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3.5.2.2 Effects

Contrary to the split regime of the effects of a reservation of ownership – depending upon whether it is simple or extended (supra 3.5.1.1 and 3.5.1.2) – the effects of the German security transfer of ownership are uniform, whatever form is used. The effects are the same as those of an extended reservation of ownership (which is itself regarded as a security transfer, cf. supra 3.5.1.2). In other words, the security owner, if he competes with his debtor's insolvency creditors, is treated like a pledgee. He cannot reclaim the transferred assets, but is merely entitled to preferred satisfaction from their proceeds.60

4 Monetary Claims as Security

Intangibles, such as intellectual property rights and especially monetary claims (debts) have multiplied in our times and have become of growing economic importance. Consequently, they are being increasingly used as collateral for securing credits.

4.1Basic Models

The basic legal instruments for utilising monetary claims as security are the same as for corporeal assets (comp. supra 3.3), namely either a pledge or a full transfer to the creditor, i.e. an assignment. Also the basic legal issue is identical: by assignment of a claim the creditor obtains more rights than are needed for the purposes of security so that here also the question arises whether and how these powers must be restricted in certain circumstances. Since the issues and also the solutions are in most respects identical, the following survey can be limited to the special features of the use of intangibles as collateral. Due to limitations of space, this must be restricted to monetary claims which are the most important item and for which – due to long practical experience – relatively well settled rules have been developed.

4.2Pledge

4.2.1 Pledge with Notification of the Account Debtor

a. Civil Law countries. The pledging of monetary claims is governed by the general rules on pledges (supra 2). However, under the narrow 'possessory' conception of the pledge that obtained in the 19th century (supra 2.2), the necessary dispossessing of the debtor/pledgor of an intangible cannot be realised. Instead, the Civil Codes require notification of the debtor of the pledged claim (account debtor).61 By contrast, the modern new French law of 2006 requires a written document for the validity of the pledge and, very sensibly, restricts the meaning of notifcation of the debtor of the encumbered claim to the information to whom he must pay in order to be properly discharged.62

The required notification of the account debtor appears to be desirable in order to assure that he will pay his debt to the pledgee and not to the pledgor. On the other hand, in many cases the necessity of notifying the account debtor may commercially be inconvenient: if there are a great number of such debtors owing modest amounts; since the pledgor's reputation will suffer; and since it is in many cases more convenient to leave the collection of the pledged claims to the pledgor on behalf of the pledgee to whom the former must account and pay over.

60Serick (1990), supra n. 54. Expressly the new Insolvency Act (effective 1 January 1999) § 51 no. 1.

61§ 1280 German BGB. For the Netherlands, this results from Arts. 3:236 (2) and 3:94 (1) Civil Code.

62Arts. 2356, 2364 Code civil.

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b. England and Wales. English law has never extended its narrow conception of the possessory pledge to intangibles, but uses the institution of the charge63 (infra 4.2.2 under b).

4.2.2 Pledge without Notification of the Account Debtor

a.The Netherlands. The new Dutch Civil Code has introduced, in addition to the pledge with notification (supra 4.2.1 under a), one without notification. This corresponds closely

to the non-possessory pledge of tangibles (supra 3.4). As the latter, it must be established by a public or registered private document.64 The new French legislation of 2006, in effect, achieves the same result without an express distinction (supra at 4.2.1).

If the pledgor does not perform his obligations vis-à-vis the pledgee or he has reason

to be afraid of such breach, in the Netherlands the pledgee may notify the account debtor.65 Before such notification, the pledgor is entitled to deal with the account debtor and to receive payment; after notification, these rights are exercised by the pledgee.66

b.England and Wales. Monetary claims may be made subject to an (equitable) charge without notification of the debtor. Such charges, however, must be registered.67 The

charge may be fixed or floating (i.e., comprise a changing fund of claims – or in English terminology – debts).68

4.3Assignment

4.3.1 Assignment for Security

A more flexible alternative to a pledge of monetary claims with (or without) notification of the account debtor is their full-scale transfer to the creditor by way of assignment. This is an equivalent of the security transfer of ownership (supra 3.5.2). However, it is useful for the parties only if it does not itself require notification; that, however, is demanded by the new Dutch law,69 but neither by German nor by the new French law.70 Also the Dutch law before 1992 had not required this so that assignment was widely used for security purposes. The new Civil Code, however, no longer recognises a transfer of assets for security (art. 3:84 (3)) and has instead made available a pledge without notification (supra 4.2.2 under a).

