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French securities law has become progressively more complex over the decades, to the point where it has become a veritable legal labyrinth for practitioners and litigants alike. With multiple liens, a distinction between pledge and collateral, and special security interests scattered across different codes, professionals seeking to effectively secure their debt often had to navigate between several competing legal regimes. Ordinance 2021-1192 of 15 September 2021 has radically transformed this landscape by simplifying the law on movable securities in an unprecedented way.
The aim of this major reform, which comes into force on 1 January 2022, is to make security law clearer, more efficient and better adapted to practical needs. It is part of a wider drive to modernise business law and responds to criticisms made by economic players over the last few years. For an overview of presentation and classification of securities under French lawSee our detailed article on the 2006 and 2021 reforms.
General provisions on security interests: definition and classification
A long-awaited legal definition
For the first time, article 2323 of the Civil Code defines a security interest as "the allocation of an asset or a group of assets, present or future, to the preferential or exclusive payment of the creditor". This definition highlights three essential characteristics:
- A security interest may relate to an individual asset or to a group of assets
- It can concern both present and future assets.
- It confers on the creditor either a preferential right or an exclusive right to payment.
This last distinction is particularly important as it separates traditional security interests (liens, pledges, collateral, mortgages) from property security interests (retention of title, trust security interests). For a complete understanding ofall the mechanisms for security interests in movable property and their characteristics, as well as the impact of recent simplifications, our dedicated article is at your disposal.
Rationalised classification
Article 2324 of the Civil Code provides a clear classification of security interests according to several criteria:
- Depending on their source: legal, judicial or contractual
- Depending on whether they are based on movable or immovable property
- Depending on their scope: general or special
This conceptual ordering makes it easier to understand the overall system and helps to determine the rules applicable to each type of safety.
An innovation for legal entities
Article 2326 of the Civil Code considerably simplifies the creation of security interests by legal persons. From now on, a security interest may be created over the assets of a legal entity by virtue of powers resulting from deliberations or delegations under private signatures, even if the security interest must be created by a notarial deed.
This rule, previously limited to companies (article 1844-2 of the Civil Code, now repealed), has been extended to all legal entities under private law, including associations. It thus avoids the need for a notarial power of attorney to create a mortgage in the name of a legal entity.
The reform of movable property privileges: rationalisation and modernisation
A more precise definition
Article 2330 of the Civil Code now defines movable liens more clearly as preferences granted by law to certain claims by virtue of their status. It is useful to note that:
- Privileges are interpreted strictly
- They do not confer any resale rights (except in the case of legal exceptions).
- They are deducted from the debtor's price claim against the purchaser.
A drastic reduction in the number of privileges
The ordinance makes a major clean-up of movable liens. The number of general liens is reduced from eight to four (article 2331 of the Civil Code), and the number of special liens from nine to four (article 2332 of the Civil Code). In particular, the following have been abolished
- The privilege of last illness costs
- The privilege of subsistence supplies
- The hotelier's privilege
- Privileges for abuse and prevarication of civil servants
These liens, which have often fallen into disuse, needlessly complicated the law without providing effective protection for the creditors concerned.
A clearer classification
The classification of liens has also been simplified. Article 2332-4 of the Civil Code now states that "the preferential right conferred by the pledge ranks alongside the lessor's lien". This rule puts an end to the uncertainties in case law concerning the respective ranking of these two securities.
The pledge of tangible movable property: unification of the system
The end of the civil pledge/commercial pledge duality
One of the major advances of the reform is the elimination of the duality between civil and commercial pledges. Articles L. 521-1 to L. 521-3 of the Commercial Code have been repealed, and pledges are now subject to a single regime defined by the Civil Code.
This change is particularly welcome for practitioners who previously had to juggle between two separate legal regimes, with different rules on formation, publicity and enforcement. To explore in detail major simplification of movable guaranteesTo find out more about the new terms and conditions for advertising and carrying out these transactions, read our in-depth article.
An expanded and modernised object
Article 2333 of the Civil Code defines a pledge as "an agreement by which the pledgor grants a creditor the right to be paid in preference to his other creditors on a present or future movable asset or group of movable tangible assets".
Two innovations deserve to be highlighted:
- The possibility of pledging future assets
- The possibility of guaranteeing future claims (provided they are determinable)
These more flexible arrangements allow the pledge to be adapted to current business financing needs.
Pledging of fixed assets by destination: a major innovation
Article 2334 of the Civil Code provides a solution to a major practical difficulty by expressly permitting pledging of movable fixed assets by destination. This refers to property which, although movable by nature, is attached to a building for its service or operation (such as industrial machinery or agricultural equipment).
In the event of a conflict between the mortgagee and the pledgee, the order of preference is determined by the dates on which the respective titles were published, notwithstanding the pledgee's right of retention. This rule, which is set out in article 2419 of the Civil Code, ensures that the various security interests co-exist harmoniously.
