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however, is that the secured creditor will benefit from, most probably, a security right only in the monies earned before B becomes insolvent. Without such a rule, the monies earned by the activities of the insolvency administration, and at the expense of the insolvency estate, would fall into the hands of the chargee or assignee. That would, for many reasons, be unwelcome. The security right, i.e. charge or security assignment, should, in every case, be communicated to H.113

(b)(i) and (ii) The assignment or charge will be valid against the creditors of B only if it was communicated to H prior to the insolvency. Otherwise, the monies would belong to the insolvency estate.

(c)(i) If A’s right was communicated to H before B became bankrupt, A would have the normal rights of a chargee or a security assignee to the monies already earned by B but not yet paid to him or her. A could, therefore, collect the monies from H in order to discharge the secured debt, and the claims against H could, if necessary, be sold by A or the insolvency administrator for the satisfaction of A. There would, however, be an inherent risk that the insolvency administrator would be able to avoid the security. This is due to the fact that the security right is, probably, not regarded as properly established until the monies are earned. Such a characterisation, however, will often lead to the conclusion that the security right has not been established without unnecessary delay.114

(ii) If H paid the monies to B with knowledge of the assignment or charge, H would still be obliged to pay the monies to A. The payment would not, in other words, discharge the debt. H can, on the other hand, claim the monies paid to B back from the insolvency estate, but he or she would be, in respect of such a claim, an insolvency creditor without any preferential right.

Comparative observations

All systems conclude that B’s claims against H can in principle be used as collateral for a loan advanced by A. This is the first and perhaps most surprising result of the comparison. Only the Finnish and Scots reports have expressed some reservations with respect to the feasibility of such a transaction.

113See s. 31 of the Act on Promissory Notes (velkakirjalaki/lag om skuldebrev).

114See above, Finnish report, variation to case 11.

For practical purposes, the most important dividing line lies between those jurisdictions which, in order for the security right to be valid as against third parties such as B’s insolvency creditors, require the debitor cessus to be notified of the security right prior to the commencement of insolvency proceedings and those jurisdictions which do not require such communication or allow it to be replaced by some other, less cumbersome means. The first group consists of France (with respect to assignments under the Code civil), Italy, Scotland115 and the three Nordic countries. The second group comprises Germany, Austria, Greece, France (with respect to assignments under the Loi Dailly), Belgium, Portugal, the Netherlands (silent charge), England, Ireland and South Africa. Within the second group, Portuguese law should be regarded as a special case in so far as it does require notification to be made to the debitor cessus as a prerequisite for the validity of the assignment or the charge as against third parties, but allows such communication to be made even after the commencement of insolvency proceedings over the assignor’s or chargor’s estate. With respect to the silent charge which must be registered prior to the chargor’s insolvency, Dutch law likewise allows for notification after the commencement of insolvency proceedings, yet this notification does not serve the purpose of rendering the charge valid but it confers upon the chargee the right to claim payment directly from the debitor cessus.

The possibilities and prerequisites for a security right in B’s claims against H can be examined under the following three headings:116

(1)legal form or nature of the security right;

(2)the requirement of notification of the debitor cessus or acceptance by him; and

(3)further requirements for the validity of the security right as against third parties.

(i)Legal form or nature of the security right

The security right can take the form of either an assignment (for security purposes) or a charge or both. German and Greek law allow claims to be assigned as security and charged, but do not extend the formal requirements of the charge, especially the need for notification, to security assignment. The same seems to apply in South Africa. In practice,

115Leaving aside what the Scots report calls ‘perhaps the modern position’, that de facto knowledge is sufficient.

116The analysis is better approached by considering these questions, than by considering each individual part of the case (that is, (a), (b) and (c)).

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therefore, assignment is preferred in these countries. Other jurisdictions treat both transactions in exactly the same way. This is the case in Austria, Portugal, Italy, Sweden and Finland.117 A number of countries do not allow claims to be both assigned and charged. In Belgian and Dutch law, on the one hand, claims can only be charged, not assigned for the purpose of granting security. So far as the same requirements as to form and publicity extend to both transactions (see Belgian law), this view can only be explained by tradition. The common law jurisdictions seem to pay little attention to the question of the transaction’s ‘legal nature’. The English report mixes assignment with charge and mortgage by stating that ‘a claim may be assigned by way of a charge or mortgage’.

