Discussions

by more than 150 per cent. In contrast to earlier judgments, this duty no longer has to be explicitly stated in the contract; instead, the appropriate terms will be implied into the security agreement, as part of its fiduciary character.

a u s t r i a

(a)Yes: see answer to case 12(a). It does not make any difference whether the claim is not yet due, future or conditional. Such claims can be charged or assigned6 as security provided the publicity requirement is fulfilled.7

(b)If the publicity requirement (entry in the books of B) is fulfilled, A takes priority.

(c)See part (b).

(d)See Austrian report, case 11(d).

g r e e c e

(a) All the methods discussed in the Greek report to case 12(a) may be used to grant a security right to A. The more interesting question is, however, whether B can assign by way of security all claims against future customers. As to the admissibility of global assignment, it is suggested8 that in principle it is possible to assign all future claims arising from a concrete legal relationship, profession or enterprise activity. The validity of the assignment depends, however, on the claims in question being capable of identification, at the latest, at the moment they arise by criteria specified in the assignment contract.9

Of greater importance is the issue of whether the assignment of all future claims is contrary to public policy (articles 178, 179 A.K.) or to the provision of article 281 A.K. on the abuse of a right. The prevailing view10

6 Rummel/Ertl § 1393 ABGB n. 4; OGH SZ 44/108; SZ 61/47. 7 For details, see Austrian report, case 5(c).

8Balis, Enochikon Dikaion, Genikon Meros para. 152 n. 1; Kritikos, in: Georgiadis/Stathopoulos 455 n. 53; Sourlas, ErmAK 455 n. 15.

9Georgiadis, Empragmato Dikaio II 258; Kornilakis, I katapisteutiki ekchorisi ton apaitiseon 57; Livanis, Diathesi mellondikou dikaiomatos 141.

10Kornilakis, I katapisteutiki ekchorisi ton apaitiseon 83; Livanis, Diathesi mellondikou dikaiomatos 144, 146 ff.

amount.13 Here, B does not know who his customers will be, let alone the amount of their orders. The Dailly assignment could not, therefore, be used in these circumstances. If B had orders on his books, he could assign the orders, under the same conditions as described in case 12. In practice, A would take a security right over B’s trading activity. The Law of 17 March 1909 provides for an enterprise charge (nantissement de fonds de commerce): see case 11.

(b)For the sake of argument, we shall assume here that B was able to assign to A the claims he had against customers D, C1, C2, C3, C4 and C5, in order to guarantee the loan. The assignment, as described in case 12, is valid against all parties from the date of its creation. From that date, the assignee has title to the claims subject to the assignment and the assignor could not validly assign the same claim (should he do so, the second assignee would have to return payment).14 If the debitor cessus is notified of each assignment, he must pay the assignee whose title is the oldest. In a conflict between the assignee and an unsecured creditor who has an enforceable claim and wants to execute against the assigned claim, because the assignment preceded the execution, there is no doubt that A’s right will prevail. Moreover, pursuant to article 44 of the Law of 9 July 1991 on Execution, the debitor cessus of the claim which is the object of the execution procedure must immediately inform the bailiff of the previous assignment of the claim, or run the risk to having to pay twice.

(c)See French report, case 12.

(d)No limit is imposed in respect of the value of assigned debts referable to the amount of the secured loan.

b e l g i u m

(a) Belgian law offers many possibilities for the assignment or charge of future claims. It is sufficient that the claims can be determined or at least that they are capable of determination.15 A charge of all claims against existing and future customers will be regarded as sufficiently

13See Versailles, 2 June 1988, D 1989, Som, 185, obs. Vasseur.

14Paris, 4 Jan. 1990, D 1990, Som, 233, obs. Vasseur.

15Cass. 9 Apr. 1959, RCJB 1961, 32 note Heenen; Dirix/De Corte, Zekerheidsrechten 296, n◦ 443; Grégoire, RevBanque 1998, 447 (448).

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determinable. In practice, since A is a bank, A will ask for an enterprise charge (gage sur fonds de commerce/pand handelszaak), which can include all existing and future claims related to B’s business (see case 11).

