View/Open - Research Commons - The University of Waikato

financial position. They can also demand to have a representative on the company‟s
board of directors.
In spite of the advantages of using security, not many creditors resort to it. This is
because the creation of security in favour of one creditor will increase the risks faced
by other creditors because the expected value of the assets have been reduced. 76
Creditors who are aware of this arrangement can minimize the risks by insisting on
their own security or by adjusting the rate accordingly 77 . However, the ability to fix
such provisions would only be achieved if all creditors were equal. In reality,
creditors are not equal, large creditors such as banks and other financial institutions
may be able to dictate their terms of credit to the debtor company, but other small
creditors may lack necessary information to enable them to do so. 78 The
insufficiency of resources, expertise and time to evaluate the risks may deter them
from demanding security. 79 Moreover, the nature of their products and business
arrangements 80 may not allow them to make appropriate adjustments.
c) other self help mechanisms.
Other options available to creditors are to utilize self help remedies such as the
retention of title clause 81 in the contract of supply. This self help remedy or quasi-
security is, however, a difficult and complex subject which involves insolvency law
76 Finch “Security” above n73 at 641.
77 Ibid, at 644- 645.
78 Ibid, at 638-639.
79 Ibid.
80 Vanessa Finch “Directors‟ Duties: Insolvency and the Unsecured Creditors” in Alison Clarke (Ed.)
Current Issues in Insolvency Law (Sweet & Maxwell, London, 1999) 87 at 90 the writer gave
example of the feasibility of newsagent to negotiate for security for every paper delivery.
81 Retention of title clause is a stipulation that ownership in goods will not pass until full payment
been made. See the case of Aluminium Industries Vaasen BV v Romalpa Aluminium Limited [1976]
1 WLR 676. See also Report of the Review Committee on Insolvency Law and Practice (Cmnd
8558, 1982) at [1618] [Cock Report].
134