Security Rights and Law Reform in Continental Europe – Reforms in France and Belgium

Security Rights and Insolvency Regulation Conference - London 19th May 2015

Prof. dr. Eric Dirix, KU Leuven

1. The Need for Reform

• Reasons for reform:• a) Domestic• b) International

“a diversity of national laws is no longer adequate to meet the needs of the market place, and that long-standing legal traditions, concepts and techniques, however laudable in their objectives, must now be modified so as to be responsive to the needs of commerce and finance, which require above all the minimum degree of formality and the maximum degree of flexibility”

(Roy Goode, Unif.L.Rev 2003 (341) 343)

2. Current situation in Europe

• Civil law jurisdictions: e.g. Belgium, Italy• Systems without publicity: e.g. Germany, Austria, The

Netherlands• Systems with public filing systems: e.g. France since

2006 reform, Spain (Registro de Bienes Muebles), Norway (Mortgage Act 8 February 1980)

• Recent codifications: e.g. Hungary (2013), Romania (2011)

• Reforms: e.g. Belgium (2013), Scotland (Scottish Law Commission: Moveable transactions)

3. International Models and Instruments

• Art. 9 UCC• UNCITRAL Legislative guide on secured transactions.• UNIDROIT: Cape Town Convention (2001)• EBRD Model Law on Secured Transactions• DCFR (Draft of a Common Frame of Reference). Book

IX: Proprietary security in movable assets. • OAS Model Inter-American Law on Secured

Transactions (2002)• OHADA (Organisation pour l'Harmonisation en Afrique

du Droit des Affaires): Revised Uniform Act Organizing Securities (2011)

4. UNCITRAL Guide

• Enable parties to create security rights in a simple and efficient

manner

• Allow the utilization of a broad range of assets for security purposes;

• Make it possible to secure all types of obligations

• Abolish the requirement of withdrawing the possession of the security

provider

• Create an integrated and consistent system

• Establish clear and predictable priority rules

• Provide for efficient enforcement rules with as less court intervention

as possible

5. Fundamental issues

• Property as a security device• Functional approach• Publicity (notice filing or transactional filing, advance

filing, access, transparency v. privacy) • Party autonomy and contractual freedom• Enforcement• Protection of unsecured creditors• Security rights and insolvency proceedings

6. Present situation in Belgium

• Typical civil law jurisdiction

• Pas de gage sans dépossession

• Complex system of legal preferences

• Importance of publicity

• Security transfer of ownership

• Rules of enforcement

7. Overall conclusion

• Very complex • (e.g. different types of pledges; distinction civil law/commercial law);

• Incomplete • (e.g. no possibility to create a non-possessory pledge);

• Not very efficient • (e.g. existing publicity systems are not organised on a national scale and

cannot be consulted in an electronic manner);

• and sometimes even archaic • (e.g. rules of enforcement).

8. Reform in France

• Bicentenial Civil Code (1804-2004)• Committee of experts (prof. Grimaldi)• Ordonnance N° 2006-346 of 23 March 2006, JO 24

March 2006• Civil Code, Book IV “Des sûretés” (art. 2223-2488 CC)• Non-possessory pledge (registration) (art. 2338 CC,

Décr. N° 2006-1804 of 23 December 2006) • Non-possessory pledge on inventory (gage des stocks):

registration (art. L 527-4 C.comm., Décr. N° 2006-1803)• Retention of title: art. 2367-2373 C.civ.• Fiduciary transfer (2009): art. 2373-1-5 C.civ.

9. Reform in Belgium

• Reform in France (2006)• Financial crisis• Objectives: enhancing the availability of secured credit

of businesses and families in order to support economic growth

• Act of 11th July 2013, Official Gazette, 2 August 2013 (2nd ed.), www.juridat.be and German translation in Official Gazette, 14 August 2014 (2nd ed.)

• The Act will replace the old provisions regarding pledge in the Civil Code but with a new numeration.

10. Basic principles of the reform

• Effective, flexible and predictable system of security rights

• Balanced approach, taking into account both the interests of the creditor, the debtor and third parties (+ consumer protection)

• Functional approach of security interests (‘pledge’)

• To restore the position of the Civil Code

• To contribute to the harmonization of security law in Europe.

11. Scope of the Reform

• All contractual security rights in movable tangible or intangible property (art. 7).

• All sorts of claims can be secured (art. 10)• All sorts of assets (art. 7)• Future assets (art. 8)• Real subrogation (art. 9)• ‘Business’ and ‘agricultural exploitation’ (art. 7)• Intellectual property rights (art. 7)

12. Exceptions

• Ships

• Financial collateral (Act 2004, Financial Collateral Directive)

• Insolvency proceedings

• Financial leasing and sale and lease back

• Legal preferences

13. Basic concepts

• Pledge agreement as a ‘consensual’ agreement (art. 2)• Validity between parties/Effectiveness third parties• Proof (written document) (art. 4)• Consumers: documentary form signed by both parties• Effects on third parties: registration, possession

(corporal goods), control (claims) • Security trust (art. 3)

14. Publicity

• Registration

• National Pledge Register (art. 26-38)

• Entries by the secured creditor

• No advanced filing

• Consultation of register (Royal Decree)

15. Enforcement

• Contractual freedom (exception: consumers: art. 46)

• Extra-judicial enforcement

• In good faith and economically reasonable (art. 47)

• a posteriori control by the court (art. 56)

16. Priority conflicts

• Prior tempore –role (art. 57)

• Super priority (art. 58) Unpaid seller Subcontractors Legal lien for repairs

17. Other innovations

•Modernisation of possessory pledge

•Retention of title (art. 69-72)

•Notion of ‘control’ (receivables) (art. 60)

•Fiduciary transfer (art. 62)

•Legal lien (droit de rétention) (art. 73-76)