(b)The majority of legal authors hold the view that creditors of the chargor who have executed against the claim cannot be considered to be ‘protected’ third parties in whose favour the priority contest will be resolved (see case 12). This type of conflict must be dealt with according to the principle of article 2075 s. 1 C.civ., which provides that the chargee obtains his security right as from the moment when the charge agreement is concluded. According to this view, the absence of notification will not endanger the position of the chargee in the case of an execution by other creditors of the chargor. The same solution applies in the event of the insolvency of the chargor. If, however, the bailiff collects the monies before any notification has taken place, it is not possible to challenge the distribution of the proceeds to the execution or insolvency creditors. As D was not notified of the charge, any payment to the bailiff must be considered to have been made in good faith and is, as a consequence of this, valid.

(c)The same solution applies in the event of insolvency. Moreover, notifying the debitor cessus after the commencement of the insolvency procedure is superfluous.

(d)There are no limitations regarding the value of the collateral.

p o r t u g a l

(a) As stated in case 12(a), Portuguese law does not prohibit the assignment of future claims; such claims may also be charged. It would, therefore, be possible to establish an arrangement according to which B grants to A a security over the claims against his future customers by an assignment (article 577o C.C.) or a charge (article 679o C.C.). There are no special requirements of form or registration applicable to the assignment or charge of claims. It is only necessary to inform the debitor cessus of it, in order to make it effective against them and third parties. In fact, according to articles 583o and 669o no2 C.C., the assignment or charge of claims is effective only after its communication to the debitor cessus or after his acceptance of it. An assignment like this is common in factoring

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of contract (article 38 CE and article 1255 CC) and by analogy with a similar kind of contract, which is the sale for a lump sum of certain specified rights (article 1532 CC), whenever future debtors were current customers of B. Such arrangements are common in financial contracts and they would be plausible within the current legal framework of the factoring contract. Law 1/1999 explicitly recognises the possibility of assigning future debts for a lump sum. Nevertheless, in business reality the financial system does not tend to use this kind of contract.

Other more common financial agreements include the discounting of bills and ‘confirming’, which consists of the payment and collection from customers that were previously confirmed by the bank. Bank A would have a tercería de mejor derecho, which gives it a preferential right over B’s insolvency creditors. In the case of a commercial discounting contract, the financial institution buys a claim from a businessman (usually a bill of exchange or a promissory note from one of his debtors). The financial institution then pays to the businessman a sum of money representing the value of the bill minus a deduction reflecting commission for its part in the process. The financial institution does not assume any liability for any default in payment by the debitor cessus.17

(b)This depends on the security contract with A. If the contract stipulates that the future debts of B against his customer D are to be included within its ambit, the bank, A, would have a tercería de mejor derecho, which gives it a preferential right to payment. On the other hand, if such a clause does not exist, then the bailiff, acting on behalf of the unsecured creditor of B, will have priority.

A’s right to collect the debt depends on whether D has been notified. If D pays the bailiff, the debt will be released. Also, if D has already paid the bailiff, A is not entitled to claim payment from him (D).

(c)The bank, A, does not have a subrogation claim against C1--C5. If the bank has agreed to a loan in a public deed, as is usually the case, then the bank has a preferential right in B’s insolvency estate (article 1924.3 CC). This is a statutory preference, arising by law, which depends on the kind of contract used or on the form by which the agreement is set out. If it has been formalised in an escritura notarial, article 1924.3 CC is applicable; but if it is a póliza mercantil, then article 913.1, d.4 CCO will be

17See Vicent Chuliá, Compendio Crítico de Derecho Mercantil II 453--458; Cano Rico, Manual Práctico de Contratación Mercantil II 246.

applicable. These provisions grant a preferential right to those creditors whose contracts have been formalised in the above-mentioned way; the creditor in this case would be the bank. This statutory right is not only enjoyed by banks, but it is a right that derives from the public form which has been employed and which produces special security effects. Once B is declared bankrupt, only the results of these proceedings will be valid. Any subsequent notifications will no longer be taken into account.

