USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
6.3 Transfer of Financial Assets For a sale of financial assets to be valid and enforceable against third parties, it has to “attach” and be “perfected”, similar to what applies to a security interest in collateral. The rights of a purchaser of such assets attach if: • “value” has been given; • the transferor has rights in the relevant asset, or the right to grant rights in the relevant asset; and • there is a signed agreement that reasonably identifies the relevant rights and assets. Although it is possible for a security interest to attach in some circumstances without a written agreement, it is not practicable to rely on those circumstances always being present in a secu - ritisation transaction. The available mode of perfection differs, based on the type of asset and type of transfer. Broadly speaking, perfection can be: • automatic; • by control (or possession); or • by the filing of a UCC statement. The general means of perfecting a security interest in financial assets other than a deposit account is by filing a UCC financing statement in the applicable filing office. A security inter - est in deposit accounts can only be perfected by control. The perfection of a security interest in a financial asset automatically also perfects a security interest in related supporting rights, such as collateral or letter of credit rights. A security interest perfected by control or posses - sion often has higher priority than a security per - fected by other means. Nevertheless, since filing a UCC financing statement is easy and cheap, and provides perfection regardless of whether
the transfer is respected as a sale or whether it is characterised as a loan, such filing is typically the primary means of perfection. True Sale v Secured Loan If the transfer of an asset is respected as a sale, then such asset will cease to belong to the seller and therefore the buyer’s rights in such asset will typically not be affected by a subsequent bankruptcy of the seller. On the other hand, if such transfer is treated only as a granting of a security interest in collateral, then bankruptcy of the seller will subject the buyer’s rights with respect to such assets to the automatic stay and other bankruptcy powers. In determining whether a transfer is a true sale or a disguised loan, courts look to a number of factors. Not sur - prisingly, the more numerous the secured loan characteristics, the greater the likelihood that the transaction is viewed as such. Conversely, the more numerous the sale characteristics, the greater the likelihood that a purported sale will be respected as such. However, not all factors are given equal weight in this analysis. Key factors include: • the parties’ intent, though courts typically de- emphasise the language used in a document and instead consider the intent reflected by the economic substance and actual conduct; • recourse and collection risk, which generally is the most important factor; • the transferor’s retention of rights to redeem the transferred property or to receive any surplus from the asset; and • the transferor’s continued administration and control of the assets, particularly if the obligor is not notified of the sale (however, under current market practice, transferors often act as servicer of the sold assets and such continued involvement is generally not viewed
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