Comparative observations

Parts (a)--(c)

If we consider the ways in which the stock-in-trade of an enterprise, or the enterprise as a whole, may be offered as collateral, the jurisdictions can be roughly divided into three groups:

(1)Systems which recognise an enterprise charge which covers the business as a whole or at least significant parts of it: England, Ireland, Scotland, Sweden, Finland, France, Belgium and Portugal.

(2)Systems where it is practicable123 to create a security in revolving stock-in-trade other than by the use of a f loating charge or a security right in the enterprise as a whole. This group consists of Germany, Greece and the Netherlands.

(3)Systems where it is neither practicable to take a security right in revolving stock nor possible to charge the enterprise as a whole. This group consists of Austria, Italy, Spain, South Africa and Denmark. In France, the enterprise charge (nantissement de fonds de commerce) cannot include stock.

With respect to the parties’ freedom to draft a charge which best meets their individual needs, the enterprise charge developed by English law, and received in Ireland and Scotland ( f loating charge), is probably the most advanced security device. From a comparative point of view, its most striking features are its floating character prior to crystallisation, which makes it possible to include the whole patrimony of the debtor irrespective of its legal status during the life-time of the charge; the parties’ liberty to choose the event upon which crystallisation will take place; and the existence of the procedure of receivership as an extrajudicially administered liquidation.124 Floating charges put the secured creditor in a fairly strong position, hence it is self-evident that they need to be registered. The f loating charge is tied to the procedure of receivership, hence it is impossible for individuals to grant f loating charges.

The Swedish and Finnish enterprise charge comes very close to the common law f loating charge. There are, however, some material differences. First, the two Scandinavian jurisdictions do not know of an extrajudicial liquidation procedure such as receivership. Secondly, the

123In some jurisdictions, e.g. the Scandinavian ones, it is theoretically possible to grant security in revolving stock by means of a possessory pledge. This approach cannot be regarded as practicable, however.

124For the most recent development in English law see Bridge, supra, p. 94.

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property to which the charge may extend is limited: in Sweden, a considerable part of the debtor’s patrimony cannot be included (for example, real property or claims against banks). In Finland, only half of the patrimony included within the ambit of the charge can be used for the satisfaction of the secured debt in the debtor’s insolvency. On the other hand, Swedish and Finnish enterprise charges rank in front, and not behind, statutory preferences such as claims for unpaid taxes and wages.

The French and Belgian enterprise charge (nantissement de fonds de commerce) is further removed from the English f loating charge. First, one can hardly regard it as possessing a floating character since the French nantissement attaches only to specific assets such as equipment or patents and trademarks. Only in so far as the charge also attaches to intangible property that is subject to change, such as the enterprise’s goodwill, might one speak of a floating character. Also, the nantissement is regarded as attaching to such assets as there are at any given moment. The nantissement could always be regarded as a real right in specified assets; this could not be said of a f loating charge prior to crystallisation (see especially the Scots report). As to the practical solution of case 11, there is a notable difference between French and Belgian law: according to Belgian law, half of the stock may be included within the nantissement whereas in France, an enterprise’s stock-in-trade cannot be charged as a matter of principle.

The German and Greek security transfer of ownership and the Dutch silent pledge may, in English legal terminology, be regarded as a ‘fixed’ security right. In contrast to the nantissement or the Swedish and Finnish enterprise charges, security transfer of ownership and the silent pledge cannot as such relate to a shifting fund, nor to an enterprise as a whole. These securities must be granted over specific movables. It is the principle of specificity in relation to real rights which precludes the possibility both of recognising a f loating charge and of charging a shifting mass of assets or an entity such as an enterprise. As the Scots report points out, the f loating charge is not considered to be a real right before crystallisation, yet in the civil law systems it does not seem possible to conceptualise of a right relating to property in a way that can be termed neither personal nor real.125

125The fact that the transplant of the floating charge into the Roman law-based Scots system has given rise to fundamental difficulties is illustrated by the decision of the House of Lords in Sharp v Thomson 1997 SLT 636. See Gretton, ERPL 1998, 403; Michaels, ERPL 1998, 407; Fenge, ZEuP 2000, 342.

Despite the principle of specificity, German and Dutch law have found ways to grant a security right in revolving stock-in-trade and in other collateral that is continuously alienated and replaced. The courts take a rather liberal attitude to the application of the said principle. Thus it is sufficient that the goods are identifiable at any given moment (German law) or at the moment at which the secured party wishes to take hold of the collateral (Dutch law). The necessity of separate storage when not all property is to be transferred or pledged is the only practical limit which stems from the principle of specificity. Furthermore, the necessary agreements, including (in Germany) the real agreement, may under both systems be concluded in advance and may relate to property which the debtor will acquire in the future. With respect to the creation of the security right, the main practical difference between German and Dutch law would appear to be the Dutch requirement of registration or the use of a notarial deed. Apart from the latter, the prohibition of fiduciary transfers in the new Dutch Civil Code seems to be of limited importance. In fact, the silent pledge places the creditor in an even stronger position than that of a security owner under German law. In the debtor’s insolvency, the holder of a Dutch silent pledge may realise his security right outside the insolvency proceedings, at least up to a certain date set by the insolvency administrator. It is only after that date that the creditor has to contribute to the costs of the proceedings. In Germany, the position of the security owner was roughly the same under the old Konkursordnung. However, since the new Insolvency Code has entered into force, the creditor is always required to take part in the insolvency proceedings from the beginning and must always contribute towards the costs of the realisation of his security right.

Leaving aside for the moment the enterprise charge mentioned under (1), above, German and Dutch law are the only systems under which it is feasible to take a security right in revolving stock. Under all other jurisdictions, a pledge or fixed charge of stock fails for one or both of the following reasons:

(1)The principle of publicity. A pledge would require the debtor to surrender possession of the stock. Whilst it would not be strictly necessary for the creditor to take actual possession of it, the stock would have to be stored in such a way that would prevent the debtor from having access to it (see Austrian, Belgian, Danish, Swedish and Finnish reports). It is evident that on the facts of case 11, this is not a viable solution.