учебный год 2023 / Perera, Conflicts among Creditors in the Regulation of Security Interests

European Review of Private Law 6-2011[1001–1021] Kluwer Law International BV | Printed in the Great Britain

Conflicts among Creditors in the Regulation of Security Interests under the Draft Common Frame of Reference a View from Spanish Law

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ANGEL CARRASCO PERERA & KAROLINA LYCZKOWSKA

Abstract: This paper analyses certain aspects of Book IX of the Draft Common Frame of Reference (DCFR), which deals with security interests in movable assets. The aim of the article is to compare the solutions set forth under the DCFR with the current regulations under Spanish law in the area of conflicts among creditors who hold security rights over the same asset. The first section of the analysis is dedicated to security interests over rights to the payment of money and the priority conflict that arises among creditors where one of them has ‘control’, as such term is understood under the DCFR. The second section addresses the problem of superpriority in the area of acquisition financing devices. Finally, the third section deals with the problems that arise when there is an after-acquired property clause and junior creditors.

Re´sume´: Ce document analyse certains ´ele´ments du livre IX du Projet de Cadre Commun de Re´fe´rence (PCCR), qui traite des droits re´els de garantie sur des actifs mobiliers. Le but de cet article est de comparer les solutions du PCCR avec la re´glementation en vigueur du droit espagnol dans le domaine des conflits entre les cre´anciers aux droits re´els de garantie sur le meˆme actif. La premie`re section de l’analyse est consacre´e aux droits re´els de garantie concurrente sur des cre´dits au paiement d’argent et aux conflits de concurrence lorsqu’un cre´diteur est prote´ge´ par l’application de la Directive de Garanties Financie`res et qu’il fait appel `a la priorite´ ´etablie par la notion de ‘controˆle’. La deuxie`me aborde le proble`me de la superpriorite´ dans le domaine des me´canismes de financement de l’acquisition. Enfin, la troisie`me section porte sur les proble`mes de´coulant de la clause d’acquisition subse´quente de proprie´te´ introduite par un cre´ancier dans son droit de garantie, avec les effets produits sur les financeurs poste´rieurs du meˆme de´biteur.

Zusammenfassung: Dieser Artikel analysiert einige Inhalte des IX. Buches des Gemeinsamen Referenzrahmens (CFR), das sich mit den Sicherungsinteressen bei beweglichen Vermo¨gensgegensta¨nden auseinandersetzt. Im Artikel werden Lo¨sungen von Konflikten zwischen Gla¨ubigern, die Sicherheitsrechte am selben Vermo¨gensgegenstand besitzen verglichen, wie sie einerseits im Gemeinsamen Referenzrahmen und anderseits in der derzeitig gu¨ltigen Regelung des Spanischen Rechts vorgeschlagen werden. Der erste Abschnitt bescha¨ftigt sich mit den Sicherungsrechten bei Zahlungsanspru¨chen und Gla¨ubigervorrechten wenn einer von ihnen Kontrolle’ u¨ber das Sicherungsgut hat. Der zweite Abschnitt widmet sich dem Problem der Vorrechte im Bereich der

This research has been funded by the Spanish Ministry of Science and Innovation, Project DER 2008-01746.

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Angel Carrasco Perera is Professor of Civil Law at the University of Castilla-La Mancha, Toledo, Spain and Karolina Lyczkowska is a Doctoral Researcher in the Civil Law Department at the University of Castilla-La Mancha, Toledo, Spain.

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Finanzierungsmechanismen bei Ka¨ufen. Der dritte Abschnitt behandelt schliesslich die Probleme die die Klausel der Voraussicherheit bei ku¨nftigen Finanzierungen hervorruft.