(d) B’s autonomy to offer securities over his estate is unrestricted, limited only by creditors’ preferences. Therefore, there is no upper limit with regard to the amount of the collateral given as security in relation to the value of the secured claim.

i t a l y

(a) Generally speaking, assignments of claims in favour of banks in Italy are governed by the provisions of the Civil Code on the assignment of claims (articles 1260 ff. c.c.), as well as by other rules. For example, quite often banks own factoring companies. Through these companies, banks operate as factors, under the Law 52/1991.18 This law provides a rather liberal regime for the assignment of claims, though it does not specifically address the topic of the assignment of claims for security purposes.

To be sure, the Civil Code articles on the assignment of claims do not apply to case 13, because they are not designed to effect transfers of claims against future, unidentified debtors. Nevertheless, since 1993, banks should have been able to escape this limitation, by setting up a transaction under the Italian Banking Law of 1993, as amended.19

Article 46 of the Banking Law enables a charge (privilegio) to be created in favour of banks (and other financial intermediaries) over present and future enterprise assets, which are not registered movables or immovables, including future claims which are generated through the sale of merchandise, etc. This charge secures medium-to long-term loans only. It is created by agreement in writing between the borrower and the lender, whose signatures must be authenticated by a notary. The document in question must specify the amount of the loan and its terms; it must also

18See above, Italian report, case 12(a), (b).

19Testo unico delle leggi in materia bancaria e creditizia, d. lgs. n. 385, of 1 Sep. 1993, as amended by d. lgs. n. 342, of 8 Aug. 1999.

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accurately describe the assets (whether plants, goods, livestock, claims, including future claims) upon which the debt is secured. The charge is enforceable against unsecured creditors of B from the date of its registration in the register specified by article 1524 c.c.20 The article 46 Banking Law charge has priority over a number of other charges; it is, however, subordinated to statutory preferences for the administration of justice, wages and commissions of agents, etc. (article 2751 bis c.c.).

It is not clear whether transactions of this kind are common in certain sectors of the economy, or for certain types of operation. There are specialised credit institutions which operate in this field, though, as a consequence of the Banking Law of 1993, they no longer enjoy a monopoly over medium-to long-term credit facilities. It is difficult to say, however, whether in Italy B, the engineer, would actually secure the debt through the creation of a charge under article 46 of the Banking Law.

(b)The article 46 charge is enforceable against unsecured creditors of B, provided that their claims arose after the registration of the charge.

(c)Assuming that B created such a charge in A’s favour, and that the said charge was duly registered before B’s insolvency, A would have priority over B’s creditors, as explained above, under parts (a) and (b).

(d)If the debtor secured the debt with excessive collateral, in the face of economic or financial difficulties, the transaction could be considered contrary to the provisions of the Criminal Code against usurious loans (article 644 c.p.; see also l. 7 Mar. 1996, n. 108, Disposizioni in materia di usura). There is no legislative or administrative definition of what is ‘excessive collateral’ in this context. The charge would be void and the lender would have committed a criminal act.

Quite apart from the discussion in parts (a)--(d), it is worth mentioning in this context that article 58 of the Italian Banking Law now allows banks (or other financial institutions) to acquire or to sell claims en bloc. In Italy, these forms of global assignment are used by banks to sell claims they have on their books to other financial institutions. The

20It is also enforceable against secured creditors of A, provided that they are not good faith purchasers of a movable thing (article 46.5 of the banking law; article 1153 c.c.). No provision of the Banking Law explains what happens if the claim over which the debtor created a charge is transferred to a third party, either for security purposes, or for other reasons.

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master-lists are registered. It must be emphasised that the use of these master-lists is intended solely to reduce administrative burdens. It does not mean that once a master-list has been registered, the credit institution and the debtor are free to modify the list remaining with the credit institution so as to include new claims as they come into existence. For a new claim to come under the charge, a new registration is required. For this purpose banks must register a master-list periodically.23

(b)Assuming that the identity of the customer, D, was unknown at the time of the security agreement, A would only acquire a security right in the claim if the charge was communicated to D or registered after the claim arose, but before execution. In practice, the resolution of such cases will often turn on whether the list containing the relevant claim has been registered and, if so, when.

