Case 6: Motor cars supplied and resold (II)

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would apply:1 due to the unlawful sub-sale, A would have been deprived of his right to vindicate the cars. As B’s claims against the customers would not yet have been satisfied, A could then require the insolvency administrator to assign the outstanding claims to him.

(b) As explained previously,2 a proceeds clause would be the appropriate and most commonly used way to provide a seller with security when it is intended that the goods are to be resold. In pursuance of such a clause, the buyer anticipatorily assigns to the seller the claims against his sub-purchasers. All that is required is the inclusion in the contract of a properly worded clause. It should be noted, however, that the seller’s position is that of the holder of a security right, not that of a ‘normal’ assignee; in other words, his relationship with the buyer/assignor is a fiduciary one. This inter alia determines the nature of the seller’s rights in the buyer’s insolvency,3 especially after the new Insolvency Code4 entered into force: it is the insolvency administrator, and not A himself, who can claim payment from C1--C5 (§§ 50 s. 1, 51 n. 1, 166 s. 2 InsO). However, the insolvency administrator is obliged to satisfy A’s claim out of the monies he receives from C1--C5, after deducting the costs incurred in assessing and realising the security right (§ 170 s. 1 InsO).5 The new Insolvency Code (§ 171 InsO) fixes these costs at 9 per cent of the amount received by the administrator from the third-party debtor (C1--C5). So long as the value of the collateral is equal to or greater than the aggregate of the secured claim and the costs of assessment and realisation of the security right, the secured creditor will be paid in full.

An important point to note in this respect is the time-span within which the administrator has to realise the value of the collateral. After

3In an execution against B’s assets, A’s rights in respect of the claims against C1--C5 would not differ from the rights of a ‘normal’ assignee. The creditors of B could not execute against the claims, simply because the claims do not belong to B.

4See the summary by Eckardt, ZIP 1999, 1734 f. Under the old Insolvency Code (§ 48 Konkursordnung), the realisation of the collateral was administered primarily by the creditor himself and did not form part of the insolvency proceedings (§§ 4 s. 2, 127 s. 2 KO). Moreover, secured creditors did not have to contribute to the costs of the assessment of their rights and the realisation thereof.

5This right to preferential payment out of the proceeds of the realisation is called Absonderung. Before the new Insolvency Code came into force, this right existed under judge-made law: see RG 9 Apr. 1929, RGZ 124, 73 (75); BGH 9 Dec. 1970, LM (from 1971 on) § 157 (Ga) Nr. 18; BGH 1 July 1985, BGHZ 95, 149 (152); BGH 17 Apr. 1986, ZIP 1986, 720 (722). It was also generally accepted in the doctrine: see Kuhn/Uhlenbruck,

Konkursordnung § 48 KO n. 24 a; Münchener Kommentar/Roth § 398 BGB n. 85.

the commencement of insolvency proceedings, the court will fix a date for a general meeting of all creditors, at which the administrator will outline how he intends to take the procedure forward (the so-called report meeting: see §§ 156 ff. InsO).6 This meeting should take place within six weeks, and must take place within three months, of the commencement of insolvency proceedings (§ 29 s. 1 n. 1 InsO). After the meeting, the administrator is obliged to realise the bankrupt’s assets as soon as possible, including those subject to security interests (§ 159 InsO). If the administrator does not fulfil this obligation in a timely manner, the secured creditor is entitled to be paid interest (§ 169 sent. 1 InsO).

Apart from the contribution to the costs and the waiting period just mentioned, the new Insolvency Code has introduced another novel measure which may severely curtail the rights of creditors who do not have a right to vindicate, but only a right to preferential payment (for reasons of simplicity, hereinafter called secured creditors). According to § 217 ff. InsO, the creditors’ general meeting can decide to set aside all the rules governing the satisfaction of creditors’ claims and opt for an individually negotiated insolvency plan. This procedure is especially designed for cases where a reorganisation appears to be feasible (see § 1 s.1 sent. 1 InsO). At this point, it is not necessary to describe in detail the procedure by which an insolvency plan may be set up.7 It is sufficient to note that the plan must expressly specify the percentage by which the rights of secured creditors will be curtailed and, or alternatively, a timetable for the realisation of the collateral (§ 223 s. 2 InsO). Also, the insolvency creditors cannot approve an insolvency plan contrary to the wishes of the majority of the secured creditors. § 244 s.1 n. 1 InsO provides that, in order to approve the plan, a majority of each group of creditors, including the secured creditors (see § 222 s. 1 n. 1 InsO), is required.

a u s t r i a

(a) As no anticipatory assignment of the claims arising out of the sub-sales took place, B’s insolvency administrator is entitled to claim payment from C1--C5.

