATUTORY INSTRUMENTS
[200X No. XXXX]
COMPANIES
The Companies (Personal Property Security) Regulations [200X]
Made	…				    
Laid before Parliament    …
Coming into force	…		
Arrangement of regulations
PART 1
INTRODUCTION
Citation and commencement
1.	Citation and commencement
Interpretation
2.	Interpretation
3.	Meaning of “security interest”
4.	Meaning of “purchase-money security interest”
5.	Meaning of “debtor”
6.	Meaning of “control”: investment property
7.	Meaning of “control”: bank accounts
8.	Meaning of “lease for a term of more than one year”
9.	Meaning of “commercial consignment”
10.	Knowledge
Application
11.	Scope of Regulations
12.	Exceptions
13.	Territorial application
PART 2
EFFECTIVENESS OF SECURITY AGREEMENTS
14.	Effectiveness of security agreement
15.	Attachment of security interest
16.	Automatic security interest in favour of securities intermediary etc
17.	Preservation and use of collateral
18.	Request for information from secured party
PART 3
PERFECTION AND PRIORITIES
Perfection
19.	Perfection of security interest
20.	Consequences of not perfecting
21.	Perfection: additional provisions about investment property, supporting obligations and promissory notes
22.	Continuity of perfection
23.	Methods of perfection
24.	Perfection by possession
25.	Perfection: goods in possession of bailee
26.	Perfection of certificated security by delivery
27.	Perfection by control of investment property
28.	Perfection by possession or delivery continues temporarily if collateral made available to debtor
29.	Perfection: proceeds
30.	Goods returned or repossessed
31.	Circumstances in which buyer or lessee takes free of security interest
32.	Purchaser takes free: additional provisions about investment property
Priorities
33.	Residual priority rules
34.	Priority rules: investment property
35.	Priority rules: bank accounts
36.	Priority rules: proceeds of letters of credit
37.	Priority of security interests in transferred collateral
38.	Protection of transferees of negotiable collateral
39.	Priority: liens
40.	Priority: crops
41.	Alienation of rights of debtor
42.	Priority: purchase-money security interests
43.	Effect on priority of mistaken discharge of filing etc
44.	Voluntary subordination
45.	Rights of assignees
PART 4
FILING
46.	The Register
47.	Financing statement
48.	Time of filing
49.	Duration of filing
50.	Registrar to issue verification statement
51.	Errors in financing statement
52.	Renewal and amendment of filing
53.	Filing of transfers and subordinations
54.	Searches
55.	Debtor may require financing change statement

PART 5
RIGHTS AND REMEDIES ON DEFAULT
56.	Application of this Part
57.	Overlap with security over land
58.	Receivers
59.	Rights and remedies
60.	Collection rights of secured party
61.	Rights of secured party
62.	Disposal of collateral
63.	Disposal of collateral: requirement to give notice
64.	Calculation of surplus or deficiency in disposition to secured party etc
65.	Distribution of surplus
66.	Deficiency
67.	Acceptance of collateral in full or partial satisfaction of obligation
68.	Redemption
69.	Determination as to whether conduct was commercially reasonable
70.	Applications to court
PART 6
SUPPLEMENTARY PROVISIONS
71.	Entitlement to damages for breach of obligations
72.	Principles of common law etc and law of sale and supply of goods continue to apply
73.	Consequential amendments
74.	Transitional provisions, savings and revocations

The Secretary of State in exercise of the powers conferred on him by sections [x, y and z] of the Companies Act [200X] hereby makes the following Regulations:

PART 1
INTRODUCTION
Citation and commencement
Citation and commencement
1.	—(1) These Regulations may be cited as the Companies (Personal Property Security) Regulations [200X].
(2)	These Regulations shall come into force on [date].
Interpretation
Interpretation
2.	—(1) In these Regulations, unless the context otherwise requires—
“account” means a monetary obligation, whether or not it has been earned by performance, but does not include—
(a) a monetary obligation evidenced by an instrument, 
(b) investment property, 
(c) a bank account, or 
(d) a right to payment for money or funds advanced or sold, other than a right arising out of the use of a credit or charge card or information contained on or for use with the card;

Paragraph 3.21. Accounts are a distinct type of collateral principally because outright sales of accounts are ‘deemed’ SIs: see paragraphs 2.87-2.88, 3.34-3.36; DR 3(3), 5(1)(d). With one exception (DR 60(5)), Part 5 does not apply to sales of accounts. Other provisions that apply only to accounts are DRs 42(6) (Priority: PSMIs) and 45 (Rights of assignees).

“account debtor” means a person who is obligated under an account; 

Paragraph 3.12.

“advance” means the payment of money, the provision of credit or other giving of value, and includes any liability of the debtor to pay interest, credit costs and other charges or costs payable by the debtor in connection with an advance or the enforcement of a security interest securing the advance, and reasonable costs incurred and expenditures made for the protection, maintenance, preservation or repair of collateral;

DR 33(6) and (7).

“bank” means—
(a) the Bank of England,
(b) a person who has permission under Part 4 of the Financial Services and Markets Act 2000() to accept deposits,
(c) an EEA firm of the kind mentioned in paragraph 5(b) of  Schedule 3 to that Act which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule) to accept deposits or other repayable funds from the public;

See below, ‘bank account’. This definition of ‘bank’ has been taken from the definition of ‘bank’ in the Agricultural Credits Act 1928, as amended in the light of the Financial Services and Markets Act 2000. We would welcome views on whether a different definition would be more appropriate.

“bank account” means a deposit held on behalf of a person by a bank, but does not include investment property or a monetary obligation evidenced by an instrument;

Paragraphs 4.93-4.132. Bank accounts are a distinct type of collateral because an SI over a bank account may be perfected by control: see DRs 7, 14(2), 35 and 60(3). These provisions do not apply to bank accounts that are represented by negotiable certificates of deposit, which are ‘instruments’ under the draft regulations.

“business day” means any day except—
(a) Saturday or Sunday, or 
(b) a bank holiday (including Christmas Day and Good Friday);

This concept of the ‘business’ day is used in the CPR, Rule 6.7. We could equally use ‘working day’ if this were thought preferable.

“cash” means money, cheques and bank accounts;

Paragraph 3.232 note 285. The draft regulations distinguish between proceeds that are ‘cash’ and those that are ‘non-cash’, see below. See also DR 29(4)(c), which in effect covers ‘cash proceeds’.

“certificated security” means a security which is represented by a certificate;

Paragraph 4.7. Securities (such as shares or debt obligations) that are represented by a certificate are treated differently to uncertificated securities: see, for example, DRs 6, 26, 28, 32(1) and 34.

“collateral” means personal property which is subject to a security interest, and includes proceeds to which a security interest attaches and goods which are the subject of a consignment;

Paragraph 1.12(4).

“commercial consignment” has the meaning given in regulation 9;

See DR 9.

“commodity account” means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer;
“commodity contract” means a commodity futures contract, a commodity futures option or other similar contract which is— 
(a) traded on or subject to the rules of a commodity futures exchange regulated under […], or 
(b) traded on a foreign commodities futures exchange and is carried on the books of a commodity intermediary for a commodity customer;
“commodity customer” means a person for which a commodity intermediary carries a commodity contract on its books;
“commodity intermediary” means a person who— 
(a) is registered as a dealer permitted to trade in commodity contracts, whether as principal or agent, under […], or
(b) in the ordinary course of business provides clearance or settlement services for a commodity futures exchange recognised or otherwise regulated under […];

The draft regulations treat commodity contracts held in a commodity account as a distinct form of investment property (over which an SI may be perfected by control, see ‘investment property’ below): see paragraphs 4.36, 4.88-4.92 and, for example, DRs 6(11)-(12), 15(13), 21(2) and (5) and 34 rules 5-7.

“company” has the meaning given in the Companies Act [200X];

Paragraph 3.7; DR 11

“control” and “control agreement” have the meanings given—
(a) in regulation 6, in relation to investment property, and
(b) in regulation 7, in relation to bank accounts;

See DRs 6 and 7; also DR 36 on the proceeds of a letter of credit.

“crops” means crops, whether matured or otherwise, and whether naturally grown or planted, attached to land by roots or forming part of trees or plants attached to land, but does not include trees;

Paragraphs 3.269-3.273; DR 40.

“debtor” has the meaning given in regulation 5;

See DR 5.

“default” means—
(a) the failure to pay or otherwise perform any obligation secured when due, or 
(b) the occurrence of any event or set of circumstances on which, under the terms of the security agreement, the secured party is entitled to enforce the security interest; 

The security agreement may provide that the secured party is entitled to enforce the SI in circumstances in which it cannot be said that the debtor has failed to pay or perform the obligation secured when it was due. For the purposes of the draft regulations either case is treated as a default.

“document”, except in the definitions of “document of title” and “instrument”, includes a message recorded by electronic means which is retrievable;
“document of title” means a document written on paper issued by or addressed to a bailee— 
(a) which covers goods in the bailee's possession that are identified or are fungible portions of an identified mass, and 
(b) in which it is stated that the goods identified in it will be delivered to a named person, or to the transferee of that person, or to bearer or to the order of a named person;

Paragraph 3.20. For the avoidance of doubt, the draft regulations provide that a document, other than a ‘document of title’ or an ‘instrument’, can be in electronic format. ‘Documents of title’ and ‘instruments’ must be paper documents. Although there exist so-called electronic bills of lading, these appear to be direct attornments by the relevant registry, on behalf of the carrier, to the holder. See generally Electronic Commerce: Formal Requirements in Commercial Transactions (Advice from the Law Commission, December 2001).

“entitlement holder” means a person identified in the records of a securities intermediary as having a security entitlement against the securities intermediary; 

Paragraph 4.9.

“equipment” means goods which are held by a debtor other than as inventory;

Paragraph 3.18. Under the draft regulations, a company’s goods are either equipment or inventory. SIs over equipment are treated differently to those over inventory. The principal difference lies in the steps that have to be taken to preserve PMSI-priority: see paragraphs 3.211-3.219; DR 42. On the time as of which it is to be determined whether goods are equipment or inventory, see DR 2(2).

“filing” means the filing of a financing statement; and “file” has a corresponding meaning;

Filing is the means of perfecting a non-possessory SI over collateral other than financial collateral:  paragraphs 3.113-3.181; DRs 23, 46-55. The draft regulations refer to ‘filing’ rather than registration simply to emphasise that the system is not transaction-based: filing may take place before any security agreement has been made. See paragraphs 3.138-3.139.

“financial asset” means—
(a) a security,
(b) an obligation of a person or a share, participation or other interest in a person or in property or an enterprise of a person—
(i) which is, or is of a type, dealt in or traded on financial markets, or
(ii) which is recognised in any area in which it is issued or dealt in as a medium for investment, or
(c) any property which is held by a securities intermediary for another person in a securities account if the securities intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under these Regulations,
(d) a credit balance in a securities account;

Paragraph 4.35.

“financing change statement” means data which is transmitted to the Registry in accordance with Part 4 and the Rules to amend a financing statement or discharge a filing;

Paragraphs 3.154-3.162; DRs 52, 53-55.

“financing statement” means data which is transmitted to the Registry in accordance with Part 4 and the Rules and, if the context permits, includes a financing change statement;

Paragraphs 3.118-3.134; and see principally DRs 23(a) and 47. The Rules that will supplement these draft regulations will provide the exact detail as to the data required in a financing statement. 

“financing statement number” means the public registration number assigned to a financing statement by the Registrar under regulation 48 (time of filing);

The electronic filing system envisaged in the consultative report will allocate a number to each financing statement. The number can be used for searching (paragraph 3.171) and filing financing change statements (paragraph 3.155). ‘Public’ number is used to avoid any confusion with any ‘internal’ numbers that the electronic system may use for other purposes.

“foreign company” means a company incorporated elsewhere than Great Britain;

Paragraphs 3.364-3.272; DR 13(3). The draft regulations draw a distinction between companies registered in England and Wales or in Scotland under the Companies Act and companies incorporated outside Great Britain. Companies incorporated in Northern Ireland will fall into the latter category. “Foreign company” is not limited to a company incorporated outside Great Britain that has a place of business in Great Britain: compare Companies Act 1985, s 744.

“goods” means tangible personal property, fixtures, crops, trees which have been severed and the unborn offspring of animals, but does not include a document of title, an instrument, investment property which is represented by a certificate, money or minerals falling within the definition of land under the Land Registration Act 2002() or the Land Charges Act 1972();

Paragraph 3.18, and see ‘equipment’, above. The references to the Land Registration Act 2002 and the Land Charges Act 1972 are made because minerals that have been extracted – and which might otherwise appear to be goods – can fall within the definition of ‘land’ under those statutes.

“instrument” means—
(a) a cheque, bill of exchange or promissory note within the meaning of the Bills of Exchange Act 1882(), or
(b) any other document written on paper which evidences a right to payment of money and is of a type which, in the ordinary course of business, is transferred by delivery with any necessary endorsement or assignment,
but does not include a document of title or investment property;

Paragraph 3.20, and see ‘document’, above. Several provisions in the draft regulations apply to instruments in particular: for example, DRs 17(3), 20(5) and especially 38.

“intangible” means all personal property which is not tangible, and includes a licence;

Paragraph 3.22. ‘Intangible’ forms a general category that includes several types of intangible collateral that are treated specifically, for example, accounts, bank accounts and some forms of investment property.

“inventory” means goods which are—
(a) held by a person for sale or lease, or which have been leased by that person as lessor,
(b) to be furnished by or on behalf of a person, or which have been furnished by or on behalf of that person, under a contract of service, 
(c) raw materials or work in progress, or 
(d) materials used or consumed in a business;

See ‘equipment’, above.

“investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract or commodity account;

SIs over investment property are the subject of special rules described in Part 4 of the consultative report; see in particular paragraphs 4.30-4.37; and, for example, DRs 6, 27 and 34.

“lease for a term of more than one year” has the meaning given in regulation 8;

See DR 8.

“money” means notes and coins which are legal tender in any currency;

Paragraph 3.23 and also ‘cash’, above; DR 38(1) and compare DR 28(4)(c). The definition of money is widely drawn. We would welcome views on it.

“non-cash proceeds” means proceeds other than money, cheques, deposits in or money credited to a bank account , or insurance payments;

Paragraphs 5.53 and 5.69; DRs 60(6) and 65(5).

“personal property” includes goods, documents of title, instruments, accounts, bank accounts, money, investment property and intangibles;

Paragraph 3.17.

“prescribed” means prescribed by the Rules;
“proceeds” means—
(a) whatever is acquired on the sale, lease, licence, exchange or other disposition of collateral, 
(b) whatever is collected on, or distributed on account of, collateral, 
(c) rights arising out of collateral,
(d) to the extent of the value of collateral, claims arising out of—
(i) the loss of, or damage to, the collateral,
(ii) the interference with use of, or infringement of rights in, the collateral, or
(iii) defects in, or nonconformity of, the collateral, 
(e) to the extent of the value of collateral, and to the extent payable to the debtor or secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral;
but does not include products made from collateral, or animals merely because they are the offspring of animals which are collateral;

Paragraphs 3.182-3.187. The inclusion of proceeds within the definition of ‘collateral’ has the result that ‘the proceeds of proceeds are proceeds’.

“promissory note” has the meaning given in the Bills of Exchange Act 1882(),

Promissory notes are treated as a distinct form of instrument in that sales of promissory notes are ‘deemed’ SIs, though an SI over a promissory note does not need to be perfected by filing or possession: paragraph 3.46; DRs 3(3)(b), 5(1)(d) and 21(7), but see also DR 12(1)(d) and (e).

“purchase” means take by sale, lease, discount, assignment, negotiation, mortgage, pledge, security interest, issue, reissue, gift or any other consensual transaction that creates an interest in personal property; and “purchaser” has a corresponding meaning;

Paragraphs 3.199 and 3.230.

“purchase-money security interest” has the meaning given in regulation 4;

See DR 4.

“register” means the register of financing statements established for the purposes of these Regulations;

Paragraphs 3.113-3.115; DR 46.

“registered number”, in relation to a company, has the meaning given in the Companies Act [200X];

Paragraphs 3.119 and 3.171-3.172; DRs 47(7)(b) and 54(1)(b).

“Registrar” means the Registrar of Companies;

Paragraphs 2.24 and 2.75.

“Rules” means the rules made by the Registrar in accordance with section [xx] of the Companies Act [200X];

Paragraph 3.115.