Without notification or registration, A would not have taken an effective security interest in the claim. A would therefore be on an equal footing with the unsecured creditor trying to execute. If, on the other hand, the charge had been perfected by notification or registration, he or she would have the right to resist the execution by the bailiff.24

(c)A’s position depends on whether the charges were created before the commencement of insolvency proceedings. Once insolvency proceedings have commenced, B loses the right to dispose of his or her property and thus no valid charge can be created.25

If a charge has been created, A’s position further depends on whether notification of the charge was given or not. If the charge was communicated to C1--C5, A would be able to demand payment from them. A would be granted a statutory charge over the monies paid, against which execution would be possible.26 If the charge was created by registered or notarised deed without communication to D, A would retain his or her right to notify D even after the commencement of insolvency

23The Hoge Raad approved this use of master-lists in its decision of 14 Oct. 1994, NJ 1995, 447 (Stichting Spaarbank Rivierenland/Gispen q.q.); see also Snijders/Rank-Berenschot, Goederenrecht n. 546; Pitlo/Reehuis/Heisterkamp, Het Nederlands burgerlijk recht III

nn. 818--819. In literature, it has recently been argued that reference in the master-lists to the detailed lists with the actual claims is not necessary. It would suffice to refer to all existing claims and those that arise from existing relationships. See generally Kortmann/Faber, WPNR 6324 (1998). Against this point of view, Struycken, WPNR 6366 (1999).

26 Article 57 Fw and article 3:246 in conjunction with article 3:255 BW.

proceedings (article 57 Fw). After notification, A would be in the same position as if the charge had been created by means of notification. If, on the other hand, A neglects to communicate the charge to D, the insolvency administrator would be entitled to demand payment from D. A would, however, retain his or her right of priority, though he or she would have to contribute to the administrative costs of the insolvency proceedings.27

(d) As has been pointed out in case 11 above, doctrine and case law have barely addressed the issue of proportionality between debt and collateral. Some support can be found for the proposition that the secured creditor in such circumstances is under a duty to take into account the interests of other creditors. Furthermore, the principles of fairness and equity, which apply as between secured creditor and debtor, may also be of relevance.

Moreover, although there is no requirement of ‘proportionality’, the insolvency administrator does have the right to require the secured creditors to exercise their rights within a reasonable period. If the secured creditor fails so to do, the administrator becomes entitled to execute against those assets himor herself.28 Though the secured creditor retains his or her right of priority to the proceeds of the sale, to the extent that the creditor is oversecured, this provision may provide the administrator with some leverage. If the administrator executes, the secured creditor becomes liable to contribute to the general costs of the insolvency administration.

e n g l a n d

(a) As the discussion of assignment under case 12 shows, the assignment can be both future and contingent. Therefore, an assignment in respect of future customers’ debts is effective, the assignee acquiring a real interest in those debts as and when they come into existence.29 The transaction is very common indeed. The assignment need not be by way of security. Instead, the debts may be factored to a specialist factor. This means that, instead of using that indebtedness as security to back a loan, the assignor sells (i.e., discounts) debts due from future customers for a sum that will reflect the degree of risk of non-payment by those

27 Hoge Raad 17 Feb. 1995, NJ 1996, 471 (Connection Technology BV).

(c)As explained more fully in relation to case 12(a), A will have security rights with respect to these claims. A’s entitlement does not depend on communication of the assignment to the debitor cessus nor is revocation of the assignor’s authority to collect the debts necessary to validate A’s security.

(d)There are no limits with respect to the value the collateral might have in relation to the amount of the secured loan.

s c o t l a n d

(a)The law is not wholly certain but it is probable that no security could be granted in these circumstances.31 The reason is that the law requires intimation (i.e. notification) to be made of assignations (i.e. assignments), and in the present case there is no-one to whom intimation can be given.32 Of course, there could be assignation, but without intimation a bare assignation can give no priority against other creditors.

