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bankrupt, the courts will appoint an insolvency administrator (curator) to liquidate the assets on the behalf of the chargee and the other creditors. The security rights of the chargee are not jeopardised in the event of insolvency or of execution by other creditors.

(c)The enterprise charge is one of the most important security devices in Belgian commercial practice.

(d)There is no limitation on the value of assets that may be used as collateral referable to the quantum of the debt to be secured. The pledge is valid for existing and future debts.

Variation

Transactions undertaken by the debtor which are intended to infringe the right of recourse of his creditors to his estate can be challenged by those creditors by means of the actio Pauliana (article 1167 C.civ.). Such an action is brought directly against the third party. If successful, the transaction in question will be avoided, in order to restore the rights of recourse of the plaintiff. When this is not possible, the third party will be required to pay compensation. In order to be successful, the plaintiff must prove: (1) a personal prejudice that resulted from the transaction (e.g. a reduction of his right of recourse); (2) the intention of the debtor; and (3) the knowledge of the third party. In the case of a gratuitous act, no complicity or knowledge on the part of the third party is required. An important feature of the actio Pauliana is that its effects benefit only the creditor who undertook the action. When, for example, a contract of sale is declared void, the plaintiff may have recourse to the object of the sale as if it still formed part of the estate of his debtor, but the contract remains valid in relation to all other parties.

After the commencement of insolvency proceedings it is no longer possible for individual creditors to have recourse to the actio Pauliana. From that moment on only the insolvency administrator can bring a claim to have transactions set aside, for the benefit of the creditors generally. The general principle of article 1167 C.civ. is restated in article 20 Bankruptcy Act, according to which all transactions or payments made with the fraudulent intention of prejudicing creditors may be set aside, without any time limit. In addition, the Bankruptcy Act provides for more specific rules of avoidance. According to article 12, the commercial court can fix

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that another creditor should try to execute against the stock (article 865◦ CPC).

(c)Arrangements of this kind are not very common in business practice. Instead of a security over the stock, a bank would normally ask for a pledge over the shares of the private limited company, or an enterprise charge (penhor de estabelecimento comercial). This is a security that creates real rights in the whole of the enterprise, but not the stock alone. Such a security, in the case of non-payment, allows for the enterprise to be judicially sold to enforce the creditor’s rights.

(d)There is no limit on the value of collateral, in relation to the amount of the secured loan. In Portuguese law, no restrictions are imposed as to the amount of security a creditor can obtain. It is only possible that, in certain circumstances, a debtor may be able to have declared null and

void a contract under which he granted excessive security when he was in a state of weakness (usury, article 282◦ C.C.).

Variation

The fact that the pledge was created months after the loan was made, and that at that time C was already beginning to experience financial difficulties, could affect A’s legal position. In this case, the pledge would be regarded as being gratuitous in nature, thus entitling the unsecured creditors to have it set aside by bringing a revocation action, on the ground of fraus creditorum (article 610◦ C.C.). In the event of insolvency, the pledge, in addition to all other acts of a gratuitous nature performed by the debtor in the previous two years, would be dissolved by the insolvency administrator (article 156◦ (a) CPEREF).

s p a i n

(a) An arrangement of this kind is possible by means of a real security interest, such as a charge (hipoteca mobiliaria or prenda sin desplazamiento) under article 52.2 LHMPSD. The following requirements have to be fulfilled with regard to the contract: (1) it must be formalised as a public deed, which should describe the charged goods; (2) it must be recorded in a special register of non-possessory securities. The LHMPSD is flexible with regard to the identification of the goods. It does not require any serial or registration numbers to be stated. Prescribed particulars under

the law are: the nature and features, the quantity and the quality of the goods as well as the building where they are located. The owner is obliged to take good care of the movables so charged.46 B is liable for their safekeeping. The law also requires that they should not be removed to another place without the creditor’s consent.47 In spite of statutory safeguards applicable to such charges, this type of security tends, in practice, only to be resorted to by financial institutions when there is no other way to secure the credit advanced.

(b)In the event of B’s insolvency, A has a preferential right to receive payment from the stock.48 The charged goods will not be included in the insolvency estate as long as A’s debt has not been paid by B. In other words, the chargee enjoys priority over other insolvency creditors.

(c)Business practice does not resort frequently to this type of security. The charged goods may disappear, the actions in court are long and the transaction costs of establishing such a charge, observing the formalities of the use of a public deed and registration, are high. Such considerations may act as deterrents. Additionally, all security interests, both of movables and immovables, require the collateral to be identified in the security instrument in order to facilitate a later recovery. If it is not possible to identify movables, as is usually the case with stock-in-trade, consumables and other classes of circulating goods, it is not possible to draw up a security instrument which will be both efficient and efficacious, especially with regard to third-party purchasers.