“secured party” means a person in whose favour a security interest is created or provided for under a security agreement, including a party who holds a security interest for the benefit of another person and, if a security interest is embodied in a security trust deed, a trustee;

Paragraphs 2.12 and 3.16; DR 3 (Meaning of “security interest”). It should be noted that the holder of a ‘deemed’ SI is a secured party. The legal personality of the secured party, unlike that of the debtor, does not determine the application of the draft regulations. A secured party may be an individual, a partnership or a corporate body.

“securities account” means an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that constitute that financial asset;

This is the term used to designate the account in which indirect holdings of ‘financial assets’ are maintained by the intermediary for the ‘entitlement holder’: see paragraph 4.34.

“securities intermediary” means a clearing agency, or a person, including a broker, bank or trust company, which in the ordinary course of its business maintains securities accounts for others and is acting in that capacity;

Paragraph 4.9 and ‘securities account’, above.

“security” means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer—
(a) which is represented by a certificate in bearer or registered form, or the transfer of which may be registered in books maintained for that purpose by or on behalf of the issuer, or, where the primary record of entitlement to the asset as against the issuer is the register of the operator of a settlement system, on the operator’s register,
(b) which is one of a class or series, or by its terms is divisible into a class or series of shares, participations, interests or obligations, and 
(c) which—
(i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or
(ii) is a medium for investment and by its terms expressly provides that it is to be treated as a security governed by these Regulations;

Paragraphs 4.9 and 4.32. ‘Security’ refers to forms of investment property such as shares or debt obligations; securities may be certificated or uncertificated. A ‘security’ may be used as collateral; it should not be confused with a ‘security interest’ over collateral.

“security agreement” means an agreement which creates or provides for a security interest;

Paragraphs 3.75-3.81. Note that a security agreement need not be in writing or evidenced in writing: DR 14, unless it is for financial collateral: DRs 6(7) and 7(3)(b).

“security certificate” means a certificate representing a security;

Paragraphs 4.40-4.46; DRs 26 and 27(2)(a).

“security entitlement” means the rights and property interest of an entitlement holder with respect to a financial asset;

Paragraph 4.34, and see ‘securities account’, above.

“security interest” has the meaning given in regulation 3;

See DR 3.

“security trust deed” means a deed, indenture or document (however designated) by the terms of which a person issues or guarantees, or provides for the issue or guarantee of, debt obligations secured by a security interest and in connection with which a person is appointed as trustee for the holders of the debt obligations issued, guaranteed or provided for under the deed, indenture or document;

Paragraph 3.16; DR 3(2)(b).

“supporting obligation” means a right to the proceeds of a letter of credit or a guarantee or indemnity which supports the payment or performance of the principal obligation under an account, document, intangible, instrument or investment property;

Paragraphs 3.51-3.55; DRs 15(11), 21(6) and 33 rule 5.

“uncertificated security” means a security which is not represented by a certificate;

Paragraphs 4.8, 4.49-4.50, 4.72-4.73 and 4.78; DRs 6(5) and 32(1).

“unique identifying number” means the serial or other identifying number prescribed in relation to prescribed types of goods;

Paragraphs 2.92-2.95, 3.129 and 3.176-3.181; DRs 31(7) and (8), 33(4) and 47(8). The draft regulations provide for the unique identifying number of goods to be included in a financing statement, and for searching by this number. The Rules that are to supplement these draft regulations will set out which types of goods are classed as having unique identifying numbers. At this stage, we anticipate that they will be only motor vehicles and the like.

“value” means any consideration which is sufficient to support a simple contract, and includes an antecedent debt or other obligation.

Paragraphs 2.14, 3.229-3.236, 4.21 and 4.72; and, for example, DRs 15(3), 20(4), 31(5) and (6), 32(1) and (2) and 38.

(2)	Unless otherwise provided in these Regulations, any determination of whether goods are inventory or equipment is to be made as of the time when the security interest in the goods attaches. 

See ‘equipment’, above.

(3)	Proceeds are traceable whether or not there is a fiduciary relationship between the person who has a security interest in the proceeds, as provided in regulation 29 (perfection: proceeds), and the person who has rights in or has dealt with the proceeds. 

Paragraph 3.185; compare ‘proceeds’, above.

Meaning of “security interest”
3.	—(1) “Security interest” means an interest in personal property which secures payment or performance of an obligation without regard—
(a)	to the form of the transaction which creates or provides for the interest, 
(b)	to the person who has title to the collateral.
(2)	For the avoidance of doubt, and without limiting paragraph (1), “security interest” includes—
(a)	charges, mortgages, pledges, hire-purchase agreements and conditional sales (including agreements to sell subject to retention of title), and
(b)	the following arrangements if they secure payment or performance of an obligation, namely: leases, consignments, security trust deeds, trust receipts, transfers of accounts and transfers of promissory notes.
(3)	“Security interest” also means—
(a)	sales of accounts,
(b)	sales of promissory notes,
(c)	leases for a term of more than one year which do not secure payment or performance of an obligation, and
(d)	commercial consignments which do not secure payment or performance of an obligation;
but see regulation 56(1) which provides that Part 5 (rights and remedies on default) does not apply to security interests falling within this paragraph.
(4)	“Security interest” does not include the interest of a seller who has shipped goods to a buyer under a negotiable bill of lading or its equivalent to the order of the seller or to the order of an agent of the seller, unless the parties have otherwise evidenced an intention to create or provide for a security interest in the goods.
(5)	For the avoidance of doubt, a security interest may exist whether or not an obligation is outstanding and whether or not the security interest has attached.

3. Meaning of “security interest”
See paragraphs 3.26-3.49. For the avoidance of doubt we have added a cross-reference to DR 56 to make it clear that Part 5 of the draft regulations, dealing with rights and remedies on default, does not in general apply to the ‘deemed’ SIs.  

DR 3(4) follows our recommendation in CP para 7.26, which was supported by a large majority of those who responded on the issue. 

DR 3(5) is also included for the avoidance of doubt: attachment or an outstanding debt is not a necessary requirement for there to be an SI under the draft regulations: see paragraphs 3.68-3.69.

Meaning of “purchase-money security interest”
4.	—(1) “Purchase-money security interest” means—
(a)	a security interest taken in collateral, other than investment property, to the extent that it secures all or part of the collateral’s purchase price,
(b)	a security interest taken in collateral, other than investment property, by a person who gives value for the purpose of enabling the debtor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights, 
(c)	the interest of a lessor of goods under a lease for a term of more than one year, or 
(d)	the interest of a consignor who delivers goods to a consignee under a commercial consignment,
but does not include the interest of a lessor under a transaction of sale and lease back to the seller.
(2)	If the purchase-money security interest is taken in inventory, references in paragraphs (1)(a) and (b) to securing the purchase price of, or acquiring rights in, collateral include securing the purchase price of, or acquiring rights in, other inventory in which the secured party holds or held a purchase-money security interest.
(3)	For the purposes of paragraph (1), “purchase price” and “value” include credit charges and interest payable for the purchase or loan credit.
(4)	A purchase-money security interest does not lose its status as such even if there is a renewal, refinancing, consolidation or restructuring of the obligation.

4. Meaning of “purchase-money security interest”
On PMSIs in general, see paragraphs 3.204-3.210. On DR 4(2) see paragraph 3.220 and on DR 4(4) see paragraph 3.210.

Meaning of “debtor”
5.	—(1)  “Debtor” means—
(a)	a person who owes payment or performance of an obligation secured by a security interest whether or not the person owns or has rights in the collateral, 
(b)	a person who receives goods under a commercial consignment; 
(c)	a lessee under a lease for a term of more than one year; 
(d)	a seller of an account or promissory note, or
(e)	a transferee of, or successor to, a person referred to in any of the preceding sub-paragraphs.
(2)	If the person mentioned in paragraph (1)(a) and the person who has rights in the collateral are not the same person, “debtor” means—
(a)	the person who has rights in the collateral, where the term is used in a provision dealing with the collateral,  
(b)	the person who owes the obligation, where the term is used in a provision dealing with the secured obligation, and 
(c)	both of those persons, where the context permits. 

5. Meaning of Debtor
Paragraphs 3.9-3.14; compare DR 3 (Meaning of “security interest”). DR 5 should be read in conjunction with DR 11, which determines the scope of application of the draft regulations as a whole. 

Meaning of “control”: investment property
6.	—(1) This regulation sets out the circumstances in which a purchaser (including a secured party) has control of investment property for the purposes of these Regulations. 
(2)	A purchaser has control of a certificated security in bearer form if he has possession of the certificate.
(3)	A purchaser has control of a certificated security which is in registered form if the purchaser—
(a)	takes delivery of the certificate appropriately endorsed, or
(b)	is registered with the issuer as the holder.
(4)	For the purposes of paragraph (3)(a), a certificated security is appropriately endorsed if it is—
(a)	endorsed to the purchaser or in blank by the debtor’s signature, or
(b)	accompanied by a transfer form signed by the debtor and made out to the purchaser or in blank.  
(5)	A purchaser has control of an uncertificated security if—
(a)	in systems in which it is entry in the register of the operator of the settlement system that determines legal title, either—
(i)	the purchaser is entered in the register of the operator as the holder, or
(ii)	the operator, on the instructions of the registered holder, has placed the security into a sub-account in the holder’s own name but has given the purchaser a power of attorney over the security, or
(b)	in systems in which it is entry in the register of the issuer that determines legal title, either—
(i)	the purchaser is entered in the register of the issuer as the holder, or
(ii)	the issuer has entered into a control agreement with the purchaser.
(6)	A purchaser has control of a security entitlement if—
(a)	the purchaser becomes the entitlement holder,
(b)	the intermediary has entered into a control agreement with the purchaser, or
(c)	another person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of it, acknowledges that he has control on behalf of the purchaser.
(7)	Paragraphs (5) and (6) apply—
(a)	to a purchaser under a security agreement only if the security agreement is evidenced in writing, and
(b)	to an arrangement to which section 53(1)(c) of the Law of Property Act 1925() applies (transfer of equitable interest to be in writing and signed), only if the requirements of that provision are satisfied.
(8)	For the purposes of paragraphs (5)(b)(ii) and (6)(b), an issuer or intermediary enters into a control agreement with a purchaser if, with the consent of the entitlement holder, it agrees with the purchaser to comply with the purchaser’s instructions directing the transfer or redemption of the property in question without further consent from the entitlement holder, whether or not the entitlement holder retains the right to deal with the entitlement.
(9)	If an interest in a security entitlement is granted by an entitlement holder to the entitlement holder’s own securities intermediary, the securities intermediary has control.
(10)	An issuer or intermediary who has entered into a control agreement must confirm the existence of the agreement to another person if required to do so by the registered holder or entitlement holder.
(11)	If an interest in a commodity contract is granted by a commodity customer to his own commodity intermediary, the commodity intermediary has control of the commodity contract.
(12)	A purchaser has control of a commodity contract if the purchaser, the commodity customer and the commodity intermediary have agreed that the commodity intermediary will apply any value distributed on account of the commodity contract as directed by the purchaser without further consent by the commodity customer.
(13)	If a purchaser has control of all security entitlements or commodity contracts held or carried in a securities account or commodity account, the purchaser has control over the securities account or commodity account.
(14)	An issuer or intermediary need not enter into a control agreement with a secured party even if the debtor directs it to do so.

6. Meaning of “control”: investment property
Control’ as a method of perfecting an SI over investment property is explained in Part 4, see particularly paragraphs 4.15-4.29 and 4.38-4.69; DRs 23(g), 27, 32 and 34.

On DR 6(2), see paragraphs 4.40-4.41; on DR 6(3) and (4) see paragraphs 4.42-4.48; on DR 6(5) see paragraphs 4.49-4.50; on DR 6(6) see paragraphs 4.51-4.54; on DR 6(7) see paragraphs 4.66-4.67; on DR 6(8) see paragraphs 4.15-4.18, 4.44 and 4.53; on DR 6(9) see paragraph 4.55; on DR 6(10) see paragraph 4.58; on DR 6(10)-(12) see paragraphs 4.88-4.92; on DR 6(13) see paragraph 4.56; and on DR 6(14) see paragraph 4.53 and compare UCC Section 8-106(g).

Meaning of “control”: bank accounts
7.	—(1) This regulation sets out the circumstances in which a secured party has control of a bank account. 
(2)	If the bank itself is the secured party it has control.
(3)	Any other secured party has control if—
(a)	the bank enters into a control agreement with the secured party and the debtor, or
(b)	if the secured party, with the written agreement of the bank and the debtor, becomes the account holder, whether solely or jointly with any other person (including the debtor).
(4)	For the purposes of paragraph (3)(a), a bank enters into a control agreement if it agrees in writing with the secured party and the debtor that it will comply with the instructions of the secured party directing the transfer or redemption of property held in the account without further consent from the debtor.
(5)	A secured party may have control under this regulation even if the debtor retains the right to dispose of funds in the bank account.
(6)	A bank need not enter into a control agreement with a secured party even if the debtor directs it to do so.
(7)	A bank which has entered into a control agreement must confirm the existence of the agreement to another person if required to do so by the debtor. 

7. Meaning of “control”: bank accounts
‘Control’ as a method of perfecting an SI over a bank account is explained in Part 4, see particularly paragraphs 4.106-4.121; DRs 23(g) and 35.

On DR 7(2) see paragraph 4.117; on DR 7(3) and (4) see paragraph 4.116; on DR 7(5) see paragraph 4.118; on DR 7(6) see paragraph 4.120; on DR 7(7) see paragraph 4.121.

Meaning of “lease for a term of more than one year”
8.	—(1) “Lease for a term of more than one year” means a lease of goods for a term of more than one year and includes—
(a)	a lease for an indefinite term, including a lease for an indefinite term that is determinable by one or both of the parties not later than one year after the day of its execution,
(b)	a lease initially for a term of one year or less than one year, if the lessee, with the consent of the lessor, retains uninterrupted or substantially uninterrupted possession of the leased goods for a period of more than one year after the day on which the lessee, with the consent of the lessor, first acquired possession of them, but the lease does not become a lease for a term of more than one year until the lessee's possession extends for more than one year, and 
(c)	a lease for a term of one year or less if—
(i)	the lease provides that it is automatically renewable or that it is renewable at the option of one of the parties or by agreement of the parties for one or more terms, and 
(ii)	 the total of the terms, including the original term, may exceed one year. 
(2)	The following are not leases for a term of more than one year for the purpose of these Regulations— 
(a)	a lease involving a lessor who is not regularly engaged in the business of leasing goods, or
(b)	a lease of household furnishings or appliances as part of a lease of land if the goods are incidental to the use and enjoyment of the land,

8. Meaning of “lease for a term of more than one year”
A lease for a term of more than one year that does not have a security purpose is a ‘deemed’ SI; compare DRs 3(3)(c), 4(1)(c) and 5(1)(c). On the definition in DR 8 see paragraphs 3.37-3.39.

regardless of the length of the lease term.

Meaning of “commercial consignment”
9.	—(1) “Commercial consignment” means a consignment under which goods are delivered for sale, lease, or other disposition to a consignee who, in the ordinary course of the consignee's business, deals in goods of that description, by a consignor who— 
(a)	in the ordinary course of the consignor's business deals in goods of that description, and 
(b)	reserves an interest in the goods after they have been delivered.
(2)	
9. Meaning of “commercial consignment”
Commercial consignments that do not have a security purpose are ‘deemed’ SIs: see paragraphs 3.34-3.36 and 3.41-3.43. DR 9(2) excludes an agreement under which goods are delivered to an auctioneer for sale. We have not followed the SPPSA, NZPPSA or UCC in also excluding from the definition agreements to deliver to a consignee where that consignee is generally known by its creditors to be ‘substantially engaged’ in selling the goods of others. This seemed to us to be unnecessary and an invitation to litigation.

But “commercial consignment” does not include an agreement under which goods are delivered to an auctioneer for sale.

