644 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Comparative observations

The Variation to case 11 explored the ways in which a security given to a specific creditor in preference to insolvency creditors might be set aside. The present case also concerns creditors’ powers of avoidance, yet not in relation to the creation of a security right but in relation to the transfer of an entire business. Thus, this last case departs from the central subject of the volume and turns to consider the much wider question of determining the legal relationship between a creditor who has recourse on movable assets actually or formerly detained by his debtor and third parties who claim property rights in the same movable assets.47

Yet, the present case is also closely related to the subject of security rights: first, because it provides the opportunity to explore further the applicability of what in most jurisdictions is known as the actio Pauliana and, secondly, because the rules on a transferee’s liability for pre-existing debts provide an opportunity for creditors potentially to execute against assets otherwise not available to them. Such rules are of special interest to unsecured creditors and to creditors in jurisdictions where secured credit is expensive or not easily obtainable or both.

Part (a)

In the majority of jurisdictions under consideration, the answer to part

(a) is simply that B cannot execute against the assets which form part of the sold business, because they are now owned by C. This is the solution in France, Belgium, Spain, the Netherlands, Scotland, the two common law jurisdictions and Sweden. The other jurisdictions either provide special legislation (Germany, Austria, Greece, Italy and South Africa) or may regard the sale as ‘simulated’ (Greece and Portugal) or made ‘pro forma’ (Denmark and Finland).

The special provisions which exist in Germany, Austria, Greece, Italy and South Africa merit some further consideration. The basic reason for their existence is pointed out in the South African report: creditors of pre-existing debts should be protected if the debtor alienates either his whole patrimony or a significant part of it, as for example

47See also Introduction, p. 29 (original topic of the questionnaire: ‘Movable assets and general creditors. Enforcement of claims by recourse on movable assets actually or formerly detained by a debtor, but on which third persons claim property rights’).

his business. In Germany, where a provision similar to that of Austrian, Greek and Italian law existed until 1 January 1999 (§ 419 BGB), the rule was said additionally to rest on the idea that a patrimony always has to be regarded as a whole, including rights, claims in favour of the patrimony and claims against it. The German provision was severely criticised and finally abolished in the course of the insolvency law reform, although it was weaker in its effect than its counterparts in the other jurisdictions mentioned. In contrast to Austrian, Greek and Italian law, § 419 BGB was only applicable if the whole of the debtor’s patrimony was transferred so as to leave merely approximately 10 per cent in the hands of the transferor. The transfer of a business alone could not lead to transferees’ liability unless the value of such a business exceeded 90 per cent of the value of the transferor’s whole patrimony.

Greek, Austrian and Italian law hold the transferee personally liable for the pre-existing debts incurred in the business, but restrict this liability to the value of the acquired assets. This was also the solution of § 419 BGB before 1999. The South African rule adopts a different solution which comes close to the result of an actio Pauliana: the transfer itself is deemed to be invalid as against the creditors of the transferor, thus enabling creditors to execute against the transferred assets. Another difference lies in the time-span during which the acquirer continues to be liable for the transferor’s debts: in South Africa the liability only subsists for a period of six months from the transfer. The other reports do not specify the time-span but it will certainly be longer. Finally, the South African rule sets out a practical way for the transferee to escape liability: he must only ensure that the transferor duly publishes the transfer. Such a possibility does not exist under Greek, Austrian and Italian law.

A further basis for the acquirer’s (C’s) personal liability is provided in Germany and Austria by § 25 HGB. Although the ideas which underlie the rules just presented may also be said to have inspired § 25 HGB, the requirements and the results are quite different. First, the transferees’ liability under § 25 HGB is not restricted to the value of the transferred business. Secondly, liability can be excluded by a duly registered agreement between the parties to the transfer. Thirdly, the transferee is only liable if he continues to use the former business name. His liability is said to be founded on the appearance of continuity which is created by such use. The validity of this criterion is more and more questioned in German legal literature; § 25 (German) HGB might be abolished in the future.

646 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Parts (b) and (c)

All jurisdictions in principle provide the possibility to have a transfer of assets set aside if it has been made either fraudulently, with an intention to prejudice creditors, or within a certain ‘suspect’ period. The basic rules on the actio Pauliana have been set out and discussed in the Variation to case 11.

In the present case, three elements, whether alone or taken together, may be considered as potential grounds for setting the transfer aside:

(1) the transfer took place when A was no longer able to meet his obligations towards his creditor, B; (2) the business was transferred to a close relative; and (3) A, the transferor, continued to run the business. Of special interest is a fourth factor, namely the price paid by the brother. In part (b), the price paid was a fair market price, whereas in the alternative, part (c), it was well below that level.

There are marked differences in the solutions adopted. In the large majority of jurisdictions, the price paid is but one consideration of many in determining whether the transaction was of a fraudulent character. Such jurisdictions do not regard avoidance as barred in principle by the fact that the price was a fair market price. This group consists of Germany, Austria, Greece, Portugal, France, Spain, Italy, the Netherlands, South Africa, Denmark and Finland. English, Irish, Scots and Swedish law, on the other hand, as a matter of principle deny the possibility of an avoidance if the price was fair. This conclusion rests on the idea that the creditors cannot be prejudiced by a transaction which does not diminish the overall value of the debtor’s assets. On the other hand, one may argue that money is always easier to spend or hide and thus of greater fungibility than assets such as a business. This may be the reason why the first-mentioned jurisdictions do not take such a strict view.