Registration of Security Interests: Some Flaws in the System

Abstract

The notion that a security interest could be created in any kind of property through registration rather than through transfer of possession seemed, until a few years ago, to be impractical and undesirable. When the Pledges Bill was debated in theKnesset, in 1965, the Minister of Justice objected to such a notion, saying that it was too revolutionary, and that it would cause many technical difficulties. Yet, when the debate on the Pledges Bill was over, a new Pledges Law was passed which introduced this very revolutionary notion of registration as a possible substitute for transfer of possession.The Pledges Law, 1967, sec. 4, provides that:A pledge shall be effective against other creditors of the debtor—(1) in the case of property in respect of which some other law contains special provisions applicable to the matter—in accordance with those provisions;(2) in the case of movable property and securities in respect of which no other law contains special provisions applicable to the matter and which have been deposited with the creditor or with a bailee other than the debtor on behalf of the creditor—upon the deposit thereof as aforesaid and so long as they are deposited;(3) in the case of movable property and securities not deposited as aforesaid and in any other case—upon the registration of the pledge in accordance with regulations made under this Law: Provided that against a creditor who knew or should have known of the pledge it shall be effective even without registration.