6 See further Paulus, Texas International Law Journal 33 (1998) 141 (148).

7See further Bork, Einführung in das neue Insolvenzrecht nn. 310 ff.; Wellensiek, BB 2000, 1 (5 f.). Until recently, the insolvency plan procedure was not particularly well received by practitioners: see Wellensiek, BB 2000, 1 (6).

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(b) As discussed previously, A and B could provide for extended reservation of title: reservation of title coupled with a security assignment of claims arising from resales (verlängerter Eigentumsvorbehalt).8

g r e e c e

(a)If B goes bankrupt, the claims against C1--C5 belong to the insolvency estate. Thus, it is the insolvency administrator who is entitled to claim payment.

(b)Only an extended retention of title clause (i.e. a proceeds clause) would entitle A to recover the claims arising from the sub-sales. In business practice, when the purchaser is a retailer, the retention of title agreement usually provides for an assignment to the vendor of the future claims of the purchaser arising from the resale of the product (a proceeds clause).9 This form of assignment is in reality a fiduciary one, because it provides security for the satisfaction of the vendor’s (A’s) claims as against the assignor (B). The latter will often be authorised by the assignee (article 239 A.K.) to collect the monies. No special prerequisites are required for such a security assignment. A can, however, register the assignment (article 12 L. 2844/2000) if he wishes to gain priority over possible future assignees of the same claim.

If A and B agreed such an extended reservation of title agreement, and B went bankrupt, the assigned claim would not form part of the insolvency estate, as, by virtue of the assignment, the claim would have been separated from the assignor’s property.10 According to the prevailing view, this is so irrespective of whether the assignment has been notified to the debitor cessus. If the assigned claim falls due, the assignee is entitled to collect the money, unless the administrator pays the secured debt.

A differing view, as supported by N. Rokas,11 contends that the provisions governing pledge are applicable by way of analogy to an insolvent

8 For details, see above, Austrian report, case 5(c).

9For extended retention of title, see Roussos, ‘I epekteinomeni epiphylaxi kyriotitas’ 397.

10The prevailing view is supported by Georgiadis, Empragmato Dikaio II 267; Kornilakis,

I katapisteutiki ekchorisi ton apaitiseon 126.

11N. Rokas, Stoicheia ptocheutikou dikaiou 29. According to this opinion, if the notification of the assignment has not occurred before the commencement of insolvency proceedings, the claim forms part of the insolvency estate.

debtor who assigned his claims in a fiduciary way.12 The assignee-initial creditor, though holder of the claim, cannot claim payment directly from the debitor cessus, but will be entitled to preferential payment from the proceeds of sale. This seems the better view, as the assignor is not the typical but the substantial holder of the right. The fiduciary assignment of a claim resembles a pledge, as both ensure the satisfaction of the assignee’s claims. If B’s creditors seek to execute against the assigned claim, A, after having notified the debitor cessus of the assignment,13 can resist the execution (article 936 KPolD).

f r a n c e

(a)C. com, article L. 621-124 enables the seller to claim from the subbuyer the sale price, or part of the price, of the assets sold under a retention of title agreement, so long as the price was not paid to or settled in kind with the debtor, or set off as between debtor and subbuyer, at the date of the commencement of the insolvency proceedings. In order for A to be able to claim real subrogation into the proceeds arising from the resale of the cars, it is necessary that the assets supplied to the sub-purchasers remained in their original state. A, apparently, will be able to claim payment from C1--C5 for the cars, limited in quantum to the amount of his own claim.

(b)A’s right under C. com, article L. 621-124 is good (see part (a), supra), so long as the assets have not been transformed in nature (as considered in cases 7 and 8, infra).

b e l g i u m

(a)The insolvency administrator is entitled to claim payment from the different customers, but A will be entitled to preferential payment out of the proceeds.

(b)According to the principle of ‘real subrogation’, the seller can require that the proceeds are to be handed over to him. The proceeds of each

12Ibid., 35--36; see also Mantzoufas, Enochikon Dikaion 193 and AP 1669/95 DEE 1996, 375.

13AP 42/1969 NoV 17, 550; Balis, Enochikon Dikaion, Genikon Meros § 157, 4; Kritikos, in: Georgiadis -- Stathopoulos AK 455 II n. 71. For the opposite view, i.e. that the notification of the assignment is unnecessary to resist the execution, see Georgiadis, Empragmato Dikaio II 266; Kornilakis, I katapisteutiki ekchorisi ton apaitiseon 71.

