Harmonizing Intercreditor Priority Conflicts over Cross Border Inventory Liens
Harmonizing cross-border inventory liens demands local registration at transit hubs, direct warehouse control, and explicit turnover provisions in intercreditor deeds.
Bonded Warehouse Bailment
Meaning
Secure custody agreements for goods held under customs suspension provide a framework for inventory financing. Under a bonded warehouse bailment, the warehouse operator acts as a bailee and holds the inventory subject to the security interest of the lender. This arrangement prevents the unauthorized release of imported cargo before customs duties are paid.
Custody Rule
The bailee must maintain physical control of the goods within the designated facility. For a bonded warehouse bailment to remain valid, the warehouse operator must issue warehouse receipts that acknowledge the lender’s security interest. This step ensures that the goods cannot be removed without the explicit written consent of the secured party.
Release Condition
Customs clearance must be obtained before any inventory can leave the facility. Under the rules of bonded warehouse bailment, the release of goods occurs only after the importer pays the relevant duties or provides a customs bond. This obligation prevents the lender’s collateral from being seized by government authorities for non-payment of taxes.
Lien Risk
The warehouse operator may assert a lien for unpaid storage fees. In a bonded warehouse bailment, this lien can disrupt the secured party’s recovery efforts. This disruption arises when fee disputes block the auction of stored assets.