учебный год 2023 / Drobnig, Present and Future of Real and Personal Security

amazing since both the economic function and the basic legal structure, namely the grant of a proprietary right in the debtor-held assets to the creditor, correspond to each other.

43Security transfer of title – survey

In the Netherlands, the security transfer of title is now void. The legislator enacted a prohibitory provision in 1992 when the new provisions on the born security in debtor-held assets (cp. supra no.30-36, passim) entered into force – the context is clear.56 The absence of the security transfer of title in Spain, without express legal prohibition, can perhaps be explained by the broad legislative admission of nonpossessory security interests. On the other hand, a recent Greek statute of 2000 provided not only for a broad array of non-possessory security interests but sanctioned also the judge-made institution of the security transfer of ownership.57 The Swiss Civil Code of 1907 merely says that a security transfer is void vis-à-vis third parties. This rule is less obvious since the code contains only rules on the creditorheld pledge; the purpose of the provision was the protection of the near-monopoly of that institution. In Italy, the security transfer of title is highly controversial;58 in view of the dearth of non-possessory security interests, the position of the proponents is well understandable.

In most of the countries that recognise the security transfer of title, its creation and effects or at least major effects are assimilated to corresponding rules for born security rights. Thus in Greece, both the creation and the effects are the same as those of the genuine security right in debtor-held assets.59 In Germany and Sweden, the effects of a security transfer of title in the debtor/transferor’s insolvency are those of the holder of an ordinary security right; however, in Sweden registration is necessary. In England and Australia, the modern term chattel mortgage indicates the reduced status of the right: it is a security right that is subject to registration in the debtor company’s name. Japanese courts have converted a security transfer of title over inventory to a kind of floating charge, however without registration; whether it extends to the proceeds of a sale, is still open.

44Security transfer of title by a trust

A few civil law countries (!) have introduced an adapted version of the common law trust as a vehicle for a security right in debtor-held assets. In Argentina, Law no. 24441, in force since 1995, allows the fiduciary transfer of title to assets for a maximum of 30 years. The creditor as trustee is allowed to enforce his rights without

56Cf. supra n. 33.

57KOUTSOURADIS (supra n. 1) 60, 61.

58On the arguments pro and contra, cf. BUSSANI (supra n. 2) 275-280.

59Cf. supra n. 57.

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recourse to courts. This institution is widely used for securing credits and is the most important innovation in the field of security rights. Quebec which has generally introduced the fiducie, allows it expressly to be used for purposes of security.60 Since, however, the trustee must obtain possession, it cannot serve as a functional equivalent for security in debtor-held assets but it is used as a security device in receivables.

45Contractual arrangements with security function

At the fringe, the limits of title as security right become vague. Sale and resale as well as sale and lease-back are examples of arrangements that involve transfers of title; hirepurchase and financial leasing are examples of functional retentions of title. They may and nowadays in practice often will, but need not always serve security purposes. Legal reactions to these fringe phenomena differ from country to country. On the basis of the national reports, only examples of the legal treatment can here be provided.

Financial leasing which may be regarded as an instrument securing the supplier’s credit granted by the lessor, is regarded as a security in Australia. The Swedish reporter pleads for applying the same limiting rule as to retentions of title: the lessor should only be able to reclaim the leased goods in the lessee’s insolvency if the lessee was not authorised to dispose of the leased goods before payment of the purchase price. In Anglo-Canada (except Ontario), commercial consignments, security leases and other leases for more than a year are generally treated as security (except with respect to enforcement). The extension of the regime for security rights (except enforcement) is justified by the argument that all these contracts contain “sufficient potential for third party prejudice”.61

Sales by the debtor to the creditor, if accompanied by a resale or lease-back agreement, may fulfil similar functions as a security transfer of title. A sale – resale is regarded as a security right in Quebec. By contrast, the Dutch Supreme Court upheld a sale and lease-back contract by refusing to extend to it the prohibition of security transfers of title.