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sub-sale are regarded as the substitute for the car to which the seller reserved title. Therefore, neither the buyer nor his creditors can claim to have a stronger right to these proceeds than to the car itself.

p o r t u g a l

(a)The solution to case 6 is the same as that to case 5. The fact that the customers have not yet paid for the cars makes no difference. In both cases, if A has registered a reservation of title agreement, then the customers would not be able to register their ownership unless A receives his full payment and cancels the registration in his favour.

(b)Identical to case 5(c).

s p a i n

(a)Only B’s insolvency administrator can claim payment from C1--C5. A is simply an insolvency creditor. In this case, the retention of title clause cannot accord to A any priority if B goes bankrupt.14

The purchasers are protected by article 85 CCO, according to which their acquisition is protected by virtue of having been obtained in a shop open to the public. The insolvency administrator can claim payment from C1--C5. A’s reservation of title clause accords to him no greater guarantee, since in this case ownership of the goods has passed to third parties who are protected by law. In such a case, the good faith of the purchaser is of no importance. If, however, the sale was governed by the LVBMP, and if the reservation of title clause had been recorded in the Chattels Registry, A would not be affected by B’s insolvency (article 908 CCO) and any rights of third parties such as C1--C5 would evaporate, entitling A to vindicate the cars from B’s insolvency estate.

(b)A could not obtain a better right to the subsale claims, unless the creditor took a special security (e.g. the contract had been included in a public deed conferred by a notary, article 1924.3 CC). In this case, the parties have to comply with specific formal requirements in the presence of the notary, who will ensure that the goods that are the object of the contract of sale are properly identified, which in this case would

14See article 1922.1 CC and article 908 CCO. See Díez-Picazo, Fundamentos de derecho civil patrimonial I 761.

mean recording the trademark of the car, the model, the chassis number and the licence number, if there is one. Finally, a copy of the vehicle registration document for each car would also need to be attached to the public deed. If the debt was defined in this way, A would have, in B’s insolvency, a preferential right of payment, in priority to other debts which are embodied neither in a public deed nor in a judge’s final decision (article 1924.3 CC).

i t a l y

(a)Considering the contractual term in question, B’s administrator is entitled to the sums that are still due from C1--C5. A will rank as an insolvency creditor in B’s insolvency proceedings.

(b)For general remarks on how the risk of the car dealers’ insolvency is addressed by current Italian business practice see above, case 5(c).

In principle, A would be better off if he had entered into a commission contract with B. In such a case, article 1705 c.c. expressly entitles A to sue B’s customers for the sums they owe B.15 This entitlement is not curtailed by B’s insolvency, provided that the contract in question has a certain date prior to the commencement of insolvency proceedings (article 1707 c.c.). For the reasons explained previously, in case 5(c), it is, however, unlikely that A and B will opt to enter into such a contract.

As an alternative, A and B could provide that the future claims, arising between B and his customers, should be assigned in favour of A. It is highly unlikely that such an assignment will be used in practice, however, for the reasons explained above, in case 5(c).

In either case, the fact that the customers have not yet paid B would prevent problems concerning the identification of the monies due to A under the commission contract, or the assignment provision, from arising.

15Article 1705 c.c.: ‘A mandatory acting in his own name acquires the rights and assumes the duties arising from transactions made with third persons, even if the latter had knowledge of the mandate. Third persons have no relationship with the principal. However, the principal can, by substituting himself for the mandatory, exercise claims arising from the performance, except when in doing so he impairs the rights attributed to the mandatory by the provisions of the following articles.’ The origins of this provision go back to the epoch of the ius commune: Supino, La rivendicazione nel fallimento. Several decisions hold that the proper application of article 1705 c.c. is still limited to claims for fixed sums of money. Accordingly, a claim for damages would not be covered by that provision: Cass. 5 Nov. 1998, n. 11118, Foro it., 1999, I, 94.

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Finally, A could sell the cars to B and take a charge for the purchase price under the special rules applicable to cars and other vehicles.16 This charge would entitle A to collect the monies that C1--C5 still owe to B, in priority to the insolvency creditors. Yet even this solution is very unlikely, because the charge is not valid unless it is registered in the public registry established for transactions concerning vehicles (P.R.A.). But new vehicles that are sold by producers to dealers are not subject to such registration, as has been explained previously. Hence no charge can be taken on them.

t h e n e t h e r l a n d s

(a)The claims arising from the subsales are owed by C1--C5 to B. A has no claim against C1--C5. This does not change with the commencement of insolvency proceedings against B.

