Security Interests in Films
Art Law

Security Interests in Films

Introduction A security interest gives the secured party a claim to specific property (the “pledged property”) in order to enforce a contractual obligation of another party. Security interests are not just for loans — any contractual obligation can be secured. For example, a licensee’s obligation to pay royalties under a license can be secured by the licensed rights, and a producer’s contractual obligation to deliver a film and license rights to a licensee can be secured by the underlying film rights. In theory, a security interest permits the secured party to foreclose on the pledged property. In reality, a foreclosure almost never happens because borrowers typically declare bankruptcy prior to the foreclosure, which blocks it (absent bankruptcy court order). Although a foreclosure is typically blocked in a bankruptcy, the secured party is permitted to ride out the bankruptcy and retain its security interest, preventing the pledged property from being sold to a third party without the proceeds being paid to the secured party. This is the real practical impact of a security interest. In a bankruptcy, the debtor can void any security interest that has not been properly perfected, so every debtor hunts for reasons to throw at the […]

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