1.Introduction

To some extent, Book IX (Proprietary Security in Movable Assets) is an idiosyncratic body within the structure of the Draft Common Frame of Reference (DCFR)1 as a whole. Unlike the other books and parts that comprise the DCFR (including the non-contractual ones also, such as Book X on Trusts), Book IX cannot be implemented into the national legal system by a single procedure of copying or translating the uniform set of rules into the national body of rules referred to as Security Interests or Security Rights on Movable Assets.2 The difficulty is not in the fact that property rights comprise a special field of law, which is traditionally separate from contract law, subject to mandatory rules and restricted by the lex rei sitae rule governing conflicting law. The problem with Book IX rests with its basic assumption that the public record and effectiveness of security interests mostly rely on there being a filing or registration system, which would be entrusted either to a new institution or agency that would organize a European Register of Movable Assets or to existing or newly created national institutional systems that are interrelated by a

1For the DCFR text, national notes and comments, see Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR), vol. 6, CHRISTIAN VON BAR & ERIC CLIVE (eds), Sellier, Munich 2009.

See also, among others, NILS JANSEN & REINHARD ZIMMERMANN, ‘‘‘A European Civil

Code in All but Name’’: Discussing the Nature and Purposes of the Draft Common Frame of Reference’, 69 no. 1. Cambridge Law Journal 2010, 98–112; CHRISTIAN VON BAR, ‘A Common Frame of Reference for European Private Law: Academic Efforts and Political Realities’, 12 no. 1. Electronic Journal of Comparative Law 2008; JAN M. SMITS, ‘The Draft-Common Frame of Reference, Methodological Nationalism and the way Forward’, 4 no. 3. ERCL (European Review of Contract Law) 2008, pp. 270–280; GEORG GRUBER, ‘European Contract Law: From a ‘‘Common Frame of Reference’’ Towards a European Civil Code?’, 23 no. 1. Butterworths Journal of International Banking & Financial Law 2008, pp. 9–11.; REINER SCHULZE & THOMAS WILHELMSSON, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’, 4 no. 2. ERCL 2008, pp. 154–168; S. GRUNDMANN, ‘La structure du DCFR: Quelle forme pour un droit europe´en des contrats?’, Revue de droit international et de droit compare´, ISSN 0775-

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4663, vol. 86, no. 3, 2009, pp. 423–453; FERNANDO GOMEZ POMAR, ‘The Empirical Missing Links in the Draft Common Frame of Reference’, 1. Indret 2009; RODRIGO MOMBERG URIBE, ‘Ana´lisis crı´tico del proceso de armonizacio´n del derecho contractual en la Unio´n Europea’, 1. Revista de Derecho 2009, pp. 9–33; FRANCISCO J. INFANTE RUIZ, ‘Entre lo polı´tico y lo acade´mico: un Common Frame of Reference de derecho privado europeo’, 2. Indret 2008; REINER SCHULZE (ed.), Common Frame of Reference and Existing EC Contract Law, Sellier, Munich, 2008; JONATHAN MANCE, ‘The Common Frame of Reference’, 3. ZEuP (Zeitschrift fu¨r europa¨isches Privatrecht) 2010, pp. 457–462; RODERICK A. MCDONALD, ‘Transnational Secured Transactions Reform: Book IX of the Draft Common Frame of Reference in Perspective’, 4. ZEuP 2009, pp. 745–782.

2RODERICK A. MCDONALD, ‘Transnational Secured Transactions Reform: Book IX of the Draft Common Frame of Reference in Perspective’, 4. ZEuP 2009, pp. 745–782.

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network of common protocols and operational rules. In other words, implementation of the uniform rules would imply a cost. This is the idiosyncratic feature of Book IX, which imposes not only a normative commitment on the EU States (in principle, a cheap commitment, like any other mere normative commitment in Private Law) but also imposes an organizational task. Consequently, if there are any grounds for scepticism as to the DCFR becoming a uniform rule of law in the near future, such doubts are even stronger when one thinks about the future of Book IX.