Knowledge
10.	—(1) An individual’s knowledge includes knowledge which he might reasonably have been expected to acquire from facts observed or ascertained by him.
(2)	A person is treated as having knowledge of a fact if an agent of his who is under a duty to communicate that fact to him has actual knowledge of that fact.
(3)	A relevant body is treated as having knowledge of a fact if—
(a)	the relevant body is treated as having knowledge of that fact by virtue of paragraph (2), or
(b)	a qualifying individual has knowledge of that fact.
(4)	“Relevant body” means—
(a)	a body corporate,
(b)	a corporation sole,
(c)	a partnership, or 
(d)	any other body of persons which is capable of suing and being sued in its own name.
(5)	“Qualifying individual”, in relation to a relevant body, means an individual—
(a)	who is an officer or partner of the body, or
(b)	who is an employee of the body and is under a duty to communicate the fact referred to in paragraph (3)(b) to any other employee of the body or to an officer or partner of the body.
(6)	The filing of a financing statement under Part 4 does not constitute constructive notice or knowledge of its existence or contents to any person.
(7)	A purchaser of collateral is not required to enquire whether—
(a)	a security interest has been created or provided for in the collateral, or 
(b)	whether the sale constitutes a breach of a security agreement.

10. Knowledge
The draft regulations frequently refer to whether or not a party knew of a fact, for example that an SI existed or that a disposition was in breach of an SI. The reference is to actual knowledge; in particular see DR 10(6) and (7). We were asked by consultees to provide a definition of actual knowledge, particularly as it applies to organisations. DR 10 draws on the SPPSA, section 10 and the definition of knowledge recommended by the Law Commission in its draft Limitation Bill, clause 5: see its Report on Limitation of Actions (2001) Law Com No 270. This provision may be moved to the main Companies Bill: see paragraph 1.22.

Application

Scope of Regulations
11.	—(1) These Regulations apply to security interests created or provided for by a security agreement made by a debtor who is—
(a)	a company, or 
(b)	a foreign company.
(2)	
11. Scope of Regulations
Paragraphs 3.6-3.8.

This regulation is subject to regulations 12 (exceptions) and 13 (territorial application).

Exceptions
12.	—(1) Except as otherwise provided, these Regulations do not apply to—
(a)	liens, charges or other interests arising under an enactment or rule of law,
(b)	rights of set-off,
(c)	interests created or provided for by the transfer of an unearned right to payment under a contract to a person who is to perform the transferor’s obligations,
(d)	the assignment of accounts or promissory notes solely to facilitate collection on behalf of the person making the assignment,
(e)	the assignment of a single account or promissory note to an assignee in full or partial satisfaction of a pre-existing indebtedness,
(f)	the sale of accounts or promissory notes as part of the sale of a business, 
(g)	the creation or transfer of any interest in land, including a lease,
(h)	any interest in a registered ship,
(i)	any interest in a registered aircraft,
(j)	any interest in registered intellectual property,
(k)	[Lloyd’s trust deeds.]
(2)	In paragraph (1)(h), “registered ship” means a ship which is—
(a)	registered in the United Kingdom in the General Register of Shipping and Seamen maintained under the Merchant Shipping (Registration of Ships) Regulations 1993(), other than a ship to which the provisions of Schedule 1 to the Merchant Shipping Act 1995() concerning the registration of mortgages do not apply (small ships, fishing vessels with simple registration and certain bareboat charters), or 
(b)	registered anywhere else in the world.  
(3)	In paragraph (1)(i), “registered aircraft” means an aircraft which is—
(a)	registered in the United Kingdom in the aircraft register maintained by the Civil Aviation Authority under the Air Navigation Order 2000(), or 
(b)	registered anywhere else in the world.
(4)	In paragraph (1)(j), “registered intellectual property” means any patent, trade mark or design which is—
(a)	registered under any enactment in the United Kingdom, or
(b)	registered anywhere else in the world.

12. Exceptions
On DR 12(1)(a) – (f) and (k) see paragraphs 3.58-3.67; on (g) – (j) and 12(2)-(4), see paragraphs 3.293-3.309.

Territorial application
13.	—(1) These Regulations apply to security interests created by companies registered in England and Wales over any of their personal property, wherever it is located.
(2)	Paragraph (1) is without prejudice to regulation 19 of the Financial Collateral Arrangements (No. 2) Regulations 2003() (standard test regarding the applicable law to book entry securities financial collateral arrangements).
(3)	These Regulations also apply to security interests created by companies registered in Scotland and foreign companies over personal property which is—
(a)	tangible property located in England and Wales, or 
(b)	other property to which, under the rules of private international law, the law of England and Wales would apply for the purposes of determining questions of perfection and priority.
(4)	Paragraph (5) applies to a security interest in goods—
(a)	created by a company registered in Scotland or a foreign company, and 
(b)	which is perfected under the law of the jurisdiction in which the goods are located when the security interest attaches (“the first jurisdiction”) and before the goods are brought into England and Wales.
(5)	The security interest remains perfected for the purposes of these Regulations if it is perfected in accordance with these Regulations— 
(a)	not later than [60] business days after the day on which the goods are brought into England and Wales, or 
(b)	before perfection ceases under the law of the first jurisdiction,
whichever is the earliest.
(6)	 But a security interest which remains perfected under paragraph (5) is subordinate to the interest of a buyer or lessee of the goods who acquires the interest—
(a)	after the goods have been brought into England and Wales,
(b)	without knowledge of the security interest, and 
(c)	before it is perfected under regulation 24 (possession) or by filing under Part 4.

13. Territorial Application
Paragraphs 3.343-3.383.

PART 2
EFFECTIVENESS OF SECURITY AGREEMENTS
Effectiveness of security agreement
14.	—(1) Except as provided in these Regulations or any other enactment, a security agreement is effective according to its terms between the parties, against purchasers of the collateral and other creditors, and against an administrator or liquidator.
(2)	An account debtor who is obligated under an account may take a security interest in the account, and a bank which is obligated under a bank account maintained with itself may take a security interest in that bank account.
(3)	Section 53(1)(c) of the Law of Property Act 1925() (disposition of equitable interest to be in writing and signed) does not apply (if it would otherwise do so) to a security agreement.

14. Effectiveness of security agreement
Paragraphs 3.68-3.70. DR 14(1) is qualified by the reference to other draft regulations: see in particular DRs 15 (Attachment of security interest), 19 (Perfection of security interest) and 20 (Consequences of not perfecting). 

Attachment of security interest
15.	—(1) A security interest attaches to collateral when conditions A, B and C are satisfied, regardless of the order of occurrence.
(2)	Condition A is that there is a security agreement and the collateral is sufficiently identified in the security agreement or by subsequent appropriation. 
(3)	Condition B is that value is given.
(4)	Condition C is that the debtor has rights in the collateral or power to transfer rights in the collateral to a secured party.
(5)	But the parties may agree that the security interest attaches at a later specified time, in which case it attaches at that specified time.
(6)	For the avoidance of doubt, a reference in a security agreement to a floating charge is not an agreement that the security interest created by the security agreement attaches at a later time than the time specified in paragraph (1).
(7)	For the purposes of paragraph (4), a debtor has rights in goods that are leased or consigned to the debtor, or sold to the debtor under a hire-purchase agreement or conditional sale agreement (including an agreement to sell subject to retention of title) no later than when the debtor obtains possession of the goods.
(8)	For the purposes of paragraph (4), a debtor has no rights in—
(a) crops until they become growing crops, 
(b) the young of animals until they are conceived, 
(c) petroleum, gas or other minerals until they are extracted, or 
(d) trees until they are severed.
(9)	For the avoidance of doubt, a security interest may attach even if the debtor is permitted by the security agreement to dispose of the collateral free of the security interest.
(10)	If a security agreement provides for a security interest in after-acquired property, the security interest attaches in accordance with this regulation without specific appropriation by the debtor. 
(11)	When a security interest attaches to collateral which is an account, a document, an intangible, an instrument or investment property, it also attaches to any supporting obligation.
(12)	The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.
(13)	The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.

15. Attachment of security interest
Paragraphs 2.14, 3.71-3.74. On DR 15(11) see DR 2(1), ‘supporting obligation’, above.

DR 15 will affect what are currently known as ‘floating’ charges: see paragraphs 2.56-2.59 and 3.74.

Automatic security interest in favour of securities intermediary etc
16.	—(1) A security interest in favour of a securities intermediary arises and attaches to a person’s security entitlement if—
(a)	the person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the purchase price to the securities intermediary at the time of the purchase, and
(b)	the securities intermediary credits the financial asset to the buyer’s securities account before the buyer pays the securities intermediary.
(2)	 The security interest described in paragraph (1) secures the person’s obligation to pay for the financial asset.
(3)	A security interest in favour of a person who delivers a certificated security or other financial asset represented by a paper document arises and attaches to the security or other financial asset if—
(a)	the security or other financial asset is—
(i)	in the ordinary course of business transferred by delivery with any necessary endorsement or assignment, and
(ii)	delivered under an agreement between persons in the business of dealing with such securities or financial assets, and
(b)	the agreement calls for delivery against payment.
(4)	
16. Automatic security interest in favour of securities intermediary etc.
Paragraphs 4.84-4.87.

The security interest described in paragraph (3) secures the obligation to make payment for the financial asset.

Preservation and use of collateral
17.	—(1) In this regulation, “secured party” includes a receiver. 
(2)	A secured party must use reasonable care in the custody and preservation of collateral in its possession.
(3)	Unless the parties agree otherwise, “reasonable care” includes, in the case of an instrument, taking necessary steps to preserve rights against other persons. 
(4)	Unless the parties agree otherwise, if collateral is in the secured party's possession— 
(a)	reasonable expenses, including the cost of insurance and payment of taxes or other charges incurred in obtaining and maintaining possession of the collateral, are chargeable to the debtor and are secured by the collateral, 
(b)	the risk of loss or damage, except where caused by the negligence of the secured party, is on the debtor to the extent of any deficiency in any insurance coverage,
(c)	the secured party must keep the collateral identifiable, but fungible collateral may be commingled;
and, subject to paragraph (2), a secured party may use the collateral in the manner and to the extent provided in the security agreement, for the purpose of preserving the collateral or its value, or in accordance with an order of the court.
(5)	Unless the parties agree otherwise, if collateral is in the secured party's possession or control, the secured party—
(a)	may hold as additional collateral any increase or profits, except money, received from the collateral, and must apply any money so received, unless remitted to the debtor, immediately on its receipt in reduction of the obligation secured,
(b)	may create a security interest in the collateral, and
(c)	if the collateral is investment property and the parties so agree, may sell it.
(6)	 If the secured party is a buyer of accounts or promissory notes—
(a)	paragraph (2) does not apply, unless the secured party is entitled under an agreement—
(i)	to charge back uncollected collateral, or
(ii)	otherwise to full or limited recourse against the debtor or a guarantor of the debt based on the non-payment or other default of an account debtor or person liable to pay on an instrument or investment property, and
(b)	paragraphs (4) and (5) do not apply. 

17. Preservation and use of collateral
Paragraphs 5.41-5.46. Note that DR 17(6) applies to sales of accounts and promissory notes, which are ‘deemed’ SIs; compare DR 65(5). 

Request for information from secured party
18.	—(1) This regulation does not apply if a security interest falls within regulation 3(3) (certain arrangements which do not secure payment or performance of an obligation treated as security interests).
(2)	A debtor may by notice in writing (an “information request”) require a secured party to make available any of the information specified in paragraph (3) in relation to a security agreement identified in the information request.
(3)	The information is— 
(a)	a statement in writing of, or written approval or correction of, the amount of the indebtedness, and
(b)	a written approval or correction of an itemised list of any personal property attached to the information request indicating which items are collateral,
as at a date chosen by the secured party which is not before the date of the information request and not later than the date on which the secured party must comply with it.
(4)	The information request may specify that the information is to be given to the debtor or to another person and, in either case, must contain an address for reply. 
(5)	The secured party must comply with the information request not later than [10] business days after receiving it.
(6)	If, without reasonable excuse, the secured party fails to comply with an information request (whether in whole or in part), the debtor may apply to the court for an order requiring the secured party to comply with it. 
(7)	Where a person who receives an information request no longer has an interest in the obligation or property of the debtor which is the subject of the request, the person must, not later than [10] business days after receiving the request, disclose the name and address of the immediate successor in interest and, if known, the current successor in interest. 
(8)	If, without reasonable excuse, the person who receives an information request fails to comply with paragraph (7), the debtor, in addition to any other remedy provided by these Regulations, may apply to the court for an order requiring the person who receives the demand to comply with that paragraph.
(9)	On application by a secured party or debtor, the court may—
(a)	extend the time for compliance with an information request,
(b)	make an order requiring a person to comply with an information request and any other order that it considers necessary to ensure compliance with the request, and 
(c)	make an order declaring that, in the event of a secured party’s non-compliance with the order of the court to respond to an information request— 
(i)	the security interest of the secured party with respect to which the request was made is unperfected or extinguished, and 
(ii)	any related filing is discharged. 
(10)	 A secured party or a successor in interest mentioned in paragraph (7) who replies to an information request is estopped for the purposes of these Regulations as against— 
(a)	the debtor, or 
(b)	any other person who can reasonably be expected to rely on the reply,
from denying the accuracy of the information contained in the reply to the extent that the debtor or other person reasonably relies on it.
(11)	The person to whom an information request is made under this regulation may require payment in advance of the prescribed fee for each request.

18. Request for information from secured party
Paragraphs 3.188-3.197. Note that a secured party who fails to comply with its duties under this regulation may be liable in damages: DR 71 (Entitlement to damages for breach of obligations).

PART 3
PERFECTION AND PRIORITIES
Perfection
Perfection of security interest
19.	 A security interest is perfected when—
(a)	it has attached (see regulation 15), and
(b)	all the steps (if any) required for perfection by one of the methods listed in regulation 23 have been completed,
regardless of the order of occurrence. 

19. Perfection of security interest
Paragraphs 3.86-3.91; on ‘regardless of the order of occurrence’, compare DR 48(2), which provides that a filing may be made before or after the making of a security agreement or attachment of an SI, see paragraphs 2.53-2.54 and 3.138-3.139.

Consequences of not perfecting
20.	—(1) A security interest in collateral is not effective against an administrator or liquidator if it is not perfected before the onset of insolvency.
(2)	 “Onset of insolvency” means—
(a)	if an administrator of a company is appointed by administration order, the date on which the administration application is made,
(b)	if an administrator of a company is appointed under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986() (appointment of administrator by the holder of a qualifying floating charge, or by the company or its directors) following filing with the court of a copy of a notice of intention to appoint under that paragraph, the date on which the copy of the notice is filed,
(c)	if an administrator of a company is appointed otherwise than under sub-paragraph (a) or (b), the date on which the appointment takes effect, 
(d)	if a company goes into liquidation, the date of the commencement of the winding-up.
(3)	A security interest in collateral is subordinate to the interest of a person—
(a)	who causes the collateral to be seized in accordance with due process to enforce a judgment, including execution, attachment or garnishment, or 
(b)	who has obtained a charging order or equitable execution which affects or relates to the collateral, 
if the security interest is not perfected at the time that person’s interest arises. 
(4)	A security interest in collateral is subordinate to the interest of a transferee who— 
(a)	acquires the interest under a transaction which is not a security agreement, 
(b)	gives value, 
(c)	if the collateral is tangible, takes possession or delivery of it, and 
(d)	acquires the interest without knowledge of the security interest,
before the security interest is perfected. 
(5)	For the purposes of paragraph (4), a purchaser of an instrument  or the holder of a negotiable document of title, who acquired the instrument or negotiable document of title in a transaction which was in the ordinary course of the transferor's business has knowledge of the security interest only if the purchaser or holder acquired the interest with knowledge—
(a)	of the existence of the security interest, and 
(b)	that the transaction violates the terms of the security agreement creating or providing for the security interest.

20. Consequences of not perfecting
Paragraphs 3.151-3.153; see also DR 33 (Residual priority rules). On DR 20(3) see paragraphs 3.250-3.252. Note that DR 20(4) deals with priority of an unperfected SI against a transferee; compare DRs 31 and 32, which deals also with perfected SIs and transferees.

Perfection: additional provisions about investment property, supporting obligations and promissory notes
21.	—(1) Perfection of a security interest in a securities account also perfects a security interest in the security entitlements carried in the securities account. 
(2)	Perfection of a security interest in a commodity account also perfects a security interest in the commodity contracts carried in the commodity account.
(3)	A security interest arising in the delivery of a financial asset under regulation 16(3) (automatic security interest in favour of securities intermediary etc) is perfected when it attaches.
(4)	A security interest created by a securities intermediary in investment property is perfected when it attaches.
(5)	A security interest in a commodity contract or a commodity account created by a commodity intermediary is perfected when it attaches.
(6)	Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.
(7)	
21. Perfection: additional provisions about investment property, supporting obligations and promissory notes
DRs 21(1), (2) and (6) deal with cases in which perfection of an SI over one piece of collateral results in an SI being perfected over another – though in the case of (1) and (2), securities and commodities accounts are really no more than shorthand for the assets held in the account: see paragraph 4.34 note 38. On DR 21(5) see DR 2(1), ‘supporting obligations’, above.