(d)There are no such limits.

Variation

In principle, the fact that the security right was created after the loan was made and at a time when B was experiencing financial difficulties does not affect A’s legal position. However, in business reality, if a financial institution anticipates its debtor’s economic difficulties, then it will request as many securities from him as possible (e.g. pledge, charge over

46See Fernández López, in: Consejo General del Poder Judicial 393.

47See articles 57, 59--60 LHMPSD. See González-Bueno, Comentarios a la Ley de Hipoteca Mobiliaria y Prenda sin Desplazamiento 58.

48See article 10 LHMSDP, articles 1922.2◦ and 1926.1◦ CC.

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movables, charge over immovables, charge of a deposit of funds, either pension funds or current accounts).

An agreement establishing a security right at a time when the debtor is already experiencing financial difficulties may give rise to a revocatory action (article 1111 CC) by any creditor who considers that the agreement was made in order to defraud his collecting rights by conferring on another a preferential right. The actio Pauliana is an action of last resort which means that the creditor must first exhaust any other possibilities to enforce payment of the debt (such as filing an acción subrogatoria).49 Only when it is not possible to bring any further claim can the creditor rescind the contracts validly entered into by his debtor with third parties, if creditors have been defrauded.50 The process of rescission involves, between the respective parties to the contract, the return of the goods and the refund of the price paid (article 1295/I CC). Nevertheless, if goods that were the object of the contract are found legally in the possession of third parties who acted in good faith, rescission would not be permitted (article 1295/II CC). In a such case, however, the injured party would be entitled to claim damages from the party who had injured him (article 1295/III CC).

Rescission in pursuance of the actio Pauliana will only be barred in circumstances where the third party has acted in good faith. Accordingly, if the purchasing third party knew that the transaction had a fraudulent end, he will also be held liable for any damages and losses caused to the creditors of the transferor. Article 1298 CC stipulates that whoever acquires in bad faith the goods sold to defraud creditors and cannot return them must compensate the latter for any losses caused.

i t a l y

(a) Under certain conditions, the arrangement described in the instant case is possible under Italian law, if carried out in accordance with a provision of the new Italian Banking Law. Article 46 of Italian Banking Law (d. lgs. 1 September 1993, n. 385, as amended by d. lgs. 4 August 1999, n. 342)51 introduced a charge (privilegio speciale) that secures

49See Cristóbal Montes, La vía subrogatoria 118 and Ataz López, Ejercicio por los acreedores de los derechos y acciones del deudor 82.

50See García Amigó, in: Paz-Ares/Díez-Picazo/Bercovitz/Salvador 70; Moreno Quesada, in: Paz-Ares/Díez-Picazo/Bercovitz/Salvador, 525.

51D. lgs. 4 Aug. 1999, n. 342, article 8.

longto medium-term bank loans to enterprises.52 According to article 46 of this decree, the charge attaches to assets which are not registered in a public register, provided that they fall within one of the following categories: (1) existing or future manufacturing plant, tools of any kind, and any asset that is instrumental to the enterprise business; (2) raw materials, semi-manufactured products, stock, finished products, fruit, livestock and merchandise; (3) any asset bought with the loan secured by the charge; (4) present or future claims arising from the sale of any asset specified in the preceding categories.

The charge introduced by article 46 of Decree n. 385/1993 will be void unless it is created by a written instrument. The document in question must specify:

(1)exactly what collateral is included within the ambit of the charge;

(2)the names of the lender, the debtor and the subject who created the charge, if that subject is a third person;

(3)the amount of the loan and its terms; and

(4)the sum secured by the charge.

The charge is effective vis-à-vis creditors and third parties after registration of the said document in the register of article 1524 section 2 c.c. Such a register is kept at every Tribunale. The charge shall be registered at the court having jurisdiction over the territory where the enterprise has its seat and at the court of the place where the chargee is resident, or has its seat.

If all the formalities established by article 46 of the Italian Banking Law are met, the lender obtains security over a changing mass of assets, such as stock-in-trade.53 Apart from the article 46 Banking Law charge, one would have to rely on some other legislative provision to secure a debt, if recourse was not to be had to the rules which accord priority over movable things solely to pledgees who part with actual possession of the thing, which is either handed over to the pledgor, or to a third party (articles 2784 ff. c.c.), or with documents of title thereof. To a great extent, the system of charges (privilegi) established by the Civil Code and

52For commentary see: Capriglione/Tucci 341 ff.; Sepe, in: Ferro-Luzzi/Castaldi 706 ff.; id.,

Seconda appendice di aggiornamento 113--155; Rescigno, Banca borsa 1999 I, 583 ff.; Tucci, Giur. it. 1999, 1985; Veneziano, Dir. comm. internaz. 1996, 921; Costantino, Riv. trim. dir. proc. civ. 1995 I, 1313 (1321).

