учебный год 2023 / Helsen, Security in Movables Revisited. Belgium’s Rethinking of the Article 9 UCC System

European Review of Private Law 6-2015 [959–1026] © Kluwer Law International BV. Printed in Great Britain.

Security in Movables Revisited: Belgium’s Rethinking of the Article 9 UCC System*

FREDERIC HELSEN

Abstract: This paper compares Belgian law pertaining to the granting of security interests in movables to US law on this subject. The Belgian system is currently still in the implementation stage, leaving it less detailed but benefiting from stronger coherence and a fresh start. The US system, set forth in Article 9 of the Uniform Commercial Code (UCC), is much older and highly detailed and, therefore, better equipped to deal with the intricacies of practice, but at the cost of a loss of clarity and second-best solutions largely caused by path dependence. This study tries to identify the areas where one system might learn from the other. As the UCC system was a major source of inspiration for the Belgian reform, leading to the shared basic foundation of a functional approach to security interests, which are to be made publicly knowable by way of register publicity, the systems are ideally suited for a straight comparison. As the basic premises are identical, the focus can be shifted to their implementation. After setting out the boundaries within which security interests operate in terms of assets and debts covered, this paper follows the lifetime of the security interest, from the way they are set up between the parties, to how they are made enforceable against third parties, down to the way they meet their end in a possible bona fide purchase or foreclosure, comparing the two systems every step of the way. Given that the Belgian government is currently designing how the system will actually work and the difficulty of making changes to such a vast system once it is in place, this kind of analysis is of key importance for the future proper functioning of secured lending in Belgium. The lessons taken from this comparative analysis are therefore translated into actionable proposals and best practices for the implementation and application of the Belgian Pledge law. These range from the judicial adoption of similar guidelines on what constitutes a sufficient description of collateral, over the freedom to negotiate default clauses and the limitations to that freedom, to a broad conception of forced dispositions of collateral. This study anticipates judicial interpretation of the new Pledge law in order to provide Belgian practitioners and judges with the necessary tools ahead of time. From the other point of view, it shows those weaknesses of the UCC system that could be remedied through an overhaul of the system.

Résumé: Cet article fait la comparaison du droit belge en ce qui concerne la création des sûretés réelles mobilières, avec le droit des Etats-Unis sur ce sujet. Le système

*Research performed at Harvard Law School (2014–2015) and UC Berkeley School of Law (July–August 2015) with financial support from the Science Foundation Flanders (FWO), Fulbright, and the Belgian American Educational Foundation. The author would like to thank the participants in the VSVR Colloquium at Harvard Law School, where preliminary results were presented on 5 March. 2015. Further thanks to Prof. Dr M.E. Storme (KU Leuven), Prof. J. Fried (Harvard Law School), and Prof. R. Cooter (UC Berkeley School of Law).

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belge est actuellement dans la phase d’implémentation. Par conséquent, ce système est moins détaillé, mais plus cohérent, en bénéficiant d’un nouveau départ. Le système américain de l’article 9 du Uniform Commercial Code est plus âgé et détaillé, et alors mieux équipé pour traiter avec les subtilités de la pratique. En revanche, il est moins clair et contient beaucoup de solutions suboptimales, causé par la difficulté de changer un système solidement enraciné. Cet article essaye d’identifier les sujets où les deux systèmes puissent apprendre l’un de l’autre. Come le système du UCC était une grande source d’inspiration pour la réforme belge, les deux systèmes partagent une fondation identique : l’approche fonctionnelle des sûretés, publiées par registre. Par conséquent, une comparaison directe se présente. Comme les prémisses de base sont identiques, cette étude est concentrée sur l’implémentation. D’abord, les limites d’opération des sûretés, en termes des dettes et biens, sont démarquées. Puis, l’article suit la vie de la sûreté, de leur création entre les parties, la manière dans laquelle elle est rendue opposable aux tiers, jusqu’à leur fin dans une acquisition en bonne foi ou une exécution, en faisant la comparaison à chaque étape. Comme le gouvernement belge est encore en train de décider sur la conception du système, et la difficulté de changer un tel système énorme une fois il est en place, ce type d’analyse est de grande importance pour le futur fonctionnement de la provision de crédit garanti en Belgique. Les leçons apprises de cet analyse sont alors converti en propositions actionnables pour l’implémentation et application de la nouvelle loi sur les gages, allant de l’adoption judiciaire des directives sur la description suffisante du bien grevé, la liberté de négocier des clauses de défaut et ses limites, vers une conception générale des modes de disposition forcée des biens grevés. Cette étude anticipe l’interprétation judiciaire de la nouvelle loi sur les gages, afin de fournir les praticiens et juges belges avec les moyens nécessaires en avance. De l’autre part, elle expose les points faibles du système UCC, lesquelles puissent être remédiés par une réforme du système.