In Germany the assignment for security is governed by the general rules on assignment. As far as the right to collect assigned claims is concerned, the Dutch rules established for pledges of claims without notification (supra 4.2.2, under a) correspond to German law.71 The effects of an ordinary assignment are, however, restricted in the most critical situation, namely in the assignor's insolvency: The creditor as the assignee is no longer entitled to separate the assigned claim(s) from the assignor’s insolvency estate but

63Beale/Bridge/Gullifer/Lomnicka (2007) s. 4.16.

64Art. 3:239 (1) Dutch Civil Code.

65Ibidem par. 3.

66Art. 3:246 (1) Dutch Civil Code.

67Cf. Companies Act 1985 (c. 40) ss. 395, 396(1)(c (iii) (reproduced in McCormack (1995), p. 282 s.).

68Goode (1995), pp. 656-657, 800-802.

69Art. 3:94 (1) Dutch Civil Code. However, this rule has been ‘softened’ in 2004: an otherwise ‘complete’ assignment, but without notification to the account debtor is now effective in the debtor’s bankruptcy, but cannot be invoked vis-à-vis ignorant third parties, art. 3:94 new (3) Civil Code.

70Implicitly § 398 German BGB and Art. 2361 French code civil.

71Cf. Serick (1990), pp. 102–106.

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is reduced to the status of a pledgee; he has merely the right to preferential satisfaction from the proceeds of the debt.72

4.3.2 Assignment for Sale

In England and Wales, an outright sale of monetary claims to the creditor is not regarded as a charge and is therefore not subject to registration (supra 4.1.2, under b) and other restrictions.73

5 Conclusions

The complex nature of the subject, the limited number of legal systems considered and the limitations of space preclude a detailed exposition of proposals for a future European Civil Code. However, in the general framework of the Common Frame of Reference (CFR), the author has elaborated an involved system of rules on security rights in movables. Only the general guiding principles of Book IX CFR can here be presented.

5.1An Almost Unified Regime

CFR Book IX presents a full-fledged system of security rights covering all movable assets. However, there is one major split between the regimes for a security right in general, on the one hand, and for retentions of ownership, on the other hand. The latter, as security for acquisition credits, enjoy a better position since the financing of acquisitions is economically more advantageous for an enterprise and the economy as a whole. The holder of a reservation of ownership enjoys in the debtor’s insolvency a better status since the seller as owner can separate “his” goods from the debtor’s insolvency estate, unless the insolvency administrator decides to perform the contract of sale and thus to satisfy the seller/owner. This can rely upon a broad level of supranational and national support.74 By contrast, ordinary security rights securing general credits share the fate of all other general credits in bankruptcy. Apart from the privileged status in bankruptcy, retention of ownership is to be subject to the general rules on security rights in movables.

5.2Registration

A genuinely European solution is called for in order to cover the transnational movement of encumbered assets from one member state to another, e.g. the transit of lorrries over the national borders. Thanks to advances in electronic registration systems is technically feasible. In the related, although more limited field of registration of security rights in aircrafts, the Aircraft Protocol to the Captetown Convention on security rights in means of transport of 2001, including the Aircraft Protocol of 200?, have paved the way and will demonstrate the feasibility of a universally centralised register for encumbrances of aircraft.

As a rule, all security rights, including reservations of ownership are subject to registration as a condition for effectiveness vis-à-vis third parties.

72See German Insolvency Act of 1999 § 51 no. 1.

73Goode (1995), pp. 800–802.

74European Insolvency Regulation (2000) art. 7; England: s. 251 (b) Insolvency Act 1986; France:

Art. L. 624-16 (2)–(3) Code de commerce; Germany: § 47 Insolvency Act 1994; Netherlands: Art. 63a Bankruptcy Law.

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5.3Enforcement

In the secured creditor’s enforcement, the impact of judicial or other official methods of enforcement should be narrowed and agreements and arrangements of the parties promoted. Of course, this opening for arrangements of the parties must be limited to parties, especially debtors or other security providers who are able to defend their rights.