(Finance leasing – lessor's and lessee's rights in insolvency of the other partner – effects of purchase option)

S is a supplier of computers. B wants a computer. At the request of B, A (a financial institution) buys the computer from S. A then leases the computer to B. The length of the lease corresponds to the expected useful life of the computer. An unsecured creditor of B executes against the computer. Alternatively, B becomes bankrupt. A asserts ownership of, or a security right in, the computer, or at least to preferential payment out of the proceeds of the sale of the computer.

Questions

1. (a) Does A have any real rights in the computer? Do such rights depend on any further prerequisites?

2. (b) Is it relevant whether B has an option to buy the computer at the end of the contractual term?

3. (c) Is this or some other kind of leasing agreement used instead of other types of security, such as retention of title or security transfer of ownership? Is legislative policy or the approach of the courts more favourable to leasing (in respect of the interests of the supplier/the bank) than to security rights?

4. (d) What would B's legal position be in respect of the computer if not he but A became bankrupt?