DR 21(3), (4), (5) and (7) are other instances of ‘automatic perfection’: see paragraph 3.96. On DR 21(3) see DR 16 above; on DR 21(4) see paragraphs 4.59-4.61; on DR 21(5) see paragraph 4.90; and on DR 21(7) see paragraphs 3.44-3.48.

The sale of a promissory note is perfected when it attaches.

Continuity of perfection
22.	 A security interest is continuously perfected if it is—
(a)	originally perfected, and
(b)	later perfected in another way,
without an intermediate period when it is unperfected.

22. Continuity of perfection
Paragraph 3.91. Continuity of perfection relates to priority, see, for example, DR 33 (Residual priority rules).

Methods of perfection
23.	  Subject to these Regulations, a security interest may be perfected by any of the following methods—
(a)	by filing a financing statement under Part 4 (filing),
(b)	under regulation 13 (territorial application: security interest in certain goods brought into jurisdiction),
(c)	under regulation 21 (perfection: additional provisions about investment property, supporting obligations and  promissory notes),
(d)	by possession under regulation 24 (possession),
(e)	under regulation 25 (perfection: goods in possession of bailee),
(f)	by delivery under regulation 26 (perfection of certificated security by delivery),
(g)	by control under regulation 6 and 27 (investment property) or under regulation 7 (bank accounts),
(h)	under regulation 28 (perfection by possession or delivery continues temporarily if collateral made available to debtor),
(i)	under regulation 39 (perfection: proceeds).

23. Methods of perfection
Paragraphs 3.92-3.113. This draft regulation acts in part as an index to other provisions that deal with the particular methods of perfection. 

Perfection by possession
24.	—(1) A security interest in—
(a)	goods,
(b)	an instrument,
(c)	a negotiable document of title, or
(d)	money,
may be perfected by possession of the collateral by a secured party or its agent.
(2)	But a secured party does not have possession of collateral if it is in the possession of the debtor or debtor’s agent.

24. Perfection by possession
Paragraphs 3.99-3.102. ‘Possession’ is not defined: it will include cases in which the secured party has various forms of constructive possession, such as when it is given the keys to a warehouse where collateral is stored. However, attornment to the secured party by a bailee does not amount to possession: see DR 25. A party in possession of collateral may be under various duties to preserve it, etc.: see DR 17 (Preservation and use of collateral).

Perfection: goods in possession of bailee
25.	—(1) A security interest in goods in the possession of a bailee may be perfected by—
(a)	the bailee’s attorning to the secured party,
(b)	the issue of a document of title by the bailee in the name of the secured party, or
(c)	the perfection of a security interest in a negotiable document of title to the goods where the bailee has issued one. 
(2)	The issue of a negotiable document of title covering goods does not preclude any other security interest in the goods from arising during the period that the negotiable document of title is outstanding. 
(3)	A perfected security interest in a negotiable document of title covering goods takes priority over a security interest in the goods otherwise perfected after the goods become covered by the negotiable document of title.

25. Perfection: goods in possession of bailee
Paragraphs 3.103-3.104.

Perfection of certificated security by delivery
26.	—(1) A secured party may perfect a security interest in a certificated security by taking delivery of the security certificate.
(2)	 A security interest in a certificated security remains perfected by delivery until the debtor obtains possession of the security certificate.
(3)	A purchaser takes delivery of a certificated security when—
(a)	the purchaser acquires possession of the security certificate,
(b)	another person, other than a securities intermediary, either—
(i)	acquires possession of the security certificate on behalf of the purchaser, or
(ii)	having previously acquired possession of the security certificate, acknowledges that the person holds the certificate for the purchaser, or
(c)	a securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the security certificate is in registered form and is—
(i)	registered in the name of the purchaser,
(ii)	payable to the order of the purchaser, or
(iii)	
26. Perfection of certificated security by delivery
Paragraphs 4.40-4.47; and on DR 26(2), paragraph 4.69.

specially endorsed to the purchaser by an effective endorsement, and has not been endorsed to the securities intermediary or in blank.
Perfection by control of investment property
27.	—(1) A security interest in investment property may be perfected by control of the collateral,  if the security agreement which creates or provides for the security interest is evidenced in writing.
(2)	A security interest in investment property is perfected by control from the time the secured party obtains control and remains perfected by control until the secured party does not have control and one of the following occurs—
(a)	if the collateral is a certificated security, the debtor has or acquires possession of the security certificate,
(b)	if the collateral is an uncertificated security, the issuer or operator has registered or registers the debtor as the registered owner, or
(c)	if the collateral is a security entitlement, the debtor is or becomes the entitlement holder.

27. Perfection by control of investment property
An SI over investment property may be perfected by control: paragraph 4.29.

Perfection by possession or delivery continues temporarily if collateral made available to debtor
28.	—(1) This regulation applies to a security interest perfected under regulation 24 or 26 (by possession or delivery) in an instrument or a certificated security which a secured party delivers to the debtor for the purpose of—
(a)	sale or exchange, 
(b)	presentation, collection, enforcement, renewal, or registration of a transfer.
(2)	  This regulation also applies to a security interest perfected under regulation 25 (perfection: good is possession of bailee) in—
(a)	a negotiable document of title, or 
(b)	goods held by a bailee that are not covered by a negotiable document of title, 
if the secured party makes the document of title or goods available to the debtor for any of the purposes mentioned in paragraph (3).
(3)	The purposes are— 
(a)	sale or exchange,
(b)	loading, unloading, storing, shipping, transhipping, manufacturing, processing, packaging or otherwise dealing with goods in a manner preliminary to their sale or exchange.
(4)	A security interest to which this regulation applies remains perfected for [15] business days after the collateral is made available to the debtor.
(5)	
28. Perfection by possession or delivery continues temporarily if collateral made available to debtor
Paragraphs 3.108-3.112.

After the expiry of that period, perfection depends on compliance with the other provisions of these Regulations relating to the perfection of a security interest.

Perfection: proceeds
29.	—(1) Subject to these Regulations, if collateral is dealt with or otherwise gives rise to proceeds, the security interest—
(a)	continues in the collateral, unless the secured party authorises the dealing free of the security interest (whether expressly or impliedly), and
(b)	attaches to the proceeds.
(2)	But where the secured party enforces a security interest against both the collateral and the proceeds, the amount secured by the security interest in the collateral and the proceeds is limited to the market value of the collateral at the date of the dealing.
(3)	Paragraph (2) does not apply if both the collateral and proceeds are investment property. 
(4)	A security interest in proceeds is continuously perfected if the security interest in the original collateral is perfected by the filing of a financing statement which— 
(a)	contains a description of the proceeds that would be sufficient to perfect a security interest in original collateral of the same kind,
(b)	covers the original collateral, if the proceeds are of a kind that are within the description of the original collateral, or 
(c)	covers the original collateral, if the proceeds consist of money, cheques, deposits in or money credited to a bank account, or insurance payments.
(5)	If the security interest in the original collateral is perfected in a manner other than a manner described in paragraph (4), the security interest in the proceeds is a continuously perfected security interest and remains perfected for [10] business days after the security interest in the original collateral attaches to the proceeds.
(6)	But after the expiry of that period, the security interest in the proceeds is subject to the provisions of these Regulations relating to the perfection of a security interest in original collateral of the same kind as the proceeds.

29. Perfection: proceeds
Paragraphs 3.182-3.187. On DR 29(2) and (3) see paragraph 3.184: we would welcome views on whether DR 29(2) and (3) are necessary or desirable.

Goods returned or repossessed
30.	—(1) Where a debtor sells or leases goods which are subject to a security interest in circumstances in which the buyer or lessee takes free of the security interest in accordance with regulation 29(1)(a) (perfection: proceeds) or 31 (circumstances in which buyer or lessee takes free of security interest), the security interest reattaches to the goods if—
(a)	the goods are returned to, seized or repossessed by the debtor, and 
(b)	the obligation secured remains unpaid or unperformed. 
(2)	Where a security interest reattaches under paragraph (1), the perfection of the security interest and the time of filing or perfection are determined as if the goods had not been sold or leased, if— 
(a)	the security interest was perfected by filing at the time of the sale or lease, and 
(b)	the filing is effective at the time of the return, seizure or repossession.
(3)	Where a sale or lease of goods creates an account and— 
(a)	the account is transferred to a secured party, and 
(b)	the goods are returned to, seized or repossessed by the debtor,
the transferee of the account has a security interest in the goods which attaches when the goods are returned, seized or repossessed. 
(4)	A security interest in goods which a transferee of an account has under paragraph (3) is subordinate to a perfected security interest arising under paragraph (1). 
(5)	A security interest in goods given by a buyer or lessee of the goods mentioned in paragraph (1) which—
(a)	attaches while the goods are in the possession of the buyer, lessee or debtor, and
(b)	is perfected when the goods are returned, seized or repossessed,
has priority over a security interest in the goods arising under this regulation.

30. Goods returned or repossessed
Paragraphs 3.83-3.85. We would welcome views on whether this draft regulation is necessary or desirable.

Circumstances in which buyer or lessee takes free of security interest
31.	—(1) In this regulation— 
(a)	“buyer” includes a person who obtains vested rights in goods under a contract to which the person is a party, as a consequence of the goods becoming a fixture or an accession to property in which the person has an interest, and
(b)	“seller” includes a person who supplies goods that become a fixture or an accession under a contract with a buyer of goods or with a person who is party to a contract with a buyer of goods.
(2)	Paragraph (3) applies to goods sold by a seller or leased by a lessor—
(a)	in the ordinary course of business, and
(b)	whose business normally involves selling or (as the case may be) leasing goods of the type in question.
(3)	A buyer or lessee of goods who obtains possession of the goods takes free of any perfected or unperfected security interest—
(a)	which is given by the seller or lessor, or 
(b)	which arises under regulation 29 (perfection: proceeds) or 30 (goods returned or repossessed), 
unless the buyer or lessee knows that the sale or lease constitutes a breach of the security agreement under which the security interest was created.
(4)	Paragraph (5) applies if a person—
(a)	buys goods for a purchase price of [£1000] or less, or
(b)	leases goods with a market value of [£1000] or less, 
primarily for personal, family or household purposes.
(5)	The person takes free of a perfected or unperfected security interest in the goods if the person takes possession of the goods and—
(a)	gave value for the interest acquired, and
(b)	bought or leased the goods without knowledge of the security interest.
(6)	A buyer or lessee of goods who obtains possession of the goods takes free of a security interest which remains perfected for a period of [15] business days under regulation 28(4) (perfection by possession continues temporarily if collateral made available to debtor) or 29(5) (perfection: proceeds) if, during that period, the buyer or lessee—
(a)	gave value for the interest acquired, and
(b)	bought or leased the goods without knowledge of the security interest. 
(7)	Paragraph (8) applies only to goods which are equipment of a type in relation to which a unique identifying number has been prescribed.
(8)	 A buyer or lessee of goods who obtains possession of the goods takes free of any security interest in the goods which is perfected by filing under Part 4 if— 
(a)	the buyer or lessee bought or leased the goods without knowledge of the security interest, and 
(b)	the goods were not described by unique identifying number in the filing relating to the security interest.
(9)	A sale or lease to which any of the preceding paragraphs applies may be— 
(a)	for cash,
(b)	by exchange for other property, or 
(c)	on credit,
and includes delivering goods or a document of title under a pre-existing contract for sale, but does not include a transfer which secures, or which is in total or partial satisfaction of, a money debt or antecedent liability.

31. Circumstances in which buyer or lessee takes free of security interest
Paragraphs 3.257-3.263. On DR 31(2)-(3) see paragraphs 3.258-3.260; on DR 31(4)-(5) see paragraphs 3.261-3.262; on DR 31(6) see paragraph 3.109; on DR 31(7)-(8) see paragraph 3.263.

See also DR 20(4), which has the effect that a buyer or lessee for value and without knowledge of an unperfected SI will take free of it.

Purchaser takes free: additional provisions about investment property
32.	—(1) A purchaser of a certificated security or an uncertificated security who—
(a)	gives value,
(b)	does not know that the sale constitutes a breach of a security agreement in which a security interest was created or provided for in the security, and
(c)	obtains control of the security,
acquires the security free of the security interest.
(2)	A person who acquires a security entitlement in a financial asset and becomes the entitlement holder—
(a)	for value, and
(b)	who does not know that the acquisition constitutes a breach of a security agreement that creates or provides for a security interest in the financial asset or in a security entitlement in the financial asset, 
acquires the security entitlement free of such security interest.
(3)	 A person who acquires a security entitlement in a financial asset is not required to enquire whether—
(a)	a security interest has been granted in the financial asset or in a security entitlement in the financial asset, or 
(b)	the acquisition constitutes a breach of a security agreement.

32. Purchaser takes free: additional provisions about investment property
Paragraphs 4.21-4.24, 4.72 and 4.80.

Priorities
Residual priority rules
33.	—(1) The following rules apply if these Regulations do not otherwise determine priority between conflicting security interests.
Rule 1: a perfected security interest has priority over an unperfected security interest.
Rule 2: priority between perfected security interests is determined by the first to file or perfect.
Rule 3: priority between unperfected security interests is determined by the order of attachment.
Rule 4: a transferee of a security interest has the same priority with respect to perfection of the security interest as the transferor had at the time of transfer.
Rule 5: a security interest in a supporting obligation has the same priority as the security interest in the principal obligation which it supports.
(2)	For the purposes of rules 1 and 2, a continuously perfected security interest is to be treated at all times as perfected by the method by which it was originally perfected.
(3)	For the purposes of rules 1 and 2, the time of filing, possession or perfection of a security interest in original collateral is also the time of filing, possession or perfection of its proceeds, subject to regulation 29 (perfection: proceeds).
(4)	For the purposes of rules 1 and 2, a security interest in equipment of a type which has a unique identifying number is not filed or perfected by filing unless a financing statement relating to the security interest and containing a description of the equipment by unique identifying number is filed.
(5)	For the purposes of rules 1 and 2, the time of filing or perfection of a security interest in collateral supported by a supporting obligation is also the time of filing or perfection of a security interest in the supporting obligation.
(6)	The priority that a security interest has under the rules applies to all advances, including future advances, whether or not made under an obligation.
(7)	Paragraph (6) applies to give a perfected security interest priority over the interests of persons mentioned in regulation 20(3) (judgment creditors etc) only to the extent of—
(a)	advances made before the interests of those persons arise or made before those persons seize the collateral or obtain a right to it, 
(b)	advances made before the secured party acquires knowledge of the interests of those persons, 
(c)	advances made under— 
(i)	a statutory requirement, or 
(ii)	a legally binding obligation owing to a person other than the debtor which was entered into by the secured party before acquiring the knowledge mentioned in sub-paragraph (b), and 
(d)	reasonable costs and expenses incurred by the secured party for the protection, preservation, maintenance or repair of the collateral.

33. Residual property rules
Paragraphs 3.198-3.203. DR 33(2) provides that a continuously perfected SI is to be treated as perfected by the method by which it was originally perfected. It should be noted that certain later specific priority rules modify the effect of this rule. In particular, an SI that has been perfected initially by filing but is perfected subsequently by control will not lose the advantages of being perfected by control by being treated as if it were perfected by filing.

On DR 33(4), see paragraph 3.203; on DR 33(1) Rule 5 and (5), see paragraphs 3.51-3.57; on DR 33(1) Rule 7, see paragraphs 3.250-3.252.

Priority rules: investment property
34.	 Subject to regulation 32 (purchaser takes free: additional provisions about investment property), the following rules govern priority between conflicting security interests in the same investment property.
Rule 1: a security interest perfected by control has priority over a security interest which is not perfected by control.
Rule 2: a security interest in a certificated security in registered form which is perfected by delivery (but not by control) has priority over a security interest perfected by any method except control.
Rule 3: subject to rules 4 and 5, conflicting security interests perfected by control rank according to the order in which control was obtained.
Rule 4: a security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities intermediary has priority over a security interest held by any other secured party.
Rule 5: a security interest held by a commodity intermediary in a commodity contract or a commodity account maintained with the commodity intermediary has priority over a conflicting security interest held by any other secured party.
Rule 6: conflicting security interests granted by a securities intermediary or commodity intermediary which are perfected otherwise than by control rank equally.
Rule 7: in all other cases, priority among conflicting security interests in investment property is governed by regulation 33 (residual priority rules).

