Chinyere Ossy-Okoye
Abstract
The best secured financing minimises credit risk during insolvency. Financiers leverage contractual autonomy to negotiate hard-fought security packages that secure early credit recovery ahead of other creditors upon insolvency, therereducing overall credit risk. However, contractual autonomy suffers legal constraints. Courts may recharacterise ‘hard-fought” contractual clauses that disguise security packages, exceed permissible legal scope or result in ambiguity. In practice, financiers push the boundaries of their autonomy to aggressively minimise insolvency risk, but end up contracting themselves into recharacterisation, invalidation, and adverse-construction risks arising from these legal constraints. This paper critically analyses party autonomy as the basis of secured financing, examines autonomy-induced risks, and offers risk mitigation strategies.
Click here to download full article