However, a pessimistic rejection of the work carried out by the Study Group with regard to this subject matter of Private Law would not be justified. In spite of the (to date) unworkable conditions of the legal rules set forth in Chapter 3 of Book IX, progress may be forthcoming in the trend towards harmonization of other topics in the law on movable security rights. A lot of rules in Book IX, including the substantive ones, can work reasonably well in spite of the registry device being inoperable. More fundamentally, the rules of Book IX and almost the entire frame itself may survive and be operative in those national systems that have registry mechanisms for security rights in movable assets, even if the system is a full title registry and not a mere file or announcement system of entries (i.e., basically, one that does not support or make the security agreement public as such). It is true that there is a fundamental difference between these two types of registration systems, but certain substantive solutions provided for in the DCFR may still uphold its operational force, even under other types of registration systems.

Although it has more drawbacks than desired, the Spanish Law on Security Interests has had a scheme of registration for chattel mortgages, pledges without dispossession, leasing contracts, reservation of title devices and security assignments,3 which has been in operation since 1954. A diversity of old registration schemes have been unified since 1999 in the general Movable Assets Registry.4 In spite of its name and its pretentious enactment in 1999, the Registry continues to be a system of registration of security rights only and of specific security rights. To date, Spanish Law does not have anything close to a functional approach with regard to security rights, and each type of encumbrance has its own rules and scope of application, at least to some extent.

3See the Law on Chattel Mortgage and Pledges without Displacement of 16 Dec. 1954 (Ley de 16 de diciembre de 1954 sobre hipoteca mobiliaria y prenda sin desplazamiento de posesio´n) (hereinafter ‘LHMPSD’) and its Regulation of 17 Jun. 1955 (Decreto de 17 de junio de 1955 por el que se aprueba el reglamento de la ley de hipoteca mobiliaria y prenda sin desplazamiento de posesio´n), the La won the Sale of Moveable Goods through Instalments of 13 Jul. 1998 (Ley 28/1998, de 13 de julio, de Venta a Plazos de Bienes Muebles) and its Regulations of 19 Jul. 1999 (Orden de 19 de julio de 1999 por la que se aprueba la Ordenanza para el Registro de Venta a Plazos de Bienes Muebles). The Mortgage Act of 8 Feb. 1946 (Ley Hipotecaria) and the Mortgage Regulations of 14 Feb. 1947 (Decreto de 14 de febrero de 1947 por el que se aprueba el Reglamento Hipotecario) are often applicable by analogy to proprietary security rights over movable assets.

4Regulations of 19 Jul. 1999 (Orden de 19 de julio de 1999 por la que se aprueba la Ordenanza para el Registro de Venta a Plazos de Bienes Muebles).

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Although we are conscious that it is precarious to take a comparative approach when analysing the DCFR and the Spanish system of security rights, there is at least one point in which the comparison may prove fruitful: the rules concerning conflicts and priorities among concurring secured and non-secured creditors. Assuming, as a given, that the registry principles of the European registry system do not resemble the registry principles existing under Spanish law, we may, nevertheless, abstract these differences and use a given situation in which the security right is registered as our starting point. A lot of questions can be raised in relation to conflicts and priorities when interpreting the DCFR. However, we will focus only on three specific issues. First, the question of using ‘control’ as a way to get priority vis-a`-vis the other secured and the unsecured creditors when several concurring security rights affect the same ‘cash claim’ or ‘credit claim’. Second, the ‘superpriority’ granted to the purchase money creditor. Third, the conflict that arises when there is an after-acquired property clause in an enterprise charge.

2.Priority by Control: Some Financial Assets

In the following pages, we will provide a brief comparison of methods for perfecting security rights over financial assets under the DCFR and under Spanish law; we will then proceed to analyse the conflicts of priorities. We would like to focus our attention on two objects of security rights: (i) rights to the payment of money derived from bank accounts (‘cash’ in the meaning of the Financial Collateral Agreements Directive (FCAD)5) and (ii) rights to the payment of money arising from bank loans (‘credit claims’ in the meaning of the FCAD).