Zusammenfassung: Der Beitrag vergleicht das belgische mit dem US-amerikanischen Recht bezüglich der Sicherungsrechte an beweglichen Sachen. Das belgische Recht ist derzeit noch in der Implementierungsphase. Es ist weniger detailliert, profitiert aber von einer höheren rechtlichen Kohärenz und einem regulatorischen Neubeginn. Das US-amerikanische System, geregelt in Artikel 9 des Uniform Commercial Codes (UCC), ist wesentlich älter und äußerst detailliert. Dadurch kann es zwar besser den einzelnen komplexen Problemen in der Praxis begegnen, dies aber zum Preis von weniger Klarheit und durch “path dependence” vielfach bedingten „zweitbesten“ Lösungen. Die Untersuchung versucht die Bereiche zu bestimmen, in denen das eine Rechtssystem vom anderen lernen könnte. Da das UCC-System eine wesentliche Inspirationsquelle für die belgische Reform war und damit eine gemeinsame Basis eines funktonalen Ansatzes hinsichtlich der Sicherungsrechte, die durch eine Eintragung in ein öffentliches Register öffentlich bekannt gemacht werden müssen, besteht, sind beide Systeme für einen direkten Vergleich ideal geeignet. Weil die grundlegenden Vorgaben identisch sind, kann der Fokus auf deren Implementierung gelegt werden. Nachdem die Grenzen bestimmt werden, innerhalb derer Sicherungsrechte auf Vermögenswerte und Verbindlichkeiten Anwendung finden, folgt der vorliegende Beitrag dem „Lebenszyklus“ der Sicherungsrechte, von der Art und Weise, wie sie zwischen den Parteien vereinbart werden, über ihre Durchsetzung gegenüber Dritten bis hin zu ihrem Erlöschen durch einen möglichen gutgläubigen Erwerb oder im Rahmen einer Zwangsvollstreckung. Dabei werden die einzelnen Aspekte immer vergleichend für beide Systeme betrachtet. Im Hinblick darauf, dass der belgische Gesetzgeber derzeit erarbeitet, wie das System konkret funktionieren

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soll, und unter Berücksichtigung der Schwierigkeiten späterer Änderungen in einem solch umfassenden System nachdem es in Kraft getreten ist, nimmt eine Untersuchung der vorliegenden Art eine zentrale Rolle für das zukünftige gute Funktionieren des Sicherungssystems (secured lending) in Belgien ein. Die Ergebnisse der vergleichenden Analyse werden daher für die Formulierung von Handlungsvorschlägen und best practices der Implementierung und Anwendung des belgischen Pfandrechts fruchtbar gemacht. Sie reichen von der richterlichen Anwendung gleicher Maßstäbe bezüglich der Annahme, wann eine ausreichende Beschreibung der Sicherheit vorliegt, über die Vertragsfreiheit und ihre Grenzen hinsichtlich Verzugsklauseln, hin zu einer weitreichenden Ausgestaltung zwingender Vorschriften für Sicherheiten. Die Untersuchung antizipiert die richterliche Interpretation des neuen Pfandrechts, um die belgischen Praktiker und Richter schon im Vorfeld mit den notwendigen Werkzeugen (für die Gesetzesanwendung) auszurüsten. Darüber hinaus zeigt es die Schwachstellen des UCC-Systems auf, denen durch eine Überarbeitung dieses Systems begegnet werden könnte.