Simplified advertising
Publication of non-possessory pledges has been simplified by the creation of a single register of movable securities (article 2338 of the Civil Code). Only motor vehicle pledges continue to be subject to a special disclosure regime, but their other aspects are now incorporated into ordinary law.
This centralisation of publicity responds to a recurring criticism of the previous system, which was characterised by the dispersal of publicity registers.
Harmonised production methods
Article 2346 of the Civil Code harmonises the methods of realising a pledge. The creditor may:
- Pursuing the sale of the pledged asset
- Obtaining payment for the property
- Entering into a commissory agreement
The second paragraph of this article extends to all professional pledges the simplified enforcement method previously reserved for commercial pledges: the creditor may proceed with the public sale eight days after simple notification.
Pledging of receivables and other intangible assets: important details
A clearer legal framework
The pledging of receivables has been the subject of major clarifications. Article 2356 of the Civil Code specifies that a pledge of a claim, present or future, takes effect between the parties and becomes enforceable against third parties on the date of the deed.
A new article 2361-1 usefully regulates the fate of successive pledges of the same claim: the ranking of creditors is governed by the order of the deeds. This rule is aligned with that applicable to the assignment of claims (article 1325 of the Civil Code).
An exclusive right to payment and a right of retention
Article 2363 of the Civil Code considerably strengthens the effectiveness of the pledge of a claim by conferring a right on the pledgee:
- An exclusive right to payment of the pledged claim
- A right of retention on this receivable
These prerogatives transform the pledge of receivables into a particularly effective form of security, similar in its effects to a property security.
The enforceability of exceptions clarified
The new article 2363-1 of the Civil Code states that "the debtor of the pledged claim may raise against the pledgee any defences inherent in the debt. He may also raise defences arising from his relationship with the pledgor before the pledge became enforceable against him".
This rule, aligned with that applicable to the assignment of receivables, guarantees greater legal predictability for the parties.
Property retained or assigned as security: major innovations
Retained ownership: details on retention of title
Article 2372 of the Civil Code provides an important clarification regarding retention of title: "In the event of alienation or loss of the property, ownership is transferred to the debtor's claim against the sub-purchaser or to the insurance indemnity subrogated to the property".
A new paragraph adds that the sub-purchaser or insurer may raise against the creditor defences inherent in the debt as well as defences arising from his relationship with the debtor before he became aware of the postponement. This provision is intended to protect sub-purchasers acting in good faith.
The movable security trust: a more flexible regime
The rules governing movable property security trusts have been made more flexible:
- Article 2372-1 now explicitly allows future obligations to be guaranteed
- Article 2372-3 facilitates the realisation of the trust by allowing the trustee, if he cannot find a buyer at the price set by an expert, to sell the property at the price he considers to correspond to its value, under his responsibility.
Assignment of receivables as security: a new legal framework
One of the major innovations of the ordinance is the recognition of the assignment of a claim as security (articles 2373 to 2373-3 of the Civil Code). This technique, which had long been rejected by the Cour de Cassation, which reclassified it as a pledge, now allows any person (and not just credit institutions) to assign a claim as security for a debt.
This fiduciary assignment of a claim offers the decisive advantage of transferring ownership of the claim to the assignee creditor, which puts him in a very favourable position in the event of the debtor's insolvency proceedings.
Assigning sums of money as security: legalising cash collateral
Articles 2374 to 2374-6 of the French Civil Code enshrine the practice of "pledging cash", renamed "assignment of a sum of money as security". This technique, widely used in practice but previously lacking any legal status, allows a sum of money to be given as security for a debt.
Article 2374-3 states that the assignee may "freely dispose of the sum assigned, unless otherwise agreed". This freedom of disposal clearly distinguishes this security from a simple pledge and reinforces its effectiveness in the event of insolvency proceedings.
A far-reaching reform to promote economic efficiency
The reform of transferable securities introduced by the Order of 15 September 2021 represents a major step forward in the modernisation of our business law. By simplifying the applicable rules, harmonising the legal regimes and enshrining tried and tested practices, it strengthens the effectiveness of securities while maintaining a balance between the rights of creditors and debtors.
For businesses, this reform offers new opportunities to secure their receivables or facilitate their access to credit. The abolition of obsolete securities, the unification of legal regimes and the recognition of new forms of security mean that the law can be adapted to the practical needs of business life.
For a more in-depth exploration of practical strategies for effectively protecting your trade receivables to take advantage of the new provisions of the 2021 Order, consult our dedicated guide.
To optimise the protection of your rights as a creditor or debtor in this new legal framework, our team of lawyers, experts in movable securities can advise you on the strategic choices to be made between these different types of security. Do not hesitate to contact us to define the strategy best suited to your situation.
Sources
- Civil Code, articles 2323 to 2374-6 (reformed by Order no. 2021-1192 of 15 September 2021)
- French Commercial Code (provisions repealed by Order no. 2021-1192)
- Order no. 2021-1192 of 15 September 2021 reforming the law on securities
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