2.1 Definition of Financial Assets under the DCFR and under Spanish Law

In order to know what Book IX of the DCFR considers as financial assets, one must consult Chapter 1 of Book IX and the definition set forth under Article IX.-1:201. Therein it states that financial assets are financial instruments and rights to the payment of money. Financial instruments comprise assets belonging to one of the following categories:

(a)share certificates and equivalent securities, as well as bonds and equivalent debt instruments, if these are negotiable on the capital market;

(b)any other securities that can be traded and which entitle their holders to acquire any such financial instruments or which give rise to cash settlements, with the exception of payment instruments;

(c)share rights in collective investment undertakings;

(d)money market instruments; and

(e)rights in or relating to the instruments covered by sub-paragraphs (a) to (d).

5Directive 2002/47/EC of the European Parliament and of the Council of 6 Jun. 2002 on financial collateral arrangements (FCAD).

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In Spanish law, different kinds of financial instruments are listed under Article 2 of the Securities Market Act.6 It establishes that financial instruments that are not negotiable on organized markets are also covered by the rules established for negotiable instruments under the said Act.7 Rights to the payment of money are not mentioned in this Act, and there is no definition of ‘financial assets’ as such. In any case, unless payment rights are included in the securities, the said rights are not financial instruments. Nevertheless, rights to the payment of money that are derived from bank accounts (‘cash’) are covered by Royal Decree 5/2005, which is the Spanish implementation of the FCAD. As soon as European Directive 44/2009 is implemented into Spanish law (currently under discussion in the Spanish Parliament8), Royal Decree 5/2005 will also cover rights to the payment of money that are derived from bank loans. When parties of a collateral agreement do not fall under the scope of Royal Decree 5/2005, a security interest in rights to the payment of money may be perfected by means of an ordinary pledge (security assignment of the claim) or a non-possessory pledge (registered pledge).

2.2 Security Interest in Rights to the Payment of Money

The second group of financial assets envisaged by the DCFR (the only one we are dealing with in this paper) is represented by rights to the payment of money. The DCFR treats it as one general category, but for the purpose of this paper, we will narrow our analysis to ‘cash claims’ (in the wording of the FCAD) and ‘credit claims’ (in the wording of the FCAD as amended).

2.2.1The DCFR

Rights to the payment of money are expressly included within the scope of the financial assets set forth under the DCFR (Article IX.-1:201). However, the DCFR does not give a clear answer as to whether a security interest over a money claim can be perfected by control or if it can only be perfected by being recorded at the Register created and regulated under section 3, Chapter 3, Book IX of the DCFR.

According to Article IX.-3:102, holding control is a method of perfecting security rights over ‘certain intangibles assets’. Then, Article IX.-3:204, which defines ‘control’ as a so-called ‘Control over Financial Assets’, which suggests that this method is applicable to all financial assets. However, its first paragraph (which deals with financial assets) narrows the scope of Article IX.-3:204 to ‘financial assets that are entered into book accounts held by a financial institution (intermediated financial assets)’. Whether rights to the payment of money can be included in the category of ‘intermediated financial assets’ is a question of interpretation. The Comment to this article underlines the fact that the only criterion adopted with respect to the financial

6Spanish Securities Market Act (Ley del Mercado de Valores, Ley 24/1988, de 28 julio).

7Article 2.8 II Securities Market Act.

8As for March 2011.

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assets is that they must be held by a financial institution, but it does not further clarify the requirements for this article to be applicable. If the objective is to emphasize the fact that the assets must be held by a financial institution, then at least the first subcategory, that is, rights to the payment of money against the financial institution derived from a bank account (called ‘cash claims’ in the FCAD), definitely meet the criterion and are included within the scope of the said article. Regarding other rights to the payment of money, such as assignable credit claims derived from bank loans (called ‘credit claims’ in the FCAD), considering that the collateral provider is always a bank that normally keeps the credit claim in the form of an annotation on its accountancy books, the definition provided by the DCFR could also encompass these credit claims. With respect to money claims that are neither ‘cash’ nor ‘credit claims’, this article would probably be applied, depending upon whether the security provider and assignor is a financial institution or not. However, it is noteworthy that the DCFR does not provide a definition of ‘financial institution’.