53Rescigno, Banca borsa 1999 I, 583. Note, however, that Presti, Banca borsa 1995 I, 594, 612--614, holds that a changing mass of assets cannot be covered by the new statutory charge, inasmuch as it is impossible to know what is the precise object of the charge in the case of fungibles.

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by a long list of legislative provisions aimed at enhancing the position of various categories of creditors54 does perform the function of providing non-possessory securities for creditors.55 Furthermore, some of these charges do provide security over a changing mass of things, though in respect of activities not directly connected with the example mentioned in the present case. Nevertheless, this system is far from rational in nature.56 Since the enactment of the Civil Code, in 1942, it has grown into a jungle, because exceptions have eaten up the rule which proclaims: ‘creditors have equal rights to be paid out of the property of the debtor, subject to lawful causes for preferences’ (article 2741 c.c.). Lawful causes for preferences are now a maze where private autonomy has little or no place. Furthermore, the fact that most of these charges spring directly from a great number of legislative provisions has the consequence that the whole system signals in a rather weak way those forms of credit that are secured and those which are not. Finally, one may wonder whether the system is fair, or whether it is unduly tilted in favour of certain categories of creditors. The fact that the categories of claims and the order of preferences that are protected through the system of charges are established by the legislature, no longer provides an easy answer to this question. One does not have to be an expert on the capture theory of regulation to draw the conclusion that certain charges must have been put on legislative agenda because of the efforts of lobbyists, or to placate certain economic sectors. Even the article 46 Banking Law charge could be examined from this point of view. Why should only banks, rather than other entrepreneurs, have the opportunity to secure their claims over such a wide array of assets as is possible under this provision? One commentator57 posed this question in the context of examining the constitutionality of the said provision in the light of article 3 of the Italian Constitution, dedicated to the principle of equality before the law. Quite surprisingly, he ended up by explaining that banks perform the important function of supplying credit to the economy!

(Postscript: The amendments to the Italian Civil Code articles on company law that will enter into force in 2004 will add to the solution described above a new instrument of secured credit, i.e. the creation of

54Such as producers of Parma ham! (Law of 24 July 1985, no 401). Costantino/Jannarelli, NLCC 1986, 540.

55Cf. Drobnig, UNCITRAL Yearbook 1977 (A/CN.9/131) Annex, part II, II. A.

56On this point: Candian, Le garanzie mobiliari, passim; Bussani, ERPL, 1998, 23, with citations to a number of authors who share the same diagnosis.

57Sepe, in: Ferro-Luzzi/Castaldi, La nuova legge bancaria I 709.

patrimonies dedicated to a specific affair (patrimoni dedicati ad uno specifico affare, cf. new Civil Code articles 2247 bis--2247 decies c.c.). This is a form of asset segregation available only to società per azioni. It creates a security in favour of creditors who are willing to finance a specific affair of the company by taking a non-possessory security over floating company assets related to the affair in question. Even under the new regime, the company cannot create this kind of security over all its assets, however.)

(b)In the event of B’s insolvency, A has a preferential claim in respect of the monies that B owes to him. The procedural aspects of this claim are governed by articles 53 and 54 of the Italian Insolvency Act. These provisions provide that the preference of secured creditors may be satisfied, pending insolvency proceedings, through the sale of the collateral which secures the credit. The sale is authorised by the judge, who is in charge of supervising insolvency administration.

The preference ranking of the secured creditor’s debt is fixed by article 46 of the Banking Law itself. The article 46 charge ranks behind certain other charges and statutory preferences listed by the Civil Code, which secure claims such as employees’ salaries, commercial agents’ commissions, etc. (see article 2751 bis c.c.). It also ranks behind a pledgee’s preferential claim. On the other hand, it is preferred to the claims of insolvency creditors and to a number of other charges (articles 2752 ff. c.c.).

Individual creditors may execute against any asset that is subject to the charge. Contrary to the position with respect to pledges and ipotecas, the chargee cannot resist the execution.

(c)At the moment, I cannot answer question (c) because I am not aware of any literature covering the actual practice under the new banking legislation. There are no clear indications that a substantial number of financing operations have been carried out on the basis of article 46 of the new banking legislation.

(d)The Banking Law does not place a limit on the value of the collateral to which the charge discussed under part (a) may attach. Such limits may, however, result from the Law of 7 March 1996, n. 108, disposizioni in materia di usura. This enactment reformed the law on usurious loans, which are void and punished with criminal sanctions. The rate of interest that is considered to be usurious is now fixed by decrees of the Ministry of the Treasury, with reference to the interest rates of markets for different kinds of operations. The law’s definition of usurious