1. Introduction

1.1.Dealing with Secured Credit

The problem of scarcity of credit is as old as the institution of lending itself. To remedy this problem, various forms of offering security to lenders were developed. While a more complete definition of security interests is given below, suffice it to state here that a security interest confers priority in the value of an asset to a creditor, in order to secure compliance with an obligation. These means of security, however, come with their own set of problems. One key issue surrounding the use of security interests is the protection of third parties. Indeed, an expansive system of security interests could open the door to problems of ostensible ownership and fraudulent conveyance, to name a few.

The basic idea of a contract is that the parties use it to create value, which can then be distributed between them. A security interest is indeed a contract between a lender and a borrower, which however affects not only their interests but those of certain third parties as well, most notably the borrower’s other creditors. Indeed, the priority accorded by way of the security interest can reduce the recovery of the other, unsecured creditors. As a consequence, such agreement might not necessarily be used to create value, but rather to expropriate value from those other parties. Even when this is not the intention of the parties, it might still very well be the consequence.

The publicity principle was developed in response to this threat in order to allow for secured lending, yet still make the existence of security interests known to third parties.1 If applied to movable corporeal goods, this principle translated

1Article IX. – 3:301 Comments A and B of the Draft Common Frame of Reference; L. AHERN, ‘The Law of Debtors and Creditors’, in X, Anderson on the Uniform Commercial Code, 3rd edn, §7.4, lawschool.westlaw.com; Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53,

2463/001, p 15; E.-M. KIENINGER, ‘Die Zukunft des deutschen und europäischen

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into the requirement that the borrower relinquish possession of the pledged goods.2 Under this rule, all goods still in the possession of the debtor would be unencumbered, providing a clear signal to potential lenders.3 This clarity, however, came at a significant cost in the jurisdictions adopting this rule. Requiring borrowers to relinquish possession of collateral implies that they can only borrow against assets that they can spare the use of, severely limiting the scope of collateralizable assets, and therefore access to credit. In the past, the only alternative was to allow for non-possessory security interests, which would be highly intransparent and carry with them threats of third-party expropriation, fraud, and collusion. Lawmakers indeed faced a trade-off between expansive security to support lending, on the one hand, and a more restrictive system to protect third parties, on the other.4

The central limiting factor leading to this trade-off is the limited concept of publicity, which is essentially reduced to possession. Possession, however, is not the only means of publicity. Property rights and security interests in real estate have been made knowable through various forms of centralized register publicity for centuries. In the US, this principle of register publicity was transferred to

Mobiliarkreditsicherungsrechts’, Archiv fuer die civilistische Praxis 2008, pp 188, 195. For a brief historical overview on the publicity principle in Belgian law, see R.M. PLANTIN, Bezitloos pandrecht. Rechtsvergelijkende studie (Brussel, ICVR 1970), p 4. See also, in the context of the reform: E. DIRIX, De hervorming van de roerende zakelijke zekerheden (Mechelen: Kluwer 2013), p 5. For historical references on this principle in Anglo-American law, see D. BAIRD & T. JACKSON, ‘Possession and Ownership: An Examination of the Scope of Article 9’, 35(2). Stan. L. Rev. (Stanford Law Review) 1983, p 178, n. 15. For a critical voice on the development of publicity mechanisms concerning security interests and other forms of separation of ownership and possession in US law, see C. MOONEY, ‘The Mystery and Myth of “Ostensible Ownership” and Article 9 Filing: A Critique of Proposals to Extend Filing Requirements to Leases’, 39(3). Ala. L. Rev. (Alabama Law Review) 1987, pp 726 ff. On the imperfections of the publicity principle in preventing value transfers, see L. BEBCHUK & J. FRIED, ‘The Uneasy Case for the Priority of Secured Claims in Bankruptcy’, 105(4). Yale L. J. (The Yale Law Journal) 1996, pp 857–934.