Therefore, it seems that in the DCFR scheme the security rights over rights to the payment of money may be perfected by holding control or by being recorded at the specific CFR Register. In a case where a security right is perfected by control, it will override a security right made effective by registration, pursuant to Article IX.-4:102 (2). In cases where there are various security rights made effective by control, priority will be established in accordance with the chronological order in which the said rights were perfected. This superpriority rule is inspired by the US ‘UCC’, which provides the same solution for security interests perfected in deposit accounts – Articles 9–327 (1) UCC.

Control over rights to the payment of money is exercised by the same methods as those designed for financial instruments [Article IX.-3:204 (2)], which are basically two: (i) when a financial institution is obliged by the security provider not to admit any instructions regarding the account without the security taker’s consent or (ii) by transfer of the encumbered contents from one account to another account in the same institution, which account is not under the security provider’s name or that of the security taker. If the security taker is the financial institution that holds the security provider’s account, this fact, for purposes of control, will suffice as a third method. Special attention should be paid to this third method of obtaining control; in fact, it means that no other security interest over the cash claim may rank ahead of the junior security right held by the financial institution in which the account is maintained.

2.2.2Spanish Law

As already mentioned, the Spanish Securities Market Act only provides a list of financial instruments, but it does not include a definition for ‘financial assets’. Therefore, money claims of either type are not included within the scope of the Securities Market Act. Nevertheless, regarding rights to the payment of money derived from bank accounts, Royal Decree 5/2005 applies and sets out ‘control’

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as a requirement for a security right to be perfected over ‘cash’.9 Before the enactment of Royal Decree 5/2005, the term ‘control’, as a technical legal meaning, had never been used under Spanish law like it is used and defined under the DCFR. Therefore, holding control appears to be a new legal technique or requirement for perfecting a security right under Spanish law, being its applicability is limited strictly to the scope of the said Royal Decree, which is similar to that of the DCFR. However, albeit it is coherent with Spanish legal practice and does not differ drastically from the notion of possession applied to intangibles under Spanish law, there is no technical definition of ‘control’ under Spanish law.

2.2.2.1Pledge over ‘Cash Claims’

Nevertheless, in practice, collateral over a monetary payment right can be also established by other means under Spanish law. There are two possible ways to perfect such a security interest, apart from Royal Decree 5/2005: by recording it at the Movable Assets Register (which is quite different from the DCFR European Register) as a non-possessory (registered) pledge10 or by way of a security assignment of the encumbered claim. In the second case and according to the majority of scholars, a notice to the third-party debtor fulfils the condition that the possession must be displaced, in the case of security interests over rights to the payment of money (see Supreme Court’s Ruling of 19 February 1997, Rep. Aranzadi 1997, 3429, which confirmed this statement).

However, the courts seem to recognize that, if it is possible, some degree of real control over the right to the payment of money is required for a pledge to be validly perfected, being that a notice to a third-party debtor cannot fulfil the purposes of public record, which is behind the requirement for the possession to be displaced. If the receivables are represented by a physical document, like a savings book or public deed, the creditor should take possession of them or make sure that the security right is noted on them11 (see Supreme Court’s Rulings of 27 December 1985, Rep. Aranzadi 1985, 6654 and 18 July 1989, Rep. Aranzadi 1989, 5713). In this manner the secured creditor can effectively control the encumbered receivables in order to keep the security provider from disposing them without the secured creditor’s consent.

In 2007, a non-possessory pledge over money claims was introduced by the Law Reform of the LHMPSD.12 Its perfection is based on recording it at the Movable Assets Register. Article 54 of the LHMPSD states that non-possessory pledges may be perfected in credit claims that are not negotiable instruments or

9Cf. Art. 8.2 Royal Decree 5/2005 and Art. 2.2 FCAD.