34. Priority rules: investment property
Special rules apply to the priority of SIs over investment property that are perfected by delivery (DR 26) or by control (DR 6): see paragraphs 4.19-4.26, 4.70-4.76 and, for commodities, 4.90. DR 34 must be read with DR 32, since as a ‘protected purchaser’ a secured party may take free of an earlier SI under DR 32.

Priority rules: bank accounts
35.	—(1) The following rules govern priority between conflicting security interests in the same bank account.
Rule 1: a security interest perfected by control has priority over a security interest which is not perfected by control.
Rule 2: subject to rule 3, conflicting security interests perfected by control rank according to the order in which control was obtained.
Rule 3: if the bank itself is a secured party, the bank has priority over any other secured party except one which has taken control by becoming the account holder (see regulation 7(3)(b)).
Rule 4: in all other cases, priority among conflicting security interests in bank accounts is governed by regulation 33 (residual priority rules).
(2)	A bank may exercise any right of set-off against a secured party which holds a security interest in a bank account held with the bank unless—
(a)	the secured party has taken control of the bank account by becoming the account holder, and
(b)	the set-off is based on a claim against the debtor.

35. Priority rules: bank accounts
SIs over bank accounts may be perfected by control under DR 7; DR 35(1) provides special rules of priority. See paragraphs 4.19-4.26 and 4.122-4.126. On DR 35(2) see paragraph 4.130.

Priority rules: proceeds of letters of credit
36.	—(1) The following rules govern priority between conflicting security interests in the same proceeds of a letter of credit.
Rule 1: a security interest held by a secured party which has control of the proceeds of the letter of credit under paragraph (2) has priority to the extent of its control over a conflicting security interest held by a secured party which does not have control.
Rule 2: security interests perfected by control rank according to priority in time of obtaining control.
Rule 3: in all other cases, priority among conflicting security interests in the same proceeds of a letter of credit is governed by regulation 33 (residual priority rules).
(2)	A secured party has control of the proceeds of a letter of credit to the extent of any right to payment or performance by the issuer or any nominated person if the issuer or nominated person has consented to an assignment of proceeds of the letter of credit.
(3)	“Nominated person” means a person whom the issuer—
(a)	designates or authorises to pay, accept, negotiate or otherwise give value under a letter of credit, and
(b)	undertakes by agreement or custom and practice to reimburse.

36. Priority rules: proceeds of letters of credit
Paragraphs 4.145-4.150. On DR 36(2), see paragraph 4.141.

Priority of security interests in transferred collateral
37.	 A security interest created by a debtor is subordinate to a security interest in the same collateral created by another person (“the earlier security interest”) if—
(a)	the debtor acquired the collateral subject to the earlier security interest,
(b)	the earlier security interest was perfected when the debtor acquired the collateral, and
(c)	there is no period after the debtor acquired the collateral when the earlier security interest is unperfected.

37. Priority of security interests in transferred collateral
Paragraphs 3.238-3.246.

Protection of transferees of negotiable collateral
38.	—(1) A holder of money has priority over any perfected or unperfected security interest in it if the holder—
(a)	acquires the money without knowledge that it is subject to a security interest, or 
(b)	is a holder for value, whether or not the holder acquires the money without knowledge that it is subject to a security interest.
(2)	A creditor who receives payment of a debt owing by a debtor through a debtor-initiated payment has priority over a security interest in— 
(a)	the funds paid, 
(b)	the intangible which was the source of the payment, and 
(c)	any instrument used to effect the payment,
whether or not the creditor has knowledge of the security interest at the time of the payment. 
(3)	“Debtor-initiated payment” means a payment made by the debtor through the use of— 
(a)	an instrument or electronic funds transfer, or 
(b)	a debit, transfer order, authorisation or similar written payment mechanism executed by the debtor when the payment is made. 
(4)	A purchaser of an instrument has priority over any perfected or unperfected security interest in the instrument if the purchaser— 
(a)	gave value for the instrument, 
(b)	acquired the instrument without knowledge that it is subject to a security interest, and 
(c)	took possession of the instrument.
(5)	A holder to whom a negotiable document of title is negotiated has priority over a perfected or unperfected security interest in the document of title if the holder— 
(a)	gave value for the document of title, and 
(b)	acquired the document of title without knowledge that it is subject to a security interest.
(6)	
38. Protection of transferees of negotiable collateral
Paragraphs 3.229-3.236. On DR 38(1), see paragraph 3.323; on DR 38(2)-(3), see paragraph 3.233; on DR 38(4), see paragraphs 3.230-3.231; on DR 38(5), see paragraph 3.236.

 For the purposes of paragraphs (4) and (5), a purchaser of an instrument or a holder of a negotiable document of title who acquired it under a transaction entered into in the ordinary course of the transferor's business has knowledge only if the purchaser acquired the interest with knowledge that the transaction violates the terms of the security agreement that creates or provides for the security interest.

Priority: liens
39.	 If a person in the ordinary course of business supplies materials or services with respect to goods which are subject to a security interest, a lien that the person has with respect to those materials or services has priority over a perfected or unperfected security interest.

39. Priority: liens
Paragraph 3.249.

Priority: crops
40.	 A perfected security interest in crops growing on land has priority over a conflicting interest in the land if the debtor has an interest in or is in occupation of the land.

40. Priority: crops
Paragraphs 3.269-3.273.

Alienation of rights of debtor
41.	—(1) In this regulation, “transfer” includes—
(a)	sale, 
(b)	creation of a security interest, and
(c)	transfer pursuant to judgment enforcement proceedings.
(2)	The rights of a debtor in collateral may be transferred consensually or by operation of law, even if a provision in the security agreement prohibits transfer or declares a transfer to be a default.
(3)	But a transfer by the debtor does not prejudice the rights of the secured party under the security agreement or otherwise, including the right to treat a prohibited transfer as an act of default.

41. Alienation of rights of debtor
Paragraph 2.109 note 140. Under current law a mortgagor remains the owner of mortgaged property and is free to deal with it, subject to the rights of the mortgagee. It also constitutes property that may be available to satisfy other creditors. Under the scheme, the  debtor has similar rights under any SI. Thus if collateral is hired to the debtor by a finance company under a hire-purchase agreement, the finance company’s interest is treated as an SI only; the debtor is treated as having a property right in the collateral such that, if the SI is not perfected when the debtor becomes insolvent, the collateral may be taken by the liquidator: see DR 20(1). Similarly, quite apart from insolvency, the collateral may be seized by an execution creditor (see DR 20(3)); and the debtor may create a second SI in the collateral – an SI that, if the first SI has not been perfected by filing, will take priority but that otherwise will be junior to the earlier SI (see DR 33(1) rule 2). DR 41(2) ensures that these effects are not negated by a prohibition on transfer. As DR 41(3) provides, this does not mean that a transfer by the debtor may not be a breach of the security agreement that would enable the finance company to exercise remedies for default under Part 5 of the draft regulations. 

Priority: purchase-money security interests
42.	—(1) Paragraphs (2) to (4) are subject to regulation 29 (perfection: proceeds) and paragraphs (2) and (3) are also subject to paragraph (5).
(2)	A purchase-money security interest in— 
(a)	collateral or its proceeds, other than intangibles or inventory, which is perfected not later than [10] business days after the day on which the debtor, or (if earlier) another person at the request of the debtor, obtains possession of the collateral, or
(b)	an intangible or its proceeds which is perfected not later than [10] business days after the day on which the security interest in the intangible attaches,
has priority over any other security interest in the same collateral given by the same debtor.
(3)	A purchase-money security interest in inventory or its proceeds has priority over any other security interest in the same collateral given by the same debtor if—
(a)	the purchase-money security interest in the inventory is perfected at the time when the debtor, or (if earlier) another person at the request of the debtor, obtains possession of the collateral,
(b)	the secured party gives a notice to any other secured party who has, before the time of filing of the purchase-money security interest, filed a financing statement containing a description which includes the same item or kind of collateral, and 
(c)	the notice—
(i)	states that the person giving the notice expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory by item or kind, and 
(ii)	is given before the debtor, or (if earlier) another person at the request of the debtor, obtains possession of the collateral.
(4)	A notice under paragraph (3) may be given by sending it by registered mail to the address of the person to be notified as it appears in the financing statement mentioned in paragraph (3)(b).
(5)	A purchase-money security interest in goods and their proceeds, taken by a seller, lessor or consignor of the collateral, which is perfected—
(a)	in the case of inventory, not later than [10] business days after a debtor, or (if earlier) another person at the request of a debtor, obtains possession of the collateral, and
(b)	in any other case, at the time at which a debtor, or (if earlier) another person at the request of the debtor, obtains possession of the collateral,
has priority over any other purchase-money security interest in the same collateral given by the same debtor.
(6)	A security interest in accounts as original collateral has priority over a purchase-money security interest in the accounts as proceeds of inventory if a financing statement relating to the security interest in the accounts is filed before—
(a)	 the purchase-money security interest is perfected, or 
(b)	a financing statement relating to it is filed.
(7)	A purchase-money security interest in original collateral has priority over a purchase-money security interest in the same collateral as proceeds, if the purchase-money security interest in original collateral is perfected—
(a)	in the case of inventory, at the day on which a debtor, or another person at the request of a debtor, obtains possession of the collateral, whichever is earlier, and 
(b)	in any other case, not later than [10] business days after a debtor, or another person at the request of a debtor, obtains possession of the collateral, whichever is earlier. 
(8)	A purchase-money security interest in an item of collateral does not extend to or continue in the proceeds of the item after the obligation to pay the purchase price of the item or to repay the value given for the purposes of enabling the debtor to acquire rights in it has been discharged.

42. Priority: purchase-money security interests 
Paragraphs 3.204-3.228. On DR 42(2), see paragraphs 3.215-3.219; on DR 42(3)-(4), see paragraphs 3.213-3.214; on DR 42(5), see paragraph 3.221; on DR 42(6), see paragraphs 3.222-3.223.

Effect on priority of mistaken discharge of filing etc
43.	—(1) This regulation applies if the filing of a financing statement—
(a)	lapses as a result of failure to renew it, or
(b)	is discharged by mistake or without authorisation.
(2)	If the secured party reactivates the filing in accordance with the Rules within [30] business days after the lapse or discharge, the lapse or discharge does not affect the priority ranking of the security interest to which the lapsed or discharged filing relates as against a competing perfected security interest which, immediately before the lapse or discharge, had a subordinate priority ranking.
(3)	But paragraph (2) does not apply to the extent that the competing security interest secures advances made or contracted for after the lapse or discharge and before the reactivation of the filing.

43. Effect on priority of mistaken discharge of filing etc.
Paragraphs 3.169-3.170.

Voluntary subordination
44.	—(1) A secured party may, in a security agreement or otherwise, subordinate its security interest to any other interest.
(2)	An agreement to subordinate is effective according to its terms between the parties.
(3)	An agreement or undertaking to postpone or subordinate—
(a)	the right of a person to performance of all or any part of an obligation to the right of another person to the performance of all or any part of another obligation of the same debtor, or 
(b)	all or any part of the rights of a secured party under a security agreement to all or any part of the rights of another secured party under another security agreement with the same debtor,
does not, by virtue of the postponement or subordination alone, create a security interest.

44. Voluntary subordination
Paragraph 5.144. In the CP we discussed the position of subordination agreements, and noted that under English law in a subordination simpliciter, or complete subordination, no question of an SI arises. The undertaking to subordinate is purely personal and does not involve rights over any sums themselves: CP para 6.52.

Rights of assignees
45.	—(1) In this regulation, “assignee” includes a secured party and a receiver. 
(2)	Unless an account debtor has made an enforceable agreement not to assert defences to claims arising out of a contract, the rights of an assignee of the account are subject to— 
(a)	the terms of the contract between the account debtor and the assignor and any defence or claim arising from the contract or a closely connected contract, and 
(b)	any other defence or claim of the account debtor against the assignor which accrues before the account debtor acquires knowledge of the assignment. 
(3)	If collateral which is an account is assigned, the account debtor may make payments under the contract to the assignor— 
(a)	before the account debtor receives a notice which— 
(i)	states that the amount payable or to become payable under the contract has been assigned and that payment is to be made to the assignee, and 
(ii)	identifies the contract under which the amount payable is to become payable, or 
(b)	after—
(i)	the account debtor requests the assignee to supply proof of the assignment, and 
(ii)	the assignee fails to supply reasonable proof within [15] business days after the date of the request. 
(4)	Payment by an account debtor to an assignee under a notice mentioned in paragraph (3)(a) discharges the obligation of the account debtor to the extent of the payment. 
(5)	A term in a contract between an account debtor and an assignor which prohibits or restricts assignment of the whole of the account for money due or to become due— 
(a)	is binding on the assignor, but only to the extent of making the assignor liable in damages for breach of contract, but 
(b)	is unenforceable against third parties.

45. Rights of assignees
Paragraphs 5.31-5.39.

PART 4
FILING
The Register
46.	—(1) There is to be a register of financing statements maintained by the Registrar.
(2)	Subject to these Regulations and the Rules, the filing of a financing statement is effective for the purposes of perfecting a security interest and determining priority.
(3)	The filing of a financing statement does not create a presumption that these Regulations apply to the transaction to which the filing relates.

46. The Register
Paragraphs 3.113-3.115. The register should operate on a wholly electronic basis, see paragraph 3.114. On DR 46(3) see paragraph 3.37 note 36.

Financing statement
47.	—(1) A financing statement must be filed in accordance with the Rules.
(2)	The filing of a financing statement is ineffective unless the debtor consents to the filing.
(3)	The filing of a financing change statement which adds to the collateral covered by a financing statement is ineffective unless the debtor consents to the filing.
(4)	The filing of a financing change statement which adds a debtor to a financing statement is ineffective unless that debtor consents to the filing.
(5)	A debtor who enters into a security agreement is treated as consenting to the filing of a financing statement which relates to the collateral mentioned in the security agreement and its proceeds.
(6)	A debtor may consent to the filing of a financing statement, or be treated as consenting under paragraph (5), with retrospective effect. 
(7)	Subject to regulation 51 (errors in financing statement), a financing statement must contain the following information to be effective—
(a)	the name of the debtor,
(b)	the debtor’s registered number (if any),
(c)	the name and address of the secured party or its agent (if any),
(d)	a description of the collateral,
(e)	whether the filing is to continue indefinitely or for a specified period, and
(f)	such other matters as may be prescribed by the Rules.
(8)	If the collateral is of a type which has a unique identifying number, that number may also be included in the financing statement; and see regulation 33(4) (which modifies the residual priority rules if the unique identifying number is not included in the filing). 

47. Financing statement
Paragraphs 3.118-3.136. On DR 47(2)-(6) see paragraph 3.140. 

DR 47(7)-(8) need to be read in conjunction with DRs 48(5) and 51, which deals with the effect of errors. To be ‘accepted’ by the system and added to the register, the financing statement must contain information relating to each of the listed categories in DR 47(7). It will displayed on the register even if the information submitted is not correct. Questions relating to the accuracy of that information go to the effectiveness of a filing, rather than to whether it is accepted onto the register, see paragraph 3.135. The debtor may demand that an incorrect financing statement be corrected or removed, DR 55.

Time of filing
48.	—(1) Filing of a financing statement is effective when a date, time and financing statement number are assigned to it by the Registrar.
(2)	A financing statement may be filed—
(a)	before or after a security agreement is made, and 
(b)	before or after a security interest attaches.
(3)	A financing statement may relate to one or more security agreements.
(4)	The Registrar must not accept a filing until any prescribed fees are paid.
(5)	The Registrar must not accept a filing which does not provide information relating to each category listed in regulation 47(7).
(6)	The Registrar may remove an entry from the register if he is satisfied that it was not filed in accordance with, or for the purposes of, these Regulations.

48. Time of filing
Paragraphs 3.316 and 3.318-3.319. On DR 48(5), see paragraphs 3.118 and 3.135; on DR 48(6), see paragraph 3.136.  

Duration of filing
49.	—(1) Subject to paragraph (2), a filing continues to have effect—
(a)	indefinitely, or
(b)	if a specified period is indicated on the financing statement, for that specified period.
(2)	But a filing ceases to have effect when it is discharged.

