Part E Guarantees and Security, 39 Avoidance of Security in Insolvency

Subject(s):

Bank resolution and insolvency — Regulation of banks — Credit risk — Security interest

When a company is facing insolvency, the law requires the company and its directors to consider the interests of the creditors as a whole. Lenders (such as banks) which are in a position to take security are likely to have more information about the company's situation than is available to the general body of trade creditors. Thus, there should be some effective constraint against the bank's ability to prop up the company in a manner which may be detrimental to the interests of the unsecured creditors. This chapter discusses transactions at an undervalue; preferences; extortionate credit transactions; floating charges; and transactions defrauding creditors.