10Article 54 LHMPSD.

p. 257.

12The Law on Chattel Mortgage and Pledges without Displacement (Ley de 16 de diciembre de 1954 sobre hipoteca mobiliaria y prenda sin desplazamiento de posesio´n), termed as LHMPSD.

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which are not considered to be financial instruments under Royal Decree 5/2005. As mentioned above, credit claims are not included in the list of financial instruments established under the Securities Market Act. Therefore, the clause of exclusivity included in Article 54 of the LHMPSD does not include ‘cash’, and it seems that a security right over ‘cash’ may be perfected as a non-possessory pledge. In any case, non-possessory pledges over receivables were not introduced as an exclusive regime for security interests over money claims, and the pledge by way of a nonregistered assignment thereof continues to persist under law.13

It seems that the pledge scheme set forth under Royal Decree 5/2005 is not an exclusive mandatory regime either. It is prudent to follow this interpretation unless there is a clear legal decision in virtue of which other pledge schemes, apart from control, are abrogated. It seems there is no legal base in Royal Decree 5/2005 to consider that this has already been done implicitly, even for parties that fall under the scope of Royal Decree 5/2005. Moreover, a recent English case, Gray v. G-T-P,14 seems to suggest that the FCAD rules are not mandatory, but rather additional to existing national schemes.

In the aforementioned case, G-T-P, as a provider of store debit card services for Gray’s customers, held sums collected from the clients in a bank account under G-T-P’s name, in trust for Gray. Their agreements provided that G-T-P would transfer all monies to Gray, upon the latter’s request without any deduction or set-off, except if Gray breached his duties to G-T-P under other agreements the parties had signed or if he becomes insolvent, G-T-P being allowed in such cases to deduct any fees due to it before paying the balance to Gray. It was upheld that, although there was a security interest in favour of G-T-P, the collateral was not controlled enough by the security taker, as G-T-P did not have the power to forbid Gray to withdraw monies from the account when requested and it could not dispose of the collateral without Gray’s consent, until one of the events mentioned in the agreement occurred (breach of duty or insolvency). Therefore, it was maintained that the charge did not fall within the scope of the Financial Collateral Arrangements Regulations (FCAR). However, the judge said that the charge would have been effective if it had complied with ordinary rules for company security interests, which require registration. In lack thereof, the charge was void.

2.2.2.2Priority Conflicts

As was mentioned above, Spanish law conceives of three possible methods to perfect encumbrances over cash claims: by control, by registration and by notified assignment. Royal Decree 5/2005 does not set forth any explicit provision as to superpriority by control.

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As to conflicts between security assignments and registered pledges over ‘cash’ and taking for granted that the prohibition of Article 55 of the LHMPSD15 does not apply to pledges over cash claims, credit ranks are established by chronological order of perfection.16 There is no other explicit rule; therefore, the residual ‘first-in-time’ rule applies. Additional protection for bona fide third parties is quite unthinkable in this sort of assets.

The chronological criterion is not sufficient when, among the conflicting security rights that exist, there is a security right that was perfected by control, pursuant to the scope of Royal Decree 5/2005. The reason for this does not lie in a suspected or declared ‘super ranking’ of this law, but in the intrinsic merit of ‘control’ as a way of preventing the debtor from trading and disposing of the claim or from its granting a notice to third parties regarding the first encumbrance. Neither a ‘notice’ to the assigned debtor nor registration at the Movable Assets Registry would provide sufficient public record for the junior creditors. Any of these methods of effectiveness ensures that the debtor (assignor, pledgor) does not hold such a power over the claim that it is sufficient to make the creditor’s right useless. The creditors with security interests perfected by means of security assignment or registered pledges would always have to rank behind the creditor with financial collateral.