It would seem that the number of equivalent transactions that is made subject to a security regime will depend on the generality and the strictness of that regime. The stricter it is, the higher the temptation to circumvent it and consequently the necessity of extending the regime to equivalent arrangements.

C Security in Intangibles

46Introductory remark

Intangible assets are of rapidly growing legal and economic importance. This is widely known for claims to payment of money (accounts receivables or, shorter, receivables) since their object, the money owed by the third party debtor (account

60CC Art. 1263.

61Anglo-Canadian report, p 8.

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debtor), is the most liquid asset under the sky. Other intangible items, such as rights of intellectual property, although of a very different nature, are relatively new but of dramatically increasing economic value. However, the following discussion will be limited to security rights in receivables since these have attracted the greatest attention by the national reporters.

i. Born Security Rights

47Pledge, charge, mortgage

The genuine security rights originally developed for obtaining security in tangibles have later also been applied to receivables. Traces of this historical origin can still be observed in Argentina where a pledge can only be created if there is “written evidence” for the receivable which must be handed over to the creditor;62 or in Belgium where CC Article 2075 (1), even though redrafted in 1994, (still) says that the creditor “by the conclusion of the pledge contract is placed in possession of the claim”(!!); even the Quebec civil code of 1994 offers for the hypothec on a claim the alternative “with or without delivery”,63 meaning probably with or without notice to the account debtor. However, the contemporary pledge of receivables has freed itself from these historical traces of a transfer of possession and the English common law has never used the pledge since receivables are incapable of possession.

In fact, in most countries a security right in receivables requires today a notice to the account debtor. This is required almost everywhere for the security right to be effective vis-à-vis third persons, including the account debtor: Australia, Belgium, Anglo-Canada and Quebec, England, Germany, Greece, Japan, Poland, Sweden; however, exceptions are Switzerland and the Netherlands. In the latter country, as in the case of a security right in debtor-held tangible assets, official certainty of the date must be achieved (cf. supra no. 32). In Greece and Poland, registration of a pledge in receivables is possible, in Australia, England and Scotland both charges and mortgages in receivables of companies must be registered to be effective in the company’s liquidation. The same is probably true in the Anglo-Canadian provinces.

Future receivables may usually also be encumbered. Belgium only demands that the future receivables must be determinable. The Netherlands are stricter by requiring that at the time of the creation of the security the source of the future claim, i.e. a contract between debtor and account debtor, must already be in existence.64

In Sweden, a global security in many or all receivables of a debtor can only be achieved in the framework of an enterprise mortgage (cf. supra no. 37).

Another special application of the pledge of receivables exists in Belgium. Bills on professional debts can be endorsed in pledge to a bank by virtue of a special

62CC Art. 3212.

63CC Art. 2710 (1).

64CC Art. 3:239 (1).

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Law passed in 1919. The security becomes effective vis-à-vis the account debtor by notice of the endorsement.

For many debtors the pledging of receivables, since in most countries notice to the account debtor is necessary, involves a major disadvantage, since it discloses that the debtor needs to take credit. Especially in Germany and Japan, this has been an important reason to look out for more “discreet” means of security.

ii. Functional Security Rights

48Title-based security: assignment

Contrary to the situation for tangible assets, almost all countries have today accepted an alternative to the creation of a genuine security right in receivables by recourse to assignment, i.e. a title-based security. This positive attitude may be prompted, to some degree, by the relatively close neighbourhood between the various forms of genuine security in receivables and the alternative of assignment. Another reason, although not equally broadly valid, may be that often the requirements for assignments are more lenient.

In some countries with very recent legislation on security in receivables, an assignment for security is either prohibited (in the Netherlands the prohibition of the security transfer of ownership in movables (cf. supra no. 43) extends also to the security assignment of receivables); or the assignment is given the effect of a genuine mere security, as in Quebec.

Along a similar line, the Belgian Supreme Court held in 1996 that the assignment for security is an extralegal institution and therefore has no effect in the debtor’s bankruptcy. However, opinions are split.

