The role of asset security in the funding of business is essential where debt finance is one of the few options for businesses intending to expand. While creditors would prefer, obviously, to have the sums lent repaid, the availability of a “Plan B” that palliates the risks of nonperformance or insolvency, in theory also reducing the cost of access to credit, has long been attractive for lenders. For that reason, the mediaeval strictures of the pari passu principle have been avoided, almost from the outset, for creditors, consensual security being one of the avenues recognised at law for the mitigation of the doctrine, the other usually being preferences, the latter normally of statutory origin or creation. The importance attached to security as a tool for the support of lending, especially for developing countries, is seen in its reflection in key international texts, such as the World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes. In the World Bank’s view, the creditor’s ability to bargain for the transfer of security rights enabling enforcement over the debtor’s property is the “simplest [and] most effective means” of ensuring the principle of prompt payment. It is certainly more effective, they say, than would be the prospect of insolvency proceedings with attendant procedural complexity and delays.
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