2.6. Acquisition financing

The draft provisions do not deal with rights created to secure the outstanding price of the acquisition of an asset, such as retention-of-title and financial lease rights <1>. The Guide deals with those types of right as well. The reason is that, unless a secured transactions law is comprehensive and transparent, it is unlikely to achieve the certainty needed for lenders to lend at least at affordable terms. As already mentioned, in jurisdictions where a retention of title is the main non-possessory security right and this is not subject to registration, lenders when offered movable assets as security for credit typically assume that there is previous retention of title and this makes the credit more expensive for all, whether there actually is a retention of title in a particular case or not. In these jurisdictions, a bank may obtain the benefit of a retention of title by receiving an assignment of the secured obligation, but this also has a cost.

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<1> Guide, Introduction, section B.

The Guide provides two sets of rules. One uses the unitary term "acquisition security right" to reflect all acquisition financing devices. The other uses the terms "retention-of-title right", "financial lease right" and "acquisition security right" <1>. In either case, acquisition financing devices are subject to the registration and priority rules recommended in the Guide, but they are not re-characterized as secured transactions and other law (sales or lease law) continues to apply. Essentially, acquisition financing devices are made subject to registration within a short period of time after delivery of the goods, and their priority dates back as of the time they are created (and not registered). This is the way in which the Guide implements the policy of promoting supplier credit.

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<1> Recommendations 178 - 202.

2.7.Conflict of laws

The Guide also includes a set of conflict-of-laws recommendations to deal with the law applicable to transactions that have a connection with more than one State (for example, the grantor is one State and the secured creditor in another, or the secured creditor is one State and the encumbered assets in another). Unless a security right created effectively under the law of a State is recognized in the courts of another State, credit against the security of movable assets is likely not to be available at all or at least at affordable terms <1>.

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<1> For a discussion of the Conflict-of-laws recommendations of the Guide, see: International Commercial Arbitration Review. N 2(4) (July-December 2011). P. 115.

2.8. Transition

The Guide also includes a set of recommendations dealing with transition issues. The main purpose of these recommendations is to ensure that transactions existing at the effective date of the new law are not undermined <1>. For example, prior law determines whether a security right has been created before the effective date of the new law <2>. A security right made effective against third parties under prior law remains effective against third parties until the earlier of the time it ceases to exist under prior law or the expiration of a period of time (e.g., three months) after the effective date of the new law <3>.

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<1> Recommendations 228 - 234.

<2> Recommendation 230.

<3> Recommendation 231.