In some countries, such as Argentina and Sweden, an assignment, like a born security, is not effective vis-à-vis third persons, unless notice is given to the account debtor. By contrast, no notice to the account debtor is required in Belgium, Germany, and Poland.

For the assignment of future accounts, the issue of determinability arises here as in the case of creating a born security. In Germany, the criterion is that when the account arises it must easily be possible to ascertain whether it is covered by the assignment. The Japanese courts have also dealt with this issue in the case of global assignments of future claims. Following one precedent, they laid down a maximum period of one year for such global assignments. In addition the Supreme Court laid down “special circumstances” which may lead to the invalidity of an assignment, such as an excessive limitation on the debtor’s business activity beyond reasonable limits or an unjustified blocking of other creditors. In 1998, a special Law introduced a system of filing for assignments in order to assure effects as against third persons; a global assignment can be achieved by one single filing.

Strong account debtors often dislike being exposed to the expenses of bookkeeping entries and the risk of wrong payment caused by assignments made by their creditors and try to avoid them by agreeing upon anti-assignment clauses. In

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Germany, such clauses are, as a rule, effective as against third parties; an assignment in disregard of such a defensive clause is therefore void. However, since some years this negative effect is countered by a special provision designed to facilitate assignments among merchants, especially factoring. Under this provision, anti-assignment clauses no longer affect the assignee – without prejudice to any liability which the debtor may incur vis-à-vis the account debtor for having breached the anti-assign- ment clause.65 This corresponds to the legal situation in Anglo-Canada, except in Ontario. In this latter province, the assignment is valid but the account debtor may invoke the anti-assignment clause as against the demand for payment by the assignee. The latter must therefore proceed against the account debtor via the assignor. However, the security remains valid against creditors of the grantor.

DOverarching Issues

i.Security Granted by Third Party

49Introduction

Real security is not always granted by the debtor of the secured obligation. It may also be created by a third person, a relative of the debtor, a business friend or a “related” business company. Creation of the real security by the third person and its enforcement by the creditor against the third party grantor surely are governed by the relevant rules for the specific type of real security. Only in Quebec, the French doctrine of cautionnement réel seems to be shared by some writers; they even conclude that the third person grantor may invoke a surety’s defence of subsidiary liability and may insist on duties of information by the creditor. However, this opinion is rather isolated; nor is it shared by the reporter herself. More relevant is a Dutch provision: if both the debtor and a third person have created a real security for the same claim and the creditor starts enforcement against the third person, the latter may demand that enforcement be extended to the debtor and that its encumbered assets be sold first.66

More generally relevant is the next stage, after the creditor has enforced his rights against the third person’s encumbered asset. Unless the granting of the security was a liberality, the third person grantor will look to the debtor on whose behalf it granted the security, for reimbursement. This issue will here briefly be discussed since it is at least related to personal security, as discussed in Part II of this report.

50Grantor’s recourse against the debtor

As the German report emphasizes, the third person grantor has two separate actions against the debtor. First, his personal claim for reimbursement of the expenses incurred for the benefit of the debtor. Against this claim, the debtor may not invoke defences to which he is entitled as against the creditor.

65Commercial Code § 354a.

66CC Art. 3:234 (1).

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More relevant and valuable is usually a second claim to which the third person grantor is entitled in most countries: he is subrogated to the creditor’s claim against the debtor, including its accessory rights, such as claims against other personal or real securities. In Argentine law, express reference is made to the corresponding rights which a surety has after payment to the creditor.67 In Quebec, the same result is reached either by qualifying the relationship as a “real suretyship” or by invoking the general rule on the consequences of payment of a third person’s debt which the third person is bound to fulfil with others and which he has an interest in paying. In Germany, the relevant provision of the law of suretyship is applied by analogy.

ii.Consumer Protection

51.As contrasted to the substantial material on consumer protection in the assumption of personal security (supra no. 21-23), there is a dearth of relevant rules protecting debtors as grantors of real security, except where the personal scope of application of the relevant provisions is limited to commercial debtors (cf. supra no. 31). Only the comprehensive Australian Consumer Credit Code contains specific protective provisions. Some of these are identical with those that have already been mentioned for personal security (cf. supra no. 23); for the rest, the reader is referred to the Australian national report. The lack of specific protective rules is probably due to the fact that consumer protection concentrates on the debtor as such, as is demonstrated by the extensive consumer credit legislation existing in many countries.