49. Duration of filing
Paragraphs 3.130-3.132; compare DR 43 (Effect on priority of mistaken discharge of filing etc.), which applies to filings that lapse through non-renewal.

Registrar to issue verification statement
50.	—(1) As soon as reasonably practicable after the filing of a financing statement the Registrar must send a verification statement to the person making the filing.
(2)	“Verification statement” means a statement containing—
(a)	the information contained in the financing statement, 
(b)	the financing statement number,  
(c)	the date and time of filing, and 
(d)	any other prescribed data which is required to confirm the filing of a financing statement.
(3)	The secured party or person named as the secured party in the financing statement must [send] to the debtor a copy of the verification statement within [10] business days of receiving it, unless the debtor has waived in writing the right to receive a copy. 

50. Registrar to issue verification statement
Paragraphs 3.147-3.150. The debtor may demand that an incorrect financing statement be corrected, or that one which does not cover a current SI be removed, DR 55.

Errors in financing statement
51.	—(1) A financing statement is not effective if it contains a defect, irregularity, omission or error such that the existence of the security interest would not be discovered by a reasonable search under regulation 54.
(2)	A financing statement is not effective to the extent that it purports to include collateral not mentioned in any security agreement to which it may relate.
(3)	But the effectiveness of a financing statement is not otherwise affected by any defect, irregularity, omission or error.
(4)	 Nothing in paragraph (1) requires a search actually to have been carried out.
(5)	 Failure to provide a description in a financing statement in relation to any item or kind of collateral does not make the filing ineffective with respect to other collateral described in the financing statement.
(6)	Without limiting the generality of paragraph (1), a buyer of goods with a unique identifying number who searches the register using that number alone is taken to have made a reasonable search.

51. Errors in financing statement
Paragraphs 3.163 - 3.168; and see DR 47(7) and (8) above.

Renewal and amendment of filing
52.	—(1) A filing may be renewed by filing a financing change statement at any time before the filing expires and, subject to the Rules, the period of time for which the filing is effective is extended by the renewal period indicated on the financing change statement. 
(2)	
52. Renewal and amendment of filing
Paragraph 3.156.

An amendment to a filing may be effected by filing a financing change statement at any time before the filing expires, and the amendment is effective from the time when the financing change statement is filed to the expiry of the filing which is being amended. 

Filing of transfers and subordinations
53.	—(1) If a secured party with a security interest perfected by filing transfers the security interest or a part of it, a financing change statement may be filed disclosing the transfer. 
(2)	If a financing change statement is filed under paragraph (1) and an interest in part of the collateral is transferred, the financing change statement must contain a description of the collateral in which the interest is transferred. 
(3)	If a secured party transfers an interest in collateral and the security interest of the secured party is not perfected by filing, a financing statement may be filed in which the transferee is disclosed as the secured party. 
(4)	A financing statement disclosing a transfer of a security interest may be filed before or after the transfer. 
(5)	After the filing of a financing change statement disclosing a transfer of a security interest, the transferee is the secured party for the purposes of these Regulations. 
(6)	Where a security interest has been subordinated by the secured party to the interest of another person, a financing change statement may be filed to disclose the subordination at any time during the period that the filing of the subordinated interest is effective.
(7)	For the avoidance of doubt, the transferee of a security interest is not required to file a financing change statement in order to continue the perfected status of the security interest against purchasers or in the event of insolvency. 

53. Filing of transfers and subordinations
Paragraph 3.237. DR 53(6) permits the parties to a subordination agreement to amend the financing statement so that notices etc. will be sent to the (now) senior party. It is not normally necessary to perfect a subordination agreement, since it will not in itself normally amount to an SI: see DR 44.

Searches
54.	—(1) The register must be organised so as to permit searches using one or more of the following criteria—
(a)	the name of the debtor, 
(b)	the registered number of the debtor (if any),
(c)	the financing statement number,
(d)	the collateral’s unique identifying number (if any),
and any additional criteria permitted by the Rules.
(2)	A search result that purports to be authorised by the Registrar, whether printed by the Registrar or by any other person, is receivable as evidence as prima facie proof of its contents, including—
(a)	the date of filing of a financing statement to which the search result refers, and 
(b)	the order of filing of the financing statement as indicated by the financing statement number.
(3)	The Registrar must not authorise a search result until any prescribed fee is paid.

54. Searches
Paragraphs 3.171-3.174 and, on collateral with a unique identifying number, 3.176-3.180. The criteria in DR 54(1) will affect the operation of DR 51 (Errors in a financing statement).

Debtor may require financing change statement
55.	—(1) If—
(a)	a financing statement is filed, and 
(b)	one of the conditions set out in column 1 of Table 1 is satisfied, 
the debtor, or any person with an interest in property which falls within the collateral description on the financing statement, may give a notice in writing (a “requirement notice”) to the secured party.
(2)	The requirement notice must—
(a)	specify the condition which is satisfied, 
(b)	require the secured party to file a financing change statement with the effect indicated in column 2 of Table 1 relating to that condition, and
(c)	inform the secured party that failure to comply with the requirement notice may result in the person who gives the notice filing the appropriate financing change statement.
Table 1
Financing change statements
1. Condition	2. Secured party may be required to file financing change statement as shown	
That the obligations under all of the security agreements to which the financing statement relates have been performed.
	To discharge the filing.	
That the secured party has agreed to release part or all of the collateral described in the financing statement.
	To amend or discharge the filing (as the case may be) so as to reflect the terms of the agreement.	
That the description of the collateral contained in the financing statement includes an item or kind of property that is not collateral under a security agreement between the secured party and the debtor.
	To amend the collateral description in the financing statement to exclude items or kinds of property that are not collateral under a security agreement between the secured party and the debtor.
	
That no security agreement exists between the persons named in the financing statement as the secured party and the debtor.	To discharge the filing.	

(3)	If the person who gives a requirement notice is not the sole debtor, he must give a copy of the requirement notice to every other debtor to whom the financing statement relates within [5] business days of the requirement notice being given to the secured party.
(4)	The person who gives a requirement notice may file a financing change statement as requested in the requirement notice if the secured party does not, within [15] business days after the notice is issued, either—
(a)	comply with the requirement notice, or
(b)	commence proceedings for a court order to maintain the filing of the financing statement to which the notice relates and notify the person who gave the requirement notice and the Registrar accordingly.
(5)	If the Registrar receives notification under paragraph (4)(b) of the commencement of proceedings, he must as soon as reasonably practicable amend the entry on the register relating to the financing statement in question to show that it is the subject of a dispute.
(6)	On application to the court by a secured party, the court may order that the filing— 
(a)	be maintained on any condition and for any period of time that the court considers appropriate, subject to regulations 49 and 52 (duration, renewal and amendment of filing), or 
(b)	be discharged or amended;
and the Registrar must amend the entry on the register relating to the financing statement accordingly.
(7)	If a court order maintaining the filing is not obtained with [90] business days of the commencement of proceedings, the person who gave the requirement notice may file a financing change statement as requested in the requirement notice as if the secured party did not comply with paragraph (4).
(8)	Notices under this regulation must be given in the prescribed manner.

55. Debtor may require financing change statement
Paragraphs 3.157-3.160. If the Registrar receives notification that court proceedings have been commenced, an indication that the financing statement is the subject of a dispute will be entered on the register. How this is done is left to the Rules. We anticipate that, when a search is made, a warning box will appear that the status of the financing statement is disputed. Further enquiries should then be made, see paragraph 3.159. The effectiveness of the filing is not otherwise affected by the fact that there is a dispute. 

PART 5
RIGHTS AND REMEDIES ON DEFAULT 
Application of this Part
56.	—(1) This Part, except regulation 60(5) (duty to act in commercially reasonable manner as to collection of outright sales of receivables on a recourse basis etc), does not apply to security interests falling within regulation 3(3) (certain arrangements which do not secure payment or performance of an obligation).
(2)	A secured party may enforce its personal rights under the obligation secured by the security interest, and may seek to execute any judgment against the debtor’s property, including the collateral over which it has the security interest, without extinguishing the security interest; and a  secured party who obtains collateral in this way is treated, for the purposes of determining priority, as if it had obtained the collateral by enforcing its security interest.
(3)	This Part is without prejudice—
(a)	to any agreement in a financial collateral arrangement, within the meaning of the Financial Collateral Arrangements (No. 2) Regulations 2003(), which enables the collateral-taker to act as envisaged by regulation 17 of those Regulations (no requirement to apply to court to appropriate financial collateral under a security financial collateral arrangement), provided that regulation 18 of those Regulations (duty to value collateral and account for any difference in value on appropriation) is complied with, and
(b)	to any contractual right to retain, appropriate or dispose of financial collateral under a title transfer financial collateral arrangement, within the meaning of those Regulations.
(4)	 This Part is also without prejudice to—
(a)	judicial remedies otherwise available to enforce the rights of the parties, and
(b)	Admiralty practice relating to the enforcement of mortgages of, and charges on, ships and interests in ships.

56. Application of this Part
Part 5 of the draft regulations does not apply to ‘deemed’ SIs, save for DR 60(5), which deals with the obligation to act in a commercially reasonable manner when collecting on an outright sale of a receivable, see paragraph 5.10. On DR 56(2), see paragraph 5.96. Part 5 of the draft regulations is without prejudice to certain financial collateral arrangements: DR 56(3), see paragraphs 5.121-5.125. On DR 56(4) see paragraphs 3.334-3.336, 5.14 and 5.48.

Overlap with security over land
57.	—(1) Subject to any other enactment or rule of law to the contrary, if the same obligation is secured by an interest in land and a security interest to which these Regulations apply, the secured party may—
(a)	proceed under this Part as to the collateral, without limiting the secured party's rights, remedies and duties with respect to the land, or 
(b)	proceed as to both the land and the collateral, in which case—
(i)	the secured party's rights, remedies and duties with respect to the land apply to the collateral, with any necessary modification, as if the collateral were land, and 
(ii)	this Part does not apply.
(2)	Paragraph (1)(b) does not limit the rights of a secured party who has a security interest in the collateral which is taken before or after the security interest mentioned in paragraph (1), and the secured party—
(a)	has standing in proceedings taken in accordance with paragraph (1)(b), and 
(b)	may apply to the court for the conduct of a judicially supervised sale under paragraph (1)(b), and the court may grant the application. 
(3)	Paragraph (4) applies for the purpose of distributing the amount received from the sale of the land and collateral if the purchase price is not allocated to the land and the collateral separately.
(4)	 The amount of the total price which is attributable to the sale of the collateral is the proportion of the total price that the market value of the collateral at the time of sale bears to the market value of the land and the collateral at the time of the sale.

57. Overlap with security over land
Paragraphs 5.15-5.16.

Receivers
58.	—(1) A security agreement may provide for the appointment of a receiver and, except as provided in these Regulations or any other enactment, for the rights and duties of a receiver. 
(2)	The rights, powers and duties of a secured party under this Part and regulation 17 (preservation and use of collateral) apply equally when the secured party acts through a receiver.

58. Receivers
Paragraphs 5.99-5.101. The draft regulations do not otherwise include rules about the powers of receivers: paragraphs 5.114-5.118.

Rights and remedies
59.	—(1) If the debtor is in default under a security agreement then, except as provided in paragraphs (3) to (5), the secured party has only—
(a)	the rights and remedies provided in the security agreement,
(b)	the rights, remedies and obligations provided in this Part, and
(c)	the rights, remedies and obligations provided in regulation 17 (preservation and use of collateral) if the secured party is in possession or control of the collateral;
and these rights and remedies are cumulative, and may be exercised simultaneously so long as they are not mutually incompatible and simultaneous exercise is not commercially unreasonable. 
(2)	If the debtor is in default under a security agreement, the debtor has as against the secured party—
(a)	the rights and remedies provided in the security agreement,
(b)	the rights and remedies provided in this Part and in regulation 17, and 
(c)	the rights and remedies provided by any other enactment which is not inconsistent with these Regulations;
and these rights and remedies are cumulative, and may be exercised simultaneously so long as they are not mutually incompatible and simultaneous exercise is not commercially unreasonable. 
(3)	The following provisions, to the extent that they give rights to the debtor or impose obligations on the secured party, cannot be waived or varied by agreement or otherwise—
paragraph (5) of this regulation (provision void if purports to exclude duty or limit liability)
regulation 60(5) (duty to act in commercially reasonable manner as to collection of outright sales of receivables etc)
regulation 60(6) (duty to apply non-cash proceeds in commercially reasonable manner)
regulation 62 (disposal of collateral)
regulation 63 (disposal of collateral: requirement to give notice)
regulation 64 (calculation of surplus or deficiency in disposition to secured party etc)
regulation 65(1) and (2) (distribution of surplus)
regulation 67 (acceptance of collateral in full or partial satisfaction of obligation)
regulation 68 (redemption).
(4)	The parties to a security agreement may, by agreement, determine the standards which fulfil the rights of a debtor or obligations of a secured party under a provision mentioned in paragraph (3), provided that the standards are not manifestly unreasonable.
(5)	Except as otherwise provided in these Regulations, a provision in a security agreement or any other agreement is void if it purports—
(a)	to exclude any duty or obligation imposed by these Regulations, or 
(b)	to limit the liability of, or the amount of damages recoverable from, a person who has failed to discharge any duty or obligation imposed by these Regulations.

59. Rights and Remedies
Paragraphs 5.96-5.97. Certain provisions of Part 5 are mandatory, as set out in DR 59(3): see paragraphs 5.156-5.171. The parties may nonetheless agree the standards which fulfil the rights of the debtor or the obligations of the secured party under those mandatory provisions, provided that the standards agreed are not manifestly unreasonable (DR 59(4)): paragraphs 5.136-5.137. On DR 59(5) see paragraphs 5.166-5.169; DR 71(1).

Collection rights of secured party
60.	—(1) In this regulation, “relevant debtor” means an account debtor or person liable to pay on an instrument or investment property.
(2)	In the event of default under a security agreement, a secured party is entitled—
(a)	to notify the relevant debtor to make payment to the secured party, whether or not the secured party was making collections on the collateral before the notification,
(b)	to any proceeds to which the secured party is entitled under regulation 29 (perfection: proceeds), and
(c)	to apply any money, account or instrument in the form of a debt obligation taken as collateral to the satisfaction of the obligation secured by the security interest,
and any surplus must be dealt with in accordance with regulation 65 (distribution of surplus).
(3)	In the event of default under a security agreement, a secured party who holds a security interest in a bank account—
(a)	perfected by control under regulation 7(2) (secured party is bank), may apply the balance of the bank account to the obligation secured by the bank account, or
(b)	perfected by control under regulation 7(3) (control agreement or secured party has become account holder), may instruct the bank to pay the balance of the bank account to or for the benefit of the secured party.
(4)	A secured party may deduct reasonable expenses of collection from—
(a)	amounts collected under paragraph (2) or (3) from a relevant debtor, or
(b)	money held as collateral.
(5)	A secured party must proceed in a commercially reasonable manner if the secured party— 
(a)	undertakes to collect from or enforce an obligation of a relevant debtor, and
(b)	is entitled to charge back uncollected collateral or is otherwise entitled to full or limited recourse against the relevant debtor or a guarantor of the debt.
(6)	A secured party need not apply or pay over for application non-cash proceeds of collection and enforcement under this regulation unless the failure to do so would be commercially unreasonable; but a secured party who does apply or pay over for application non-cash proceeds must do so in a commercially reasonable manner.

60. Collection rights of secured parties
Paragraphs 5.49-5.53. The obligation, imposed by DR 60(5), to collect from an account debtor or person liable to pay on an instrument or investment property in a commercially reasonable manner, applies to both ‘in-substance’ SIs and ‘deemed’ SIs: see DR 56(1).

Rights of secured party
61.	—(1) This regulation applies on default under a security agreement, subject to any other enactments requiring prior notice.
(2)	The secured party has, unless otherwise agreed, the right to take possession of the collateral or otherwise enforce the security agreement.
(3)	The secured party may—
(a)	disable equipment without removing it from the debtor’s premises, and 
(b)	may dispose of collateral on the debtor’s premises.
(4)	Disposal under paragraph (3) must not cause the person in possession of the premises any greater inconvenience and cost than is necessarily incidental to the disposal.
(5)	If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.
(6)	Without prejudice to any other enactment, if the exercise of the powers under this regulation requires the secured party to enter premises occupied by a person other than the debtor, the secured party must obtain a court order permitting entry, unless the occupier consents.
(7)	If the collateral is a document of title, the secured party may proceed either as to the document of title or as to the goods covered by it, and a method of enforcement which is available with respect to the document of title is also available, with any necessary modification, with respect to the goods covered by it.

