Fundamentals of taking security interests in bank accounts

Funds credited to a bank account (cash collateral) are an important component of the collateral package taken by secured creditors. This chapter reviews the key questions in relation to security interests over bank accounts – especially from a law development point of view. Based primarily on the United States Uniform Commercial Code Article 9 (UCC 9) and the relevant case law, but also the United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Secured Transactions and other laws, the chapter examines some of the issues that are associated with the use of funds credited to a bank account as collateral, including: (1) the nature of such collateral, whether it is the bank account itself, a balance on the bank account or certain rights of the customer against the bank; (2) the security mechanisms available to creditors if the applicable secured transactions law does not apply to bank accounts as original collateral (that is to say, collateral which is described in the security agreement as a bank account) – in other words, proceeds of the sale of an asset in which a security interest was created; (3) the recognition of bank accounts as original collateral in more recently adopted secured transactions laws; and (4) the perfection mechanisms for security interests in bank accounts.