(b)Dutch law does not provide for a form of retention of title that would provide A with a better right to the proceeds of the sub-sales. Nor would it be possible to create a charge over the future claims arising from the sub-sales. As in case 5(c), the only way would be for A to oblige B by their contract of sale to grant him or her a charge at the time the claims come into existence.17

e n g l a n d

(a) It makes in principle no difference in such a case whether the subbuyers have paid the buyer, as in case 5, or not. The mere fact that payment has not been made is irrelevant. A obtains no direct right to payment on the ground that C1--C5 have not yet paid.

Nevertheless, the above simple approach needs to take account of the terms on which the goods have been sold. Suppose the contracts between B and C1--C5 provide for ownership to pass only when B is paid and B has not been paid at the date when B’s insolvency proceedings commence (whether they be bankruptcy or liquidation). Under s. 25 of the Sale of

16R.d.l. 15 Mar. 1927, n. 436, articles 2--6, converted into law 19 Feb. 1928, n. 510; article 2810 c.c. For a commentary: Miglietta/Prandi, in: Giurisprudenza sistematica di diritto civile e commerciale 312--317.

17NB one should be aware that, in practice, B would often already have charged or, rather, would be under an obligation to charge, these claims in favour of his or her bank.

Goods Act,18 C1--C5 will obtain against A only such rights as they would obtain against B, which is possession under sub-sale contracts where title to the cars has not yet passed.19 If C1--C5 obtain notice before the statutory exception to the rule of nemo dat is completed, they cannot acquire good title as against A.

(b) As stated above, it is not difficult for A to acquire rights in the money proceeds of the sub-sales by way of charge. The difficulty is for A to register his rights in an effective way.

i r e l a n d

(a)Basically the analysis is the same as for case 5. It is submitted that B’s insolvency administrator has a better claim than A to payment from C.

(b)Moreover, with respect to part (b) it is difficult if not impossible to conceive of circumstances whereby A could get a better right to the claims arising out of the sub-sales. If there is a provision in the original contract of sale under which the seller may sue the sub-buyer for resale claims, the courts are likely to hold that the provision constitutes a registrable charge. A registrable, but unregistered, charge will be void for want of registration. Among the categories of registrable charge specifically enumerated in s. 99 Companies Act 1963 is a charge on ‘book debts’, i.e. ordinary trade claims. Claims by the seller to claims owing from resale buyers may be held to fall squarely within this provision.

Re Interview Ltd20 illustrates this proposition. In this case, an Irish company imported electrical goods from a German supplier with the sales contract providing inter alia:

With respect to a case of resale of the goods . . . in any condition whatsoever . . . the purchaser agrees to assign and assigns to the supplier, at the conclusion of the supply contract and effective up to the time of payment of all debts owing by the purchaser to the supplier, any claims against the purchaser’s customers which may have arisen or arise in future from the resale, by way of security, and undertakes to notify the supplier at his request of the names of third-party debtors and of the amount of the debts owing by these to the purchaser.

18As amplified by its companion provision, s. 9 of the Factors Act 1889.

19Re Highway Foods International Ltd [1995] BCC 271. Cf. Shaw v Commissioner of Police of the Metropolis [1987] 3 All ER 405.

20[1975] IR 382.

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The judge held that the provision represented a charge on the buyer’s book debts requiring registration under s. 99(2)(c) of the Companies Act 1963. He reached this conclusion on the basis that there was an assignment of claims ‘by way of security’, the contract itself using that expression. There was no absolute assignment, for, if the purchaser had paid for the goods immediately, there would have been no assignment of the claim created by the resale.

s c o t l a n d

(a)C1--C5 must pay the price to B’s insolvency administrator and not to A.

(b)For the trust device, see case 5(c). The trust device does not work. No attempt has in practice been made to include in the A--B con-

tract an anticipatory assignment by B to A of the future proceeds of sale. There has been some theoretical discussion of this possibility. The arrangement would probably fail, since assignation21 must be completed by notification,22 and in the case of a future claim notification is not yet possible.

s o u t h a f r i c a

(a)The insolvency administrator is entitled to claim payment from C1-- C5. A will, however, have a security right (tacit hypothec) over the proceeds of the sale according to the provisions of the Insolvency Act.23

(b)In view of A’s security right (tacit hypothec), his position would be satisfactory.

d e n m a r k

(a) According to Danish law, the retention of title clause used in this case is not valid because it is not stipulated that the distributor, B, has to settle with the importer, A, when the cars are resold. (This is described in detail in case 5.) As a consequence of this, B’s insolvency administrator can claim payment from B’s customers, C1--C5. Even if a valid retention of title clause had been included within the contract, B’s