61. Rights of secured party
On DR 61(2) and (7), see paragraphs 5.54-5.57; on DR 61(3)-(4), and (6)), see paragraphs 5.58-5.60; on DR 61(5), see paragraph 5.61.

Disposal of collateral
62.	—(1) On default under a security agreement, a secured party may dispose of collateral—
(a)	in its existing condition, or 
(b)	after repair, processing or preparation for disposition.
(2)	Collateral may be disposed of—
(a)	by public sale, including public auction or competitive tender, or
(b)	by private sale.
(3)	Collateral may be disposed of—
(a)	as a whole or in commercial units or parts,
(b)	by lease, licence or other disposition.
(4)	The secured party may delay disposition of the collateral in whole or in part.
(5)	The payment for the collateral being disposed of may be deferred.
(6)	Every aspect of a disposition of collateral must be commercially reasonable, including—
(a)	any repair, processing or preparation carried out before disposition, and
(b)	the method, manner, time, place and other terms.
(7)	The secured party may purchase collateral—
(a)	at a public sale, or
(b)	at a private sale only if the collateral is of a kind which is customarily sold on a recognised market or the subject of widely distributed standard price quotations;
and regulation 64 (calculation of surplus or deficiency in disposition to secured party etc) applies in relation to such a purchase.
(8)	If a secured party disposes of collateral to a purchaser who acquires the interest for value and in good faith without notice, the purchaser acquires the collateral free of—
(a)	the interest of the debtor;
(b)	an interest subordinate to that of the debtor, and
(c)	an interest subordinate to that of the secured party,
whether or not the requirements of this regulation and regulation 63 (disposal of collateral: requirement to give notice) have been complied with by the secured party, and all obligations secured by the subordinate interests are deemed to be performed for the purposes of regulation 55 (debtor may require financing change statement).
(9)	The proceeds of the disposition must be applied consecutively to—
(a)	the reasonable expenses of seizing, repossessing, holding, repairing, processing or preparing for disposition and disposing of the collateral and any other reasonable expenses incurred by the secured party, and
(b)	the satisfaction of the obligations secured by the security interest of the party making the disposition,
and any surplus must be dealt with in accordance with regulation 65 (distribution of surplus).
(10)	A person—
(a)	who is liable to a secured party pursuant to a guarantee, endorsement, covenant, repurchase agreement or the like, and 
(b)	who receives a transfer of collateral from the secured party or who is subrogated to the rights of the secured party,
has thereafter the rights and duties of the secured party, and the transfer of collateral is not a disposition of the collateral.
(11)	Notwithstanding any other provision of this Part, where the collateral is a licence, the collateral may be disposed of only in accordance with the terms and conditions under which the licence was granted or which otherwise pertain to it.

62. Disposal of collateral
Paragraphs 5.62-5.72 and 5.87. On DR 62(6) see paragraphs 5.65-5.66. The secured party itself may purchase collateral in certain cases (DR 62(7)); in this case DR 64 (Calculation of surplus or deficiency in disposition to secured party) applies, see paragraphs 5.71-5.72. On DR 62(8) see paragraph 5.87; on DR 62(9), see paragraph 5.20 note 22. 

Disposal of collateral: requirement to give notice
63.	—(1) Prior to disposing of collateral the secured party must give reasonable written notice to—
(a)	the debtor or any other person who is known by the secured party to be an owner of the collateral,
(b)	a person with a security interest in the collateral if, before the day on which the notice of disposition is given to the debtor, that person has filed a financing statement covering the relevant collateral according to—
(i)	the name of the debtor, or 
(ii)	the collateral’s unique identifying number (if any),
(c)	any person who has given an indemnity or guarantee for the debt, if the secured party knows that one exists and knows the name and address of the person, and
(d)	any other person with an interest in the collateral who has given a written notice to the secured party of that person’s interest in the collateral prior to the day on which the notice of disposition is given to the debtor.
(2)	For the purposes of paragraph (1), a notice is sufficient if it states—
(a)	the name of the debtor or party who owns the collateral,
(b)	the name of the secured party and an address at which it may be contacted before the disposition,
(c)	the collateral to be sold or otherwise disposed of,
(d)	the intended method of disposition,
(e)	the time and date of any sale or after which any other disposition will be made.
(3)	For the purposes of paragraph (1), a notice is sufficient if given at least [10] business days prior to the proposed disposition of collateral.
(4)	Notice is not required under paragraph (1) if—
(a)	the collateral is perishable or will quickly depreciate,
(b)	the cost of care and storage of the collateral is disproportionately large in relation to its value,
(c)	the collateral is fungible and of a type customarily sold on an organised market,
(d)	the collateral is money authorised or adopted by a foreign government as part of its currency, or
(e)	for any other reason, a court is satisfied that a notice under paragraph (1) is not required.
(5)	The secured party need not notify a person who would otherwise be entitled to receive a notice under paragraph (1) if, after default, that person consents in writing to the disposition of the collateral without compliance with the notice requirements of this regulation.
(6)	An application to court for the purposes of paragraph (4)(e) may be made without notice.

63. Disposal of collateral: requirement to give notice
Paragraphs 5.73-5.86.

Calculation of surplus or deficiency in disposition to secured party etc
64.	—(1) This regulation applies if—
(a)	collateral is transferred to the secured party or a related person or a guarantor of the debt, and 
(b)	the amount of the proceeds of the disposition is significantly below the amount that a disposition under regulation 62 (disposal of collateral) to a person other than a secured party or related person would have brought.
(2)	The surplus or deficiency following a disposition must be calculated based on the amount of proceeds that would have been realised in a disposition under regulation 62 to a transferee other than a secured party or related person or a guarantor of the debt.
(3)	“Related person” means—
(a)	a person connected with a secured party which is a company, or 
(b)	an associate of a secured party which is not a company;

64. Calculation of surplus or deficiency in disposition to secured party etc. 
Paragraph 5.171.

and “person connected” and “associate” have the meanings given in the Insolvency Act 1986().

Distribution of surplus
65.	—(1) Paragraph (2) applies if—
(a)	a security agreement secures an indebtedness, and 
(b)	the secured party has collected on the collateral under regulation 60 (collection rights of secured party) or has disposed of it in accordance with regulation 62 (disposal of collateral) or otherwise.
(2)	Any surplus must, unless otherwise provided by law or by the agreement of all interested parties, be accounted for and paid in the order set out in Table 2 or be paid into court.
Table 2
Order of priority for distribution of surplus
Priority	Description	
1st 	A person who has a subordinate security interest in the collateral and who has given a written notice of the interest to the secured party prior to the distribution. 	
2nd 	The debtor or any other person who is known by the secured party to be an owner of the collateral.	

(3)	But the priority of the claim of any person is not prejudiced by payment to anyone under this regulation.
(4)	If the surplus has been paid into court, a person who claims an entitlement to it may make an application to court for payment.
(5)	
65. Distribution of surplus.
Paragraphs 5.18-5.28; compare DR 62(7), above.

A secured party need not apply or pay over for application non-cash proceeds of disposition under regulation 62 (disposal of collateral) unless the failure to do so would be commercially unreasonable; but a secured party who does apply or pay over for application non-cash proceeds must do so in a commercially reasonable manner.

Deficiency
66.	 Except as otherwise agreed or as otherwise provided in these Regulations or any other enactment, the debtor is liable to pay the amount of any deficiency to the secured party.

66. Deficiency
Paragraph 5.29.

Acceptance of collateral in full or partial satisfaction of obligation
67.	—(1) A secured party may accept collateral in full or partial satisfaction of the obligation secured by it if—
(a)	the secured party gives reasonable written notice to the debtor and the interested parties, 
(b)	the debtor consents under paragraph (4) or (5), and
(c)	the secured party does not receive effective notice of objection to the proposal from—
(i)	any of the interested parties, or 
(ii)	any other person holding an interest in the collateral subordinate to the interest which is the subject of the proposal.
(2)	The “interested parties” are—
(a)	any person known by the secured party to be an owner of the collateral (other than the debtor),
(b)	any person who has given written notice of an interest in the collateral to the secured party before the debtor consented to the acceptance,
(c)	any other secured party who, at least [10] business days before the debtor consented to the acceptance, filed a financing statement using the name of the debtor, the collateral or the collateral’s unique identifying number (if any), and
(d)	a guarantor of a debt, if the proposed acceptance of collateral is in partial satisfaction of the obligation secured by the guarantee.
(3)	For the purposes of paragraph (1), a notice is sufficient if it states—
(a)	the name of the debtor or party who owns the collateral,
(b)	the name of the secured party and an address at which it may be contacted before it accepts the collateral in full or partial satisfaction under this regulation,
(c)	the collateral to be so accepted,
(d)	the amount secured by the collateral, where the secured party proposes to accept the collateral in full satisfaction, 
(e)	the amount of the obligation secured which will be discharged, where the secured party proposes to accept the collateral in partial satisfaction.
(4)	A debtor consents to the acceptance of collateral in full or partial satisfaction of the obligation secured by it if he agrees to the terms of the acceptance in writing after default.
(5)	A debtor is taken to consent to the acceptance of collateral in full satisfaction of the obligation secured by it if the secured party—
(a)	sends to the debtor after default a proposal which is unconditional or subject only to a condition that collateral not in possession of the secured party be preserved or maintained,
(b)	proposes to accept collateral in full satisfaction of the obligation it secures, and
(c)	does not receive written notice of objection from the debtor within [20] business days after the proposal is sent.
(6)	For the purposes of paragraph (1)(c)—
(a)	notice of objection sent by an interested party is effective if it is received by the secured party within [20] business days after the notice was sent to the interested party under paragraph (1)(a), and 
(b)	notice of objection sent by any other person is effective if it is received by the secured party—
(i)	within [20] business days after the last notice was sent to an interested party under  paragraph (1)(a), or 
(ii)	if no such notices were sent, before the debtor consents to the acceptance under paragraph (4) or (5).
(7)	A purported or apparent acceptance of collateral under this regulation is ineffective unless—
(a)	the secured party consents to the acceptance in writing or sends a proposal to the debtor, and
(b)	the conditions of paragraph (1) are met.
(8)	Acceptance by a secured party of collateral in full or partial satisfaction of the obligation it secures—
(a)	discharges the obligation to the extent consented to by the debtor,
(b)	transfers to the secured party all of the debtor’s rights in the collateral,
(c)	discharges the security interest which is the subject of the debtor’s consent and any subordinate security interest, and
(d)	terminates any other subordinate interest,
whether or not the requirements of this regulation have been complied with by the secured party, and all obligations secured by the subordinate interest are deemed to be performed for the purposes of regulation 55 (debtor may require financing change statement).

67. Acceptance of collateral in full or partial satisfaction of obligation
Paragraphs 5.88-5.93.

Redemption
68.	—(1) Paragraph (2) applies at any time before—
(a)	the secured party has disposed of the collateral or contracted for disposition under regulation 61 (rights of secured party) or 62 (disposal of collateral), or 
(b)	the secured party is deemed to have elected irrevocably to accept the collateral under regulation 67 (acceptance of collateral in full or partial satisfaction of obligation).
(2)	A person who is entitled to receive a notice of disposition under regulation 63 may, unless that person has agreed otherwise in writing after default, redeem the collateral by—
(a)	tendering fulfilment of the obligations secured by the collateral, and
(b)	paying a sum equal to the reasonable expenses of seizing, repossessing, holding, repairing, processing and preparing the collateral for disposition, if those expenses have actually been incurred by the secured party, and any other reasonable expenses incurred by the secured party in enforcing the security agreement.

68. Redemption
Paragraphs 5.94-5.95.

Determination as to whether conduct was commercially reasonable
69.	—(1) The fact that a greater amount could have been obtained by a collection, enforcement, disposition or acceptance at a different time or by a different method from that chosen by a secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition or acceptance was made in a commercially reasonable manner.
(2)	A disposition of collateral is made in a commercially reasonable manner if it is made—
(a)	in the usual manner on any recognised market,
(b)	at the price current in any recognised market at the time of the disposition, or
(c)	otherwise in conformity with reasonable commercial practices among dealers in the type of property which was the subject of the disposition.
(3)	A collection, enforcement, disposition or acceptance is made in a commercially reasonable manner if it has been approved—
(a)	in judicial proceedings,
(b)	by a creditors’ committee (as provided for in the Insolvency Act 1986()),
(c)	by a representative of creditors, or
(d)	by an assignee for the benefit of creditors.
(4)	But approval under paragraph (3) need not be obtained, and lack of approval does not mean that the collection, enforcement, disposition or acceptance is not commercially reasonable.

69. Determination as to whether conduct was commercially reasonable
Paragraphs 5.136-5.141.

Applications to court
70.	 On application by a debtor, a creditor of a debtor, a secured party or other person with an interest in the collateral, the court may make one or more of the following orders—
(a)	an order, including a binding declaration of a right and an order for injunctive relief, that is necessary to ensure compliance with this Part or regulation 17 (preservation and use of collateral),
(b)	an order giving directions to any person regarding the exercise of rights or the discharge of obligations pursuant to this Part or regulation 17,
(c)	an order relieving a person from compliance with the requirements of this Part or regulation 17,
(d)	an order staying enforcement of rights provided in this Part or regulation 17, or
(e)	any order that is necessary to ensure protection of the interest of any person in the collateral.

70. Applications to court
Paragraph 5.119.

PART 6
SUPPLEMENTARY PROVISIONS 
Entitlement to damages for breach of obligations
71.	—(1)  If a person without reasonable excuse fails to discharge any duties or obligations imposed on that person by these Regulations—
(a)	the person to whom the duty or obligation is owed, and
(b)	any other person who can reasonably be expected to rely on the performance of the duty or obligation,
has a right to recover damages for any loss or damage that was reasonably foreseeable as likely to result from that failure.
(2)	If a person files a financing statement—
(a)	without obtaining the consent of the debtor as required by regulation 47 and
(b)	without an honest belief that the debtor has consented, 
the debtor has a right to recover damages for any loss or damage that was reasonably foreseeable as likely to result from the filing.
(3)	Nothing in this regulation limits or affects any liability which a person may incur under any other enactment or rule of law. 

71. Entitlements to damages for breach of obligations
Paragraphs 3.283-3.288. Compare DRs 17, 18, 47 and Part 5.

Principles of common law etc and law of sale and supply of goods continue to apply
72.	—(1) The principles of the common law, equity and the law merchant, except to the extent that they are inconsistent with these Regulations, supplement these Regulations and continue to apply.
(2)	
72. Principles of common law etc and law of sale and supply of goods continue to apply 
Paragraphs 2.106 and 5.6.

If a security interest arises in connection with the supply of goods, the law applicable to the sale or supply of goods is not displaced by these Regulations, except to the extent that it is inconsistent with these Regulations.

Consequential amendments
73.	—(1)  …

73. Consequential amendments 
Paragraphs 3.7(2) note 4 and 3.410-3.412.

Transitional provisions, savings and revocations
74.	—(1) In this regulation—
“1985 Act” means the Companies Act 1985();
“charge” includes mortgage;
“commencement” means the date of commencement of these Regulations;
“pre-commencement interest” means an interest, other than a charge, created before commencement which, had it been created after commencement, could have been perfected under these Regulations;
 “pre-commencement registered charge” means a charge which was registered at Companies House under section 395 of the 1985 Act (certain charges void if not registered);
“pre-commencement unregistrable charge” means a charge created before commencement which was not registrable at Companies House under section 395 of the 1985 Act, but which had it been created after commencement, could have been perfected under these Regulations;
“transitional period” means the period beginning with the date of commencement and ending [five] years later.
(2)	These Regulations apply to security interests created after commencement.
(3)	A pre-commencement registered charge, including a floating charge, is treated for the purposes of these Regulations as a security interest perfected by filing on commencement.
(4)	On commencement a pre-commencement registered charge—
(a)	retains its pre-commencement priority as against other pre-commencement registered charges, pre-commencement unregistrable charges and pre-commencement interests, and
(b)	is subject to the priority rules in these Regulations as against other security interests. 
(5)	If, on or after commencement, a pre-commencement unregistrable charge is perfected by filing a financing statement which specifies the date of its creation, that date is treated as the date of filing. 
(6)	These Regulations, except as provided in this regulation, do not apply to a pre-commencement interest until after the end of the transitional period.
(7)	During the transitional period, a pre-commencement interest has priority over any conflicting security interest, including a purchase-money security interest, which is created after commencement and whether or not it is perfected. 
(8)	If, before the end of the transitional period, a pre-commencement interest is perfected by filing a financing statement which specifies the date of its creation, that date is treated as the date of filing. 

