1.2.2. Secured Transactions

As tar as secured transactions are concerned, the relevance of insolvency effects for

the parties and the causal link required are established by the nature of the transaction.

It is the risk of default of the debtor, and in particular in the event of the debtor's

insolvency, for which security interests are granted. '* The degree of protection afforded

by the security interest and the consideration given for it therefore have (at the least

potential) consequences for the decision by parties to enter into a transaction.

The Court's judgment in Knintz should not be regarded as conclusive on this point.

The issue before the Court in Krautz can be distinguished from the present question.

the tact that it concerns an unsecured transaction alone, it does not necessarily follow

that insolvency effects are irrelevant and that universal application of the lex fori

concursus does not result in an obstacle to trade. Some creditors are in fact in no

position to demand security. Nevertheless, their position in the event of insolvency

- the way their pre-insolvency entitlements are affected by insolvency law or the level

of protection provided for - could arguably be relevant for a transaction and thus the

freedoms.

This, at least, appears to be the position reflected in secondary Community law. For

instance, in the preamble of Council Directive 9 0 / 3 1 4 on package travel it is stated that

disparities in the rules protecting the consumers are a 'disincentive to consumers in

one Member State from buying packages in another Member State'. " The Directive

continues to include rules relating to the protection of the consumer against the insolvency

of the organiser/" In other words, the Directive assumes that disparities in the

treatment in insolvency of unsecured transactions may result in an obstacle to the free

movement of services. Similarly, Directive 8 0 / 9 8 7 on the protection of employees in

the event of the insolvency of the employer assumes that the free movement of workers

maybe affected by differences in the treatment of claims arising from employment

relationships in insolvency.1 1 Though neither Directive concerns the effects of

insolvency law in the strict sense, they are nevertheless based on the premise that the

risk of insolvency is relevant to unsecured transactions and thus to the freedoms.'

Both the package-travel consumer and the employee distinguish themselves from the

general unsecured creditor. The package-travel Directive notes that the disincentive

the rules at issue may well cause the contracting parties to incur additional costs,

by requiring them, purely for the purposes of registering the mortgage, to value

the debt in the national currency and, as the case may be, formally to record that

currency conversion.: 1

The restrictive effect of the Austrian rule was thus two-fold. On the one hand it

reduced the effectiveness of the security right, on the other, it lead to additional costs

tor the parties concerned. Considering the absence of a de minimis for the restrictive

effect, it is submitted, either one of these two grounds alone would have justified the

conclusion that the rule constituted an obstacle to the free movement of capital.

As pointed out above, the principal consequences of the universal application of the

lex fori concursus consist of both a reduction of effectiveness of security rights and

additional costs for the parties.:" Consequently, it would reduce the attractiveness of

security rights and therefore burden the transaction to which it is ancillary. Although

'['rummer ami Mayer concerned the free movement of capital and a mortgage as a

'traditional security right', the Court's judgment has much wider ramifications. The

Court's reasoning is equally applicable in those instances where a security right was

granted to secure payment of goods sold in the exercise of the free movement of

goods. Secondly, it should not matter for the freedoms whether parties use the

'classic' method of securing a debt or employ a less traditional security right. Indeed,

it is arguable that it extends beyond security rights in rem and would cover contractual

((/; personam) security, such as bank guarantees or set-off, as well.