A number of reports point out that the transaction between A and B may also take the form of a factoring agreement. Especially in Italy, such an arrangement would make the transfer of the claim far less cumbersome. Nevertheless, for the reasons given in the Italian report, this comparative summary will not extend to factoring.

(ii) Notification of or acceptance by the debitor cessus

The requirement of making notification to the debitor cessus, or of obtaining his acceptance, prior to the assignor’s or chargor’s insolvency, is crucial for the practicability of the transaction. The debitor cessus can only be notified or asked to accept the assignment or charge once his identity is known and even where it is known, as in case 12, notification or acceptance remain cumbersome procedures, especially if they must be performed in a formal way or through a bailiff.

One might argue that there is only a minor difference between those jurisdictions which require notification and those which do not, since under the latter, a bona fide debitor cessus can extinguish the claim by validly paying B, thus reducing the security’s value to zero. This is illustrated by the answers to parts (b)(ii) and (c)(ii). If H pays B in ignorance of A’s rights, the claim is discharged and the monies belong to the insolvency estate. A may only exceptionally maintain a right to the proceeds if they have been kept separate. If, on the other hand, H pays B knowing of the assignment or charge, the debt is not discharged and H runs the risk of having to pay a second time. With respect to these two situations all

117In Spain, the distinction between charging a claim and assigning it for security purposes is not yet fully developed, nor are the respective requirements fully identified. For an overview see Hellmich, Kreditsicherungsrechte in der spanischen Mehrrechtsordnung 111 ff.

jurisdictions reach the same results, the only difference arising, in the context of situation (b)(ii), in the rationale underpinning the discharge of H’s indebtedness. In those systems which do not require notification, the rationale is H’s belief in B’s right to claim payment. In those which do, it is invalidity of the assignment or charge.

However, the practical difference that results from the notification requirement can be seen in situation (b)(i). In those systems that require notification or acceptance prior to B’s insolvency, A has no rights to the still existing claim, but under either those which do not require notification at all, or those which allow notification to be performed after the commencement of insolvency proceedings, A will still be able to enforce his right to the claim.

The requirement of formal notification or acceptance for the transfer of a claim to have effect erga omnes was developed in France and codified in C.civ., article 1690. Of those jurisdictions which have been heavily influenced by the French Code civil, only Italy still adheres strictly to this principle. Portuguese law has watered down the requirement by allowing notification to be performed even after the assignor’s insolvency. Since 1994, Belgian law requires an informal notification only for the validity of the assignment or charge as against the debitor cessus and third parties with vested rights. The new Dutch Civil Code has introduced a silent charge, under which notification is replaced by a registration requirement or the use of a notarial deed. In France and Italy, too, commercial reality has prompted legislative intervention to introduce more practical regimes at least for those business sectors where there is the greatest need to recognise the effectiveness of the assignment of future claims (in particular, for example, in the factoring sector). Also, in Scotland, the strict requirement of notification has been lessened; today mere knowledge on the part of the debitor cessus is probably sufficient.

One can therefore identify a general trend which moves away from notification requirements. They are generally thought to hamper the potential for the assignment of claims (that is, their negotiability) without being necessary either for the protection of the debitor cessus or of other third parties.

(iii) Further requirements

In England and Ireland, an assignment of claims ‘by way of a charge’ represents a charge over book debts and must thus be registered in the Companies Register if the assignor is a limited company. The same is true

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for Scots law, although in Scots legal terminology the expression ‘assignation in security’ is used rather than ‘assignment by way of charge’. According to Austrian law, notification can be replaced by an entry in the books of the assignor and, according to Dutch law, the parties may choose the ‘silent’ but registrable charge instead of one requiring notification. All three prerequisites may be summarised under the heading of publicity. However, whereas registration under the Companies Acts does in fact serve the purpose of making A’s rights public, the same can hardly be said of the Austrian and Dutch regimes, especially considering the Hoge Raad’s judgment on the admissibility of the registration of so-called master-lists.118

118 See infra, Dutch report, case 13(a).