74. Transitional provisions, savings and revocations
Paragraphs 3.384-3.409.

	

(2)	The Companies (Personal Property Security) Regulations [200X]

2.	Table of Derivations

The following abbreviations are used in this table:

LC		Law Commission draft Limitation Bill, published 2001
LRA		Land Registration Act 2002 (c. 9)
NB		Personal Property Security Act 1993, New Brunswick, Canada
NZ		Personal Property Securities Act 1999, New Zealand
OPPSA	Ontario Personal Property Security Act 1993, Canada
S		Personal Property Security Act 1993, Saskatchewan, Canada
SR		Personal Property Security Regulations, Saskatchewan, Canada
UCC		Uniform Commercial Code (US)
WG		Uniform Law Conference of Canada, Civil Law Section Working 		Group Proposals 2004 for amendments in light of Uniform 			Securities Transfer Act (Canadian Securities Administrators’ 			Task Force draft) 2004
s.		section
r.		rule
§		article

DR and Heading	Paragraph	Derivation	

PART 1 – INTRODUCTION	

1 Citation and commencement			

2 Interpretation
  
  	(1)	various: S s.2(1); UCC §8-102	
	(2)	S s.2(3)	
	(3)	S s.2(4)	

3 Meaning of “security interest”		S s.2(1)(qq); S s.3(1), (2)	
	(1)	S s.2(1)(qq)(i) part; S s.3(1)(a)	
	(2)	S s.3(1)(b)	
	(3)	S s.2(1)(qq)(ii); S s.3(2)	
	(4)	S s.2(1)(qq)(i) part	
	(5)	new	

DR and Heading	Paragraph	Derivation	

4 “PMSI”	(1)	S s.2(1)(jj) part	
	(2)	UCC §9-103(b)(2)	
	(3)	S s.2(1)(jj) part	
	(4)	UCC §9-103(f)(3)	

5 “Debtor”	(1)	S s.2(1)(m)(i)-(v)	
	(2)	S s.2(1)(m)(vi)	

6 “Control”: investment property	(1)		
	(2)	UCC §8-106(a)	
	(3)	UCC §8-106(b) part	
	(4)	UCC §8-106(b)(1)	
	(5)	UCC §8-106(c)	
	(6)	UCC §8-106(d)	
	(7)		
	(8)	UCC §8-106(d)(2) and (f)	
	(9)	UCC §8-106(e)	
	(10)	UCC §8-106(g) part	
	(11)	UCC §9-106(b)(1)	
	(12)	UCC §9-106(b)(2)	
	(13)	UCC §9-106(c)	
	(14)	UCC §8-106(g) part	

7 “Control”: bank accounts	(1)		
	(2)	UCC §9-104(a)(1)	
	(3)	UCC §9-104(a)(2) part, (3)	
	(4)	UCC §9-104(a)(2) part	
	(5)	UCC §9-104(b)	
	(6)	UCC §8-106(g) part	
	(7)	UCC §8-106(g) part	

8 “Lease more than one year”	(1)	S s.2(1)(y)(i)-(iii)	
	(2)	S s.2(1)(y)(iv)-(v)	

9 “Commercial consignment”	(1)	S s.2(1)(h) part	
	(2)	S s.2(1)(h)(iii)	

DR and Heading	Paragraph	Derivation	

10 Knowledge	(1)	LC clause 4(1)(a) part	
	(2)	LC clause 4(3) part	
	(3)	LC clause 5(1) part	
	(4)	LC clause 5(2)	
	(5)	LC clause 5(3)	
	(6)	S s.47	
	(7)	WG s.30A(2); new	

11 Scope of regs	(1)-(2)	new	

12 Exceptions		S s.4	
	(1)	S s.4 part; new	
	(2)-(4)	new	

13 Territorial application	(1)-(6)	S s.5; new	

PART 2 – EFFECTIVENESS OF SECURITY AGREEMENTS	

14 Effectiveness of agreement
  
  	(1)	S s.9(1)	
	(2)	S s.9(4)	
	(3)	new	

15 Attachment of security interest

  

  
  	(1)-(4)	S s.10(1)(part); S s.12(1)(part)	
	(5)	S s.12(1)(part)	
	(6)	NZ s.40(4)	
	(7)	NZ s.40(3)	
	(8)	S s.12(3)	
	(9)	new	
	(10)	S s.13(1)	
	(11)	UCC §9-203(f)	
	(12)	WG s.12.1	
	(13)	WG s.12.1	

16 Automatic security interest in favour of securities intermediary etc.	(1)-(4)	WG s.12.1	

DR and Heading	Paragraph	Derivation	

17 Preservation and use of collateral	(1)	S s.17(1)	
	(2)-(3)	S s.17(2)	
	(4)	S s.17(3)-(4)	
	(5)	WG 17.1(1)	
	(6)	UCC §9-207	

18 Request for info from secured party	(1)	UCC §9-210(b)	
	(2)	S s.18(1); UCC §9-210(a) and (b)	
	(3)	S s.18(2)(b)-(d); UCC §9-210(a) and (b); new	
	(4)	S s.18(1) part	
	(5)	S s.18(6)	
	(6)	S s.18(8) part	
	(7)	S s.18(9)	
	(8)	S s.18(10)	
	(9)	S s.18(11),(12),
(13)(b)	
	(10)	S s.18(15)	
	(11)	S s.18(17)	

PART 3 – PERFECTION & PRIORITIES	

19 Perfection of security interest		S s.19	

20 Consequences of not perfecting	(1)	S s.20(2)	
	(2)		
	(3)	S s.20(1)(a)	
	(4)	S s.20(3)	
	(5)	S s.20(4)	

21 Perfection: additional provisions about investment property, supporting obligations and promissory notes	(1)	WG 19.1(1)	
	(2)	WG 19.1(2)	
	(3)	WG 19.2(1)	
	(4)	WG 19.2(2)	
	(5)	WG 19.2(3)	
	(6)	UCC §9-308(d)	
	(7)	UCC §9-309(4)	

22 Continuity of perfection		S s.23(1)	

23 Methods of perfection		S s.25; UCC §9-310	

DR and Heading	Paragraph	Derivation	

24 Perfection by possession
  	(1)	S s.24(1)(part)	
	(2)	S s.24(2)	

25 Perfection: goods in possession of bailee
 	(1)	S s.27(1)	
	(2)	S s.27(2)	
	(3)	S s.27(3)	

26 Perfection of certificated security by delivery	(1)-(3)	UCC §8-301, 9-313(a) 	

27 Perfection by control of investment property	(1)	WG s.24.1(1)	
	(2)	WG s.24.1(2)	

28 Perfection by possession or delivery continues temporarily if collatoral made available to debtor	(1)	S s.26(1)(a)	
	(2)-(3)	S s.26(1)(b)	
	(4)	S s.26(1) part	
	(5)	S s.26(2)	

29 Perfection: proceeds	(1)-(2)	S s.28(1)	
	(3)	WG 28(1.1)	
	(4)	S s.28(2)	
	(5)-(6)	S s.28(3)	

30 Goods returned or repossessed	(1)	S s.29(1)	
	(2)	S s.29(2)	
	(3)	S s.29(3)	
	(4)	S s.29(5)	
	(5)	S s.29(7)	

31 Circumstances in which buyer or lessee takes free of security interest	(1)	S s.30(1)(a)(c)	
	(2)-(3)	S s.30(2); part new	
	(4)-(5)	S s.30(3)-(4)	
	(6)	S s.30(5)	
	(7)	S s.30(7)	
	(8)	S s.30(6)	
	(9)	S s.30(8)	

32 Purchaser takes free: additional provisions about investment property	(1)	WG s.30(9); UCC §8-303.	
	(2)	WG s.30(11); UCC §8-501, 502	
	(3)	WG s.30(12)	

DR and Heading	Paragraph	Derivation	

33 Residual priority rules	(1)	S s.35(1) part	
	R. 1	S s.35(1)(b)	
	R. 2	S s.35(1)(a)	
	R. 3	S s.35(1)(c)	
	R. 4	S s.23(2)	
	R. 5	UCC §9-322(c)(1)	
	(2)	S s.35(2)	
	(3)	S s.35(3)	
	(4)	S s.35(4)	
	(5)	UCC §9-322(b)(2)	
	(6)	S s.35(5)	
	(7)	S s.35(6)	

34 Priority rules: investment property	Chapeau	WG s.35.1(1)	
	R. 1	WG s.35.1(2)	
	R. 2	WG s.35.1(3)	
	R. 3	WG s.35.1(4) part	
	R. 4	WG s.35.1(5)	
	R. 5	WG s.35.1(6)	
	R. 6	WG s.35.1(7)	
	R. 7	WG s.35.1(8)	

35 Priority rules: bank accounts	(1)	UCC §9-327 part	
	R. 1	UCC §9-327(1)	
	R. 2	UCC §9-327(2)	
	R. 3	UCC §9-327(3),(4)	
	R. 4		
	(2)	UCC §9-340	

36 Priority rules: proceeds of letters of credit	(1)	UCC 9-329	
	R. 1	UCC 9-329(1)	
	R. 2	UCC 9-329(2)	
	R. 3		
	(2)	UCC §9-107	
	(3)	UCC §5-102(a)(11)	

37 Priority of security interests in transferred collateral		UCC §9-325	

38 Protection of transferees of negotiable collateral	(1)	S s.31(1)	
	(2)	S s.31(2)	
	(3)	S s.31(3)	
	(4)	S s.31(4)	
	(5)	S s.31(5)	
	(6)	S s.31(6)	

DR and Heading	Paragraph	Derivation	

39 Priority: liens		S s.32; UCC §9-333	

40 Priority: crops		UCC §9-334(i)	

41 Alienation of rights of debtor	(1)	S s.33(1)	
	(2)-(3)	S s.33(2)	

42 Priority: purchase-money security interests	(1)	S s.34(2), (3), (5) part	
	(2)	S s.34(2)	
	(3)	S s.34(3)	
	(4)	S s.34(4)	
	(5)	S s.34(5)	
	(6)	S s.34(6)	
	(7)	S s.34(8)	
	(8)	S s.34(10)	

43 Effect on priority of mistaken discharge of filing etc	(1)-(3)	NB s.35	

44 Voluntary subordination
  	(1)-(2)	S s.40(1)(part)	
	(3)	S s.40(2)	

45 Rights of assignees	(1)	S s.41(1)(b)	
	(2)	S s.41(2)	
	(3)	S s.41(7)	
	(4)	S s.41(8)	
	(5)	S s.41(9)	

PART 4 - FILING	

46 The Register	(1)-(2)	drafting	
	(3)	OPPSA s.46(5)(b)	

47 Financing statement	(1)	SR r.6	
	(2)	UCC §9-509(a), 510(a)	
	(3)	UCC §9-509(a), 510(a)	
	(4)	UCC §9-509(a)	
	(5)	UCC §9-509(b)	
	(6)	new	
	(7)	new	
	(8)	new	

DR and Heading	Paragraph	Derivation	

48 Time of filing	(1)	S s.43(2)	
	(2)	S s.43(4)	
	(3)	S s.43(5)	
	(4)	S s.43(3)	
	(5)	UCC §9-509(b)	
	(6)	S s.43(10); new	

49 Duration of filing	(1)-(2)	SR r.4	

50 Registrar to issue verification statement	(1)-(3)	S s.43(12); new	

51 Errors in financing statement	(1)	S s.43(6) part	
	(2)	new	
	(3)	S s .43(6) part	
	(4)	S s.43(8)	
	(5)	S s.43(9)	
	(6)	new	

52 Renewal and amendment of filing	(1)	S s.44(2)	
	(2)	S s.44(3)	

53 Filing of transfers and subordinations	(1)	S s.45(1)	
	(2)	S s.45(2)	
	(3)	S s.45(3)	
	(4)	S s.45(4)	
	(5)	S s.45(5)	
	(6)	S s.45(6)	
	(7)	UCC §9-310(c)	

54 Searches	(1)	S s.48(1) (part); new	
	(2)	S s.48(2)	
	(3)	S s.43(3)	

55 Debtor may require financing change statement	(1)-(2)	S s.50(1),(3),(4); new	
	(3)	new	
	(4)	S s.50(5) (part); new	
	(5)	new	
	(6)	S s.50(7)	
	(7)	new	
	(8)	new	

DR and Heading	Paragraph	Derivation	

PART 5 - RIGHT & REMEDIES ON DEFAULT	

56 Application of this Part	(1)	S s.55(2)(a); part new	
	(2)	S s.55(7); UCC §9-601(e)	
	(3)	UCC §9-601(a)(1)	
	(4)	new	

57 Overlap with security over land	(1)	S s.55(4)	
	(2)	S s.55(5)	
	(3)-(4)	S s.55(6)	

58 Receivers
  	(1)	S s.64(2)	
	(2)	S s.56(1), S s.57(1), S s.58(1), S s.59(1), S s.60(1), S s.63(1)	

59 Rights and remedies
  
  	(1)	S s.56(2)(a), 	
	(2)	S s.56(2)(b)	
	(3)	UCC §9-602 part	
	(4)	UCC §9-603(a)	
	(5)	S s.65(10)	

60 Collection rights of secured party

  
  	(1)		
	(2)	S s.57(2)	
	(3)	UCC §9-607(a)(4)(5)	
	(4)	S s.57(4)	
	(5)	UCC §9-607(c)	
	(6)	UCC §9-608(a)(3)	

61 Rights of secured party 

  
  
  	(1)	S s.58(2) part	
	(2)	S s.58(2)(a)	
	(3)	UCC §9-609(a)(2)	
	(4)	S s.58(2)(c) part; new	
	(5)	UCC §9-609(c)	
	(6)	new	
	(7)	S s.58(2)(d)	

DR and Heading	Paragraph	Derivation	

62 Disposal of collateral
  
  	(1)	S s.59(2) part	
	(2)-(3)	S s.59(3)	
	(4)	S s.59(5)	
	(5)	S s.59(4)	
	(6)	UCC §9-610(a)(b)	
	(7)	S s.59(13); UCC §9-610(c)	
	(8)	S s.59(14)	
	(9)	S s.59(2) part	
	(10)	S s.59(15)	
	(11)	S s.59(18)	

63 Disposal of collateral: requirement to give notice
  
  	(1)	S s.59(6); UCC §9-611(c)	
	(2)	new	
	(3)	S s.59(11); UCC §9-612(b); new	
	(4)	S s.59(16) part; UCC 9-611(d)	
	(5)	S s.59(16)(f)	
	(6)	S s.59(16)(g) part	

64 Calculation of surplus or deficiency in disposition to secured party etc.	(1)-(3)	UCC §9-615(f)	

65 Distribution of surplus
 
 	(1)-(3)	S s.60(2)	
	(4)	S s.60(4)	
	(5)	UCC §9-608(a)(3)	

66 Deficiency		S s.60(5)	

67 Acceptance of collateral in full or partial satisfaction of obligation	(1)	UCC §9-620(a), §9-621	
	(2)	UCC §9-621	
	(3)	new	
	(4)	UCC §9-620(c)(1),(2) 	
	(5)	UCC §9-620(c)(2)(A)-(C)	
	(6)	UCC §9-620(d)	
	(7)	UCC §9-620(b)	
	(8)	UCC §9-622	

68 Redemption
  	(1)	S s.62(1) part	
	(2)	S s.62(1)(a)	

DR and Heading	Paragraph	Derivation	

69 Determination as to whether conduct was commercially reasonable	(1)	UCC §9-627(a)	
	(2)	UCC §9-627(b)	
	(3)	UCC §9-627(c)	
	(4)	UCC §9-627(d)	

70 Applications to court		S s.63(2)	

PART 6 - SUPPLEMENTARY PROVISIONS	

71 Entitlement to damages for breach of obligations	(1)-(2)	NZ s.176(1)	
	(3)	NZ s.176(2)	

72 Principles of common law etc and law of sale and supply of goods continue to apply	(1)	S s.65(2)	
	(2)	S s.15; new	

73 Consequential amendments		[to follow]	

74 Transitional provisions, savings and revocations	(1)-(8)	new