Turning Lead into Gold: The Uncertain Alchemy of 'All Obligations' Clauses
24 Pages Posted: 11 May 2017
Date Written: December 1, 2004
Abstract
The medieval alchemists, in their grand quest for the Philosopher's Stone, sought to discover a process for the transmutation of base metals. They thought that the admixture of even a tiny portion of the Stone with molten lead would cause the lead to catalyze into gold. This article examines whether or not there might exist a modern day alchemy through which the less valuable claim of an unsecured creditor may be transmuted into the more valuable claim of a secured creditor without the need for any new act on the part of the debtor. The elixir that is said to produce this remarkable result is an appropriately drafted all obligations clause contained in a security agreement. Three arguments have been levelled against this use of all obligations clauses: unfairness to the debtor, distortion of the pro rata sharing principle of bankruptcy law, and the disruption of the priority regime of secured transactions law. Each of these arguments will be evaluated.
Keywords: PPSA, Secured Transactions, Security Agreement
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