2Such was the case in i.a., Belgium and France under original Art. 2071 Civil Code, under common law after Twyne’s case, see D. BAIRD & T. JACKSON, ‘Possession and Ownership: An Examination of the Scope of Article 9’, 35(2). Stan. L. Rev. 1983, pp 180, and temporarily in Germany as well, see A. MORELL & F. HELSEN, ‘The Interrelation of Transparency and Availability of Collateral: German and Belgian Laws of Non-possessory Security Interests’, 3. ERPL (European Review of Private Law) 2014, pp 398. In the Netherlands, however, the obscure, non-possessory pledge which was initially developed by case law, was adopted into law by the New

Civil Code, see Art. 3:237 NBW.

3J. BAECK & M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), p 52.

4A. MORELL & F. HELSEN, ‘The Interrelation of Transparency and Availability of Collateral: German and Belgian Laws of Non-possessory Security Interests’, 3. ERPL 2014, p 397; C. MOONEY, ‘The Mystery and Myth of “Ostensible Ownership” and Article 9 Filing: A Critique of Proposals to Extend Filing Requirements to Leases’, 39(3). Ala. L. Rev. 1987, p 726. See also Comment A to IX.-3:101 DCFR.

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movable goods by the Uniform Commercial Code (UCC), which in turn was then adopted by all US states, be it with slight variations, starting as early as the 1950s.5 The underlying idea is of course that the register provides third parties with the information required to protect themselves while still making it possible for the borrower to keep using the asset he borrowed against. This expands the scope of collateralizable assets dramatically for the vast majority of borrowers and therefore increases access to credit, ideally without coming at the expense of third parties.

The UCC system, however, is itself far from perfect. Even though the ultimate goal of the registry system is to legitimize the effectiveness of security interests based on their public nature, many filings are effective even though they are impossible to discover by searching the system. Conversely, sometimes it is nigh on impossible for even diligent secured creditors to achieve or maintain an effective filing, on which the priority of their security interest is predicated. And as a general matter, the UCC filing system landscape is scattered and incoherent, confronting its users with an enormous variety of procedures and requirements.6

Many of these issues can now be overcome by leveraging the advances of the last decades in information technology.7 In addition to these new possibilities, discontent with the archaic system of dispossession and its limiting effect on lending has been catalysed by the economic crisis, leading to an ambitious overhaul of the Belgian regulatory framework concerning security interests on movables.8 This new system, which has already been adopted into law (making up Title XVII of Book III of the Civil Code, hereafter referred to as ‘the Pledge law’), is currently still in the stages of practical implementation and is scheduled to be fully operational no later than 1 January 2017. The new Pledge law has taken its

5L. AHERN, ‘The Law of Debtors and Creditors’, in X, Anderson on the Uniform Commercial Code,

3rd edn, §7.2 and §7.13, lawschool.westlaw.com; W. BORGES (ed.), Manual of Credit and Commercial Laws (Columbia, MD: National Association of Credit Management 2002), pp 5-10 and 5-30; W. SCHNADER, ‘A Short History of the Preparation and Enactment of the Uniform Commercial Code’, 22(1). University of Miami Law Review 1967, p 1; R. BRAUCHER, ‘The Legislative History of the Uniform Commercial Code’, 58(6). Columbia Law Review 1958, p

798.

6L. LOPUCKI, ‘Computerization of the Article 9 Filing System: Thoughts on Building the

Electronic Highway’, 55(3). Law & Contemp. Probs. (Law and Contemporary Problems) 1992, p 7. See also P. ALCES, ‘Abolish the Article 9 Filing System’, Faculty Publications 1995, No. 287, http://scholarship.law.wm.edu/facpubs/287, p 679.

7Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 22; L. LOPUCKI, ‘Computerization of the Article 9 Filing System: Thoughts on Building the Electronic Highway’, 55(3). Law & Contemp. Probs., 1992, p 7.

8Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 10; J. BAECK

& M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), p 2; E. DIRIX, ‘De wet van 11 juli 2013 betreffende de zakelijke zekerheden op roerende goederen’, 1. Notariaat 2014, p 1.