One possibility would be for B to hold the future claims in trust for A, but this is likely to be ineffective.33

(b)Priority would depend on the dates. If the bailiff 34 executed against the debt35 before the assignation was intimated, the execution would have priority. If the assignation was intimated before the execution, the assignation would have priority. This is an example of the principle prior tempore potior iure.

(c)Once again, it depends on the dates. If the insolvency happens before the intimation of the assignation, the assignation is ineffective. If the assignation is intimated before the insolvency, it should take effect as a security over the claims.

(d)The law does not place any limits on the value of the collateral in relation to the amount of the debt. A security over all claims to secure a debt of £1 would be valid.

31 However, if B were a company, a f loating charge would be possible.

34A bailiff is either a ‘messenger at arms’ or a ‘sheriff officer’, depending on which court is involved. The term ‘bailiff’ is not used in Scots law.

35Execution against a claim is called ‘arrestment’.

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s o u t h a f r i c a

(a)In general, the fact that the claims against future customers are not yet due or contingent has the effect that the enforcement of the security by the bank (A) is postponed until the debt becomes due or has been realised. This is because, although an agreement to cede a future debt is possible, the actual assignment (cession) of the debt is only possible once the debt has come into existence. If, however, one accepts that future rights can be transferred by means of a transfer agreement concluded in anticipando before the rights have materialised, B’s estate would be bound by the transfer of a future right as from the date of assignment. This means that if a so-called Global cession was contemplated by the parties, any claims which might accrue to B against future customers would fall in A’s rather than B’s estate from the date of the cession. By contrast, if a Mantel cession was contemplated, the assignment (actual cession) of the claim would only occur once an enforceable claim came into existence. The assignment of so-called book debts to a factor is very common in South African commercial practice.

(b)Once the claim of B against the customer has arisen, the claim is automatically assigned to A’s estate, whether as a direct claim against D (under the out-and-out assignment construction) or as a security right (under the charge construction). On the out-and-out assignment construction, the claim would have been ceded to A and the bailiff would not be able to execute against the claim on behalf of the creditors of B since the claim does not form part of his estate. On the charge construction, the claim would fall into B’s estate and could be executed against, but A’s security right would give him preference over the unsecured creditor. A’s right does not depend on any further circumstances. Communication of the assignment to D is not required for an enforceable cession. Revocation of B’s entitlement to collect the claims against his customers would strengthen A’s position, but would not avoid discharge of the debt by payment to B rather than to A.

(c)If the security assignment is construed as an out-and-out assignment, the outstanding claims would have been transferred automatically to A once they arose. Nothing more would be needed for the validity of the assignment. The claims bypassed the insolvency estate of B; A has a direct claim against customers C1--C5. If it is construed as a charge, the claims

fall in the insolvency estate of B, but since this right is encumbered with a security right (charge) in favour of A, A has a preferential right to the proceeds of the claims, ranking above the insolvency creditors of B. In both cases, A’s right does not depend on any further circumstances.

(d) South African law does not place any limits on the value of the collateral in relation to the amount of the debt.

d e n m a r k

(a)According to Danish law, a claim can only be given as security if it can be described in such a way as to leave no doubt as to its identity. Furthermore, a security right to a claim is only protected against a third party if the debitor cessus has been notified of the security right. Therefore, a future claim cannot be given as security if the identities of the future customers are unknown. (If the identity of a customer is known, it is to some extent recognised that a future claim can be given as security.)

However, claims can be used as security in a factoring agreement where the factoring company gives a loan on the basis of security in the claims, for example up to 80 per cent of the amount of the claim. In this respect, the agreement can stipulate that all the future claims are given as security for the loan. On the other hand, the loan monies should not be paid to the debtor before the claim has arisen and the debitor cessus notified, because there would be a risk that the security might be invalidated if the loan debtor was declared bankrupt.