In the circumstances, due to lack of material from other countries, a comparison is not feasible.

E Future Trends

52Conclusions from past evolution

Speculations on the future are risky, as is daily demonstrated on our stock exchanges. A more modest but safer course may be to summarise the developments of the past decades and use this course as a springboard for speculation on the near future of 10 to 20 years.

53Adequate security rights in debtor-held assets

The preceding analysis of various branches of real security in movables has confirmed the overriding importance of developing adequate security rights in debtor-held assets. It is certain that this development will continue and that it will have to be realised especially in those countries that are not represented by national reports.

However, not even the developed countries with favourable substantive approaches to security in debtor-held assets have always achieved rational and consistent solutions. This observation applies, in particular, to countries with a bundle of

67 CC Art. 3186.

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diverse instruments, with sometimes different titles for the relevant institutions, and sometimes inconsistent rules and policies.

This critique covers also the recourse to title-based security devices, for securing both general credits and suppliers’ credits. Developments in several countries have shown that after an initial phase of unbridled reliance on title with all its special effects, title securities tend to be reduced by assimilating them step by step to genuine security rights. The common law chattel mortgage is, of course, a perfect example of this process. A courageous legislator striving for a consistent system establishing equality where adequate is therefore driven to strive for a comprehensive, functional security system, following the Anglo-Canadian (and the American) approach. A unified system must not be averse to differentiated solutions for specific issues where desired, such as a superpriority for purchase money security.

54Global security

A modern phenomenon is also the growing demand for security in global assets rather than security in individual items. This is, in part at least, connected with new financing techniques, especially limited, though renewable credit lines. If upon expiration of the old and renewal or grant of a new credit line existing security rights expire and new ones have to be created, this would involve considerable red tape and costs. Global security is required, especially in receivables, and there is a clear trend to accommodate this need.

An institutional solution to the demand for global security is furnished by the modern enterprise mortgage, especially the English and the Swedish models (supra no. 37). Tempting as it is, the enterprise mortgage epitomizes both the chances as well as the risks of a comprehensive, global security right.

55Publicity

Another aspect that deserves attention is the publicity of security rights. The traditional form of publicity of corporeal movables, possession by the creditor, has been reduced to small dimensions by the general demise of security in creditor-held assets. Correspondingly, the clear rise of security in debtor-held assets seems to demand a substitute form of publicity.

In the eyes of many legal systems, especially in the area of the English common law and the Romanic civil law, this substitute is registration of security rights. First the land register may have served as a model; in the advanced countries document registration was later replaced by notice filing: merely a declaration was filed indicating that a creditor intends to obtain security in more or less specifically identified items of the debtor’s property. Technical advances in electronic communications greatly facilitate both filing and searches for filings, even over great distances. Earlier objections against the enormous costs and complexities of a filing system are today no longer founded. The same is true for the costs involved. Many filing systems are today said to be self-supporting, if not straight profitable.

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Yet still the question remains: is the complicated technical system really necessary if all the information it offers is a notice that there may exist a security interest, so that intending creditors are put on notice but have to turn to the debtor in order to verify the true state of affairs. Is not nearly the same effect achieved in countries without a registration system where the courts proceed from a general presumption that business people must know that any major piece of equipment is bought on credit? Does not this presumption also put intending creditors on notice so that they also have to verify the true state of affairs? I remain to be convinced of the true necessity of a filing system.

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