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cue from a number of international sources, such as Article 9 UCC, the Draft Common Frame of Reference (DCFR),9 the United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Secured Transactions,10 and the French and Dutch civil codes.11 Essentially, it will introduce a system of register publicity for security interests in movable goods, in addition to dispossession, which will still be effective. It is the express purpose of this reform to create an environment conducive to secured lending by providing an adequate, flexible, and predictable system of security interests based on a functional approach. The latter implies that similar constructions, which might be different conceptually, will nonetheless be treated equally and is also one of the foundations of Article 9 UCC.12

The direct goal of this study is to confront the existing body of law concerning the security system of Article 9 UCC with the fresh new Belgian Pledge law in order to formulate actionable solutions and suggestions towards the implementation and interpretation of the Pledge law. The Belgian executive is currently developing the practical organization of the registry system, and as soon as this system will be on line, the judiciary will have to interpret the new provisions in practice. Both forms of application stand to benefit from this comparison. Conversely, this comparison will expose some of the flaws in the UCC system and present alternatives where possible.

1.2.Research Context and Working Hypothesis

The research context that gave rise to this paper is the ongoing debate on the efficiency of security interests. In previous research, the merits of a registry system, as opposed to an intransparent system from an economic perspective, were discussed.13 This comparative study follows up on the previous one by seeking to allow both sides to learn from each other, resulting in actionable knowledge to the benefit of the system of security interests. Belgium could benefit enormously from the sixty-year history of the UCC in deciding on the nuts and bolts of the system. Such lessons are at this point relatively cheap and painless to implement, as the system is still being developed. US law, on the other hand,

9Draft Common Frame of Reference, prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law, ec.europa.eu.

10UNCITRAL Legislative Guide on Secured Transactions, 2010, www.uncitral.org.

11Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 11; J. BAECK

&M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), p 28.

12Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 10; J. BAECK

&M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), pp 8 and 29; W. HILLMAN, Documenting Secured Transactions. Effective drafting and litigation, 2nd edn (New York, NY: Practising Law Institute) (loosel.), 3-2 .

13A. MORELL & F. HELSEN, ‘The Interrelation of Transparency and Availability of Collateral: German and Belgian Laws of Non-possessory Security Interests’, 3. ERPL 2014, pp 393–438.

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inevitably suffers from path dependence, implementing reforms step by step and always based on the existing laws and infrastructure. Looking across the Atlantic at a system that shares the same basic foundations but was put together under absolute freedom from any pressure from the status quo could prove quite enlightening.

To make matters more specific, this paper attempts to leverage the benefits of comparing the original US system to its Belgian legal transplant and will therefore focus on security interests in movable goods.

1.3.Methodology

The functional approach taken by both systems provides us with a unique opportunity for straight comparison along those functional lines.14 The choice of cross-sections that will be compared, as well as the order in which they will be presented, are dictated by chronology. Essentially, this paper will follow the lifespan of security interests step by step, comparing the two systems at each milestone.

Of the two systems, the Belgian one is the simplest, consisting mostly of rather general principles and rules, waiting to be implemented and detailed. In the following analysis, the Belgian system will therefore mostly be used as a starting point, allowing US law to add further layers of complexity.

As indicated, US law governing secured transactions is based on the UCC. This Code itself is not a statute, it is a model law, which the states are free to adopt through legislative process. Article 9 UCC, which deals with secured transactions, has in fact been adopted by all states. On 1 July 2001, Article 9 was thoroughly revised, after which all states enacted this revised version.15 While it is nonetheless possible that there will be some differences between the actual versions in effect in the different states, this analysis will be based on the centrally drafted text of the UCC in its latest version. Given the functional comparative approach which will be used and the predominantly minimal nature of the divergences, this approach will not reduce the accuracy of the analysis.

14Belgian law: Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 16.

US law: C. CARTER, et al., Repossessions (Boston, MA: National Consumer Law Center 2013), p 11.

15L. AHERN, ‘The Law of Debtors and Creditors’, in X, Anderson on the Uniform Commercial Code,

3rd edn, §7.2, lawschool.westlaw.com; J. BROOK, Secured Transactions (Frederick, MD: Wolters Kluwer 2014), p XXI; S. WEISE, ‘An Introduction to Article 9’ in Practice under Article 9 of the UCC, ed. S. Sepinuck (Chicago, IL, American Bar Association 2013), p 3; C. CARTER, et al.,

Repossessions (Boston, MA: National Consumer Law Center 2013), p 19; C. GRANT, ‘Description of the Collateral under Revised Article 9’, 4(2). DePaul Business and Commercial Law Journal

2006, p 235; W. BORGES (ed.), Manual of Credit and Commercial Laws (Columbia, MD: National Association of Credit Management 2002), pp 5–30.