(b)If a bailiff wishes to execute against a claim which has been assigned to A, the assignment is only protected against execution if the debitor cessus, D, has been notified of the assignment: cf. section 31 of the Bonds Act. This means that A has priority if D has been notified of the assignment. If not, the execution creditor has priority.

Even if B was entitled to collect the claim, A might yet have priority, if it was agreed that B should settle with A when the claim was collected and A took steps to ensure that B did so.

(c)Under the Bonds Act, section 31 no distinction is drawn between execution and insolvency. The assignment of the claim will be, and is only, protected as against creditors if notification of the assignment has

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been made to the debitor cessus. If the debitor cessus has been notified about the security right, A is entitled to the claims; if not, the estate is entitled to the claims.

(d) According to Danish law, there is no limit as to the value of the collateral in relation to the amount of the secured loan. A is, however, only entitled to be repaid the amount of the secured loan out of the proceeds of realisation of the collateral; any surplus must be remitted to the estate.

s w e d e n

(a) B may grant A a security over B’s future claims against unidentified customers, provided that the claims are determinable (e.g. ‘all claims related to a certain activity’), thereby enabling A to inform the debitores cessi of the security when the claim arises and thereby perfecting A’s third-party protection. Until the customer is informed, A has no protection against the creditors of B, in respect of his assignment or a charge. However, even if the customers have been identified and notified, A would have no protection against the creditors of B as regards claims that have not been earned when insolvency proceedings commence; earnings during the last three months are also liable to be recovered (see case 12). Alternatively, B may grant to A an enterprise charge, which always includes all claims against customers (see above, cases 10--11). Such a security would require registration, but no notification need be made to the debitores cessi. Under this security, A would have priority in respect of claims, provided that they had arisen before B went bankrupt.36 A third possibility, especially useful when finance is required for a large-scale project and when the future customers are unidentified and therefore cannot be notified, would be to set up a Special Purpose Vehicle. This would be a company, which would borrow the money from A. All claims against customers would be invoiced and collected by the SPV. B would bear all the costs of the operation. B’s claim against the SPV would be subordinated to that of A. The only competition that A would have against the assets of the SPV would therefore be the claims of the tax creditor; if A was granted an enterprise charge

36According to NJA 1982, 900, an enterprise chargee has a preferential right only in collateral that existed on the date of insolvency. If a claim is partially attributable to performance by the estate, the proceeds are apportioned accordingly.

he could even enjoy priority over these. The final effect is even better than, for instance, a German Globalzession, as A will have priority also in respect of what is earned by the estate. The model has not been tested in the Swedish courts.37

(b)If A has been granted an assignment or a charge, A will take priority over a creditor that seeks execution only if the debitor cessus was informed prior to the execution, further provided that the debitor cessus was not permitted to pay his debt to B for B’s own use. Here, the claims must have been earned; otherwise execution against the claims cannot take place.

(c)The answer is the same as in part (b) with two additions. In insolvency, future claims belong to the estate, and hence the security is ineffective if the claims were not earned when insolvency commenced. It is also possible for other creditors to recover (avoid) the value that has been earned during the three months prior to the commencement of insolvency proceedings pursuant to chapter 4 section 10 of the Bankruptcy Act (see case 11, Variation).

(d)There is no limit as to the value of the collateral in relation to the amount of the secured claim, apart from the fact that A cannot collect more money from the realisation of the collateral than B owes him. See further under case 11(d).

f i n l a n d

(a) The only practical way to establish a security right over the future claims would be, in the circumstances of this case, by registering an enterprise charge. The enterprise charge comprises almost all the property of an enterprise except the immovables. One of the weaknesses of the enterprise charge is, however, that B could later charge or assign for security purposes the same money claims. In this situation, the charge or assignment would accord to the secured creditor a superior preferential right to that of an enterprise charge. The legislation accords to the enterprise chargee a lower priority because the enterprise charge

37It could be asked whether such a puppet company should be respected as a separate entity. See critical remarks by Braekhus, Omsetning og kreditt 213.76. However, such companies have been accepted by a Norwegian appellate court, RG 1986.905, on the same legislative basis as in the other Nordic countries.