by Dr. Andrew D. Schmulow
In “International Commercial Secured Transactions”, edited by David Franklin & Steven A Harms, published by Carswell Publishers, Montreal, Canada, 2010
1) What is a Secured Transaction
A secured loan is a method of providing security to a lender in the form of a personal legal right, by providing the lender with an interest in the borrower’s assets. An unsecured loan provides the lender has no standing against the borrower’s property and only has rights to repayment of the loan against the borrower personally. If the borrower has insufficient funds to repay the loan a secured lender can enforce their security to gain priority for payment over unsecured creditors. Security may take the form of a proprietary interest (mortgages, hire-purchase, charges) others take the form of possession (pledges, pawns and liens). Secured transactions total approximately 7.3 million transactions annually in Australia, of which 96% involve motor vehicles. A charge provides security to the lender without the borrower relinquishing ownership or possession. These may take the form of either a fixed or a floating charge. IN the case of a floating charge where the borrower is in default the floating charge “crystallises” at the moment of default and becomes a fixed charge. Hire-purchase provides the option to the hirer to buy the goods. The hirer retains possession but the lender retains ownership until the goods are paid for in full. The hirer has the option to return the goods and may chose not to buy the goods.