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2.What Is a Security Interest?

A security interest is an interest in certain types of property of a debtor of an obligation, which secures performance of that obligation, by according priority in enforcement on that asset over certain other parties, if such performance becomes uncertain.16 Before their respective adoptions of the modern, register-based system, both Belgian and US commercial practice used a variety of security instruments. In both jurisdictions, this diversity, which led to incoherence and unnecessary complexity, was reduced to a single, central concept based on a functional approach: the security interest in the US and the pledge in Belgium.17

3.Scope of Possible Collateral

3.1.Different Ways to View Scope of Application

Parties can reach property and security agreements pertaining to a wide variety of assets. However, the rules regarding enforceability of those agreements, particularly against third parties, vary between the different systems. The scope of application of those systems differs with the type of collateral involved. In analyzing the legal transplant achieved by the Pledge law, it is therefore crucial to ascertain and clarify exactly what its scope of application is.

The various types of property that might be involved in a secured transaction can be divided, on a conceptual level, according to a number of different criteria. In the following analysis, three of these criteria will be used to provoke different views on this body of law, as well as different comparative insights.

16Belgian law: Art. 1 Pledge law. For more explanation on the meaning of the concept, see E. DIRIX, ‘De wet van 11 juli 2013 betreffende de zakelijke zekerheden op roerende goederen’,

Notariaat 2014, No. 1, p 2; J. BAECK & M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), p 9.

US law: see §1-201(b)(35) and §9-109 UCC; W. HILLMAN, Documenting Secured Transactions. Effective Drafting and Litigation, 2nd edn (New York, NY: Practising Law Institute) (loosel.), 4-2; L. AHERN, ‘The Law of Debtors and Creditors’, in X, Anderson on the Uniform Commercial Code, 3rd edn, §7.1, lawschool.westlaw.com; P. COOGAN, et al., Secured Transactions under the Uniform Commercial Code (Albany, NY: Matthew Bender & Company 2014), §2.02 (1), www.lexisnexis.com.

17US law: Official comment 1 to §9-101 UCC and official comment to former §9-101 UCC; L. AHERN, ‘The Law of Debtors and Creditors’, in X, Anderson on the Uniform Commercial Code,

3rd edn, §7.3, lawschool.westlaw.com; J. BROOK, Secured Transactions (Frederick, MD: Wolters

Kluwer 2014), pp 3–4. See also K. LLEWELLYN, ‘Problems of Codifying Security Law’, 13(4). Law & Contemp. Probs. 1948, p 687; Belgian law: Preparatory Works of the New Belgian Pledge Law,

Parl. St., Doc. 53, 2463/001, p 16; E. DIRIX, ‚De wet van 11 juli 2013 betreffende de zakelijke zekerheden op roerende goederen’, 1. Notariaat 2014, p 3. Contra: J. BAECK & M. KRUITHOF, Het nieuwe zekerheidsrecht (Antwerpen: Intersentia 2014), p 8.

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3.2. By Nature of the Collateral

3.2.1.Movable - Immovable

The Pledge law and Article 9 UCC are designed to accommodate secured transactions regarding movable goods. Both jurisdictions have separate rules for transactions involving real estate. Nevertheless, it is possible for property to shift from one category to the other and back, so that both systems have had to develop rules to deal with this problem. The Pledge law simply states that, when the collateral becomes immovable, this fact does not impede the right to priority in the proceeds of these assets of the pledgeholder.18