If the security right is perfected by assignment and additionally there is control over the cash, the security interest may benefit from this special regime, provided that it falls under the scope of Royal Decree 5/2005. If it is perfected as a registered pledge and additionally there is control, the same would apply. As it has been said above, Spanish law lacks any definition of ‘control’. However, it could be suggested that control over ‘cash’ may be exercised by the means established in Article IX.-3:204 (2) of the DCFR. A similar solution was also envisaged by the English Law Commission in its Final Report, which proposed a reform of Company Security Interests.17 It is probably advisable to follow this interpretation, as the lack of clarity in the meaning of ‘control’ should not weaken the effectiveness of a pledge over ‘cash’ when the collateral contract is eligible, pursuant to the scope of Royal Decree 5/2005, and when the security right is perfected by means of assignment or a registered pledge.

2.2.2.3Pledge over ‘Credit Claims’

The second subcategory of rights to the payment of money is ‘credit claims’, defined by the FCAD as claims derived from bank loans. Spanish Royal Decree 5/2005 does not cover this type of security interest yet, but they may be perfected under the

15Article 55 LHMPSD states that a possessory pledge cannot be perfected over an asset that is already encumbered with a non-possessory pledge.

16CARRASCO, ‘Nuevos dilemas en el mercado de garantı´as reales: prendas registradas y prendas no registradas sobre derechos de cre´dito’, La Ley, de 23 enero 2008.

17Law Commission Final Report 296, Company Security Interest proposed scheme, Art. 40.

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common rules, in the same way as security interests over ‘cash’, that is, by means of the assignment or a registered pledge, as already explained.

Nevertheless, the introduction of ‘credit claims’ in the scope of Royal Decree 5/2005, once Directive 2009/44 is implemented, will cause a lot of complications due to the lack of clarity as to when ‘credit claims’ are considered to be under the control of the security taker. The dilemma is not even solved by the recent amendment of the English FCAR,18 which includes credit claims under the scope of the financial collateral agreements in English law, as it does not define ‘control’ for these claims either. The FCAD only establishes that inclusion of the credit claims in a written list presented to the collateral taker is sufficient for the purposes of perfecting a security interest over the credit claim.19 However, it is hard to see how delivering this list may guarantee the collateral taker of any control at all.

However, according to Article 3.1 of the FCAD, as amended by Directive 44/ 2009, Member States cannot require any formal acts to be carried out, such as a notice to the third-party debtor for the purpose of the financial collateral’s effectiveness in credit claims, without prejudice to requiring a formal act to be carried out for reasons of the collateral’s effectiveness, in relation to debtor or third parties.20 Nevertheless, if the credit claim debtor does not have to be notified of the assignment, according to general principles of law, it has to be discharged by payment to its original creditor (collateral provider).21 It follows then that, in this situation, the assignee or collateral taker would have absolutely no control over the credit claim, as it would not be able to claim it from the third-party debtor, being it was already discharged.

Nevertheless, like in ‘cash claims’ it is difficult to accept that by merely giving notice to a debtor, one may fulfil the control requirement. Sending a notice does not have an effect that is similar to that of a control agreement, although the third-party debtor would be obliged to pay the collateral taker. Article 2.2 of the FCAD establishes that a right of a collateral provider to collect the proceeds of a credit claim, until further notice, should not impede the collateral from being provided, and this statement does not help much in trying to frame what the Directive had in mind when referring to ‘control’ in this kind of assets. In any case, neither the FCAD nor the FCAR addresses the problem of priority, as mentioned. In the field of credit claims (including security rights over ‘cash’) in English law, it is ruled by the Dearle v. Hall case, which granted the first bona fide assignee

18English Financial Collateral Arrangements Regulations No. 2 is the UK implantation of EU Directive 47/2002.

19Article 1.5 II FCAD.

20Nevertheless, this rule, as with all FCAD rules, applies only to collateral already provided (Art. 3.2) and provision requires complying with the control requirement. FCAD says also that this rule is established without prejudice to a possibility of requiring a formal act for reasons of effectiveness of the collateral, such as against the debtor or the third parties.

21Cf. Art. 1527 of Spanish Civil Code.

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