Title Based Security (Quasi Security) Under Insolvency Proceedings
Existing laws are divided as regards the status of title-based securities in insolvency proceedings. The differences in rules may, in part, derive from the different attitude toward the functional approach (see Sect. 2.2.2). If the jurisdiction adopts the functional approach and treats a title-based security as a security interest, the rules on a security interest in insolvency proceedings will apply to a title-based security. Thus, in the United States, both section 1110 and section 1168 of the Bankruptcy Code treat a “secured party,” a conditional vendor and a lessor in the equal manner. The Japanese cases similarly treat a title-based security as if it were a security interest without formally recharacterising it. Contrary to the United States, the Japanese rules of insolvency law, as mentioned above, is restrictive of the exercise of a security interest, not distinguishing a security interest in general and an interest to secure asset-based financing (equipment financing).
In jurisdictions that do not adopt the functional approach, the law does not recharacterise a title-based security as a security interest. Among these jurisdictions, the rules further diverge. On the one side, some jurisdictions treat a conditional seller or a lessor as an owner of the object and do not require it to file its “claim” in the insolvency proceedings. This is the case in France and Switzerland. On the other side are jurisdictions that focus on the agreement of conditional sale or lease. In these jurisdictions, such agreements are subject to the insolvency administrator’s option to either maintain the agreement or terminate it. This is the case in Germany and Italy.
In a few jurisdictions, a title-based security could be even more disadvantaged than a security interest. Under CIRE of Portugal, a title reservation agreement is opposable in the insolvency proceedings on condition that the agreement is in writing before the delivery of the asset. However, this rule does not apply to a lease agreement. In Greece, there are court decisions from some years ago that denied the effect of a title reservation agreement in the insolvency proceedings. However, the opposite view seems to be becoming prevalent recently.