While this rule may sound straightforward, its application is not. Taking as a working hypothesis the simplest case where movable corporeal goods become immovable, that is, incorporation in an immovable good, a number of issues become apparent. Under old law, the incorporated good would accrue to the object of the property interest and any possible mortgage in the real estate. A pledge is an in rem right, so that, in principle, the pledgeholder has the right to seize the object of his pledge and dispose of it separately. When the collateral has been incorporated into real estate, however, it is inconceivable that the Pledge law would allow the secured creditor to rip it out again and sell it separately. This would violate a number of established principles of property law, as well as the underlying rationale of the Pledge law, which is to rationalize the system in order to maximize its economic benefit.19 The right to priority protected by Article 19 Pledge law can therefore only be understood to target the value of the incorporated collateral. However, a number of questions remain. Practically speaking, how will the value of the pledge be calculated? Many combinations of input value, depreciation of the collateral in abstracto or in concreto, appreciation of the real estate etc., could be realistically proposed. Moreover, how is this priority legitimized in light of the more general goal of the reform to provide notice of encumbrances to third parties? A subsequent mortgagee of the real estate will be subordinated to the pledge, without any notice, as real estate interests are made public through a separate register. Under US law, this issue is dealt with by requiring that the secured party make a fixture filing in the relevant office designated for the filing or recording of mortgages on the real property in question.20 From a practitioner’s perspective and depending on the possible exposure, it might be advisable under Belgian law to include a search of the pledge register in the due diligence preceding a sale of real estate.

18Article 19 Pledge law.

19Preparatory Works of the New Belgian Pledge Law, Parl. St., Doc. 53, 2463/001, p 16.

20§9-501(a)(1) UCC; L. LOPUCKI & E. WARREN, Secured Credit. A Systems Approach, 7th edn (New York, NY: Wolters Kluwer Law and Business 2012), p 550.

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3.2.2.Tangible - Intangible

As a principle, both the Pledge law and the Article 9 UCC system can be used to create security interests in both tangible and intangible property.21 Indeed, in addition to the assets one might think of first, such as equipment, cars, etc., the person who wishes to borrow on a secured basis can also borrow against the claims he has on others. These claims are, after all, assets to the debtor, in intangible form. In Belgian legal scholarship, this kind of asset is designated as ‘debt claims’, while the UCC uses the concept of ‘accounts’. As a functional overarching term, I will use ‘receivables’ in the following discussion to designate both the Belgian concept of debt claims and the UCC concept of accounts.

The Pledge law does not contain a clear-cut definition of what exactly a debt claim entails, and there is no general definition of this concept in Belgian law.22

The UCC, on the other hand, does provide an explicit definition of ‘account’ for purposes of Article 9 transactions. Account is defined as a right to payment of a monetary obligation, whether or not earned by performance, for a number of transactions including a sale or other disposition of property, rendering of services, insurance, credit card charges, etc. Excluded from this definition, however, are rights to payment evidenced by chattel paper or an instrument, commercial tort claims, deposit accounts, investment property, letter of credit rights or letters of credit and rights to payment for money of funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.23 The deposit accounts excluded from this definition refer to accounts maintained with a bank, but in turn excluding investment property and accounts evidenced by an instrument.24

A similar cut-out is made by Belgian law, in the form of specific rules for the pledging of financial instruments and certain types of claims on banks, laid down in the Law on Financial Collateral Arrangements of 15 December 2014 (‘Wet Financiële Zekerheden’, hereafter called FCA), which is the Belgian implementation of Directive 2002/47/EC of the European Parliament and the Council of 6 June 2002 on financial collateral arrangements. This law provides specific rules for pledges on financial instruments,25 ‘cash’,26 or claims against

21US law: see i.a. §9-203 UCC; Belgian law: Arts 7, 59 and 60 Pledge law.

22For a more elaborate treatment of this concept, see C. LEBON, Het goederenrechtelijk statuut van schuldvorderingen (Antwerpen: Intersentia 2010), XIX + 690 pp. See also F. HELSEN, ‘“De onzichtbare hand van Pareto in het cessierecht. Een rechtsvergelijkende en rechtseconomische studie’, TPR (Tijdschrift voor Privaatrecht) 2013, p 93.

23§9-102(a)(2) UCC.

24§9-102(a)(29) UCC.

25As defined in Art. 3, 1° FCA and Art. 2 (e) Directive 2002/47/EC.

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