For a creditor, obtaining a pledge on a securities account is a reassuring step. But what happens to this security when the debtor goes through a financial storm and is the subject of collective proceedings? Far from being weakened, this security reveals all its power in this context, offering far greater protection than many other guarantees. Understanding its specific mechanisms is therefore essential for any manager or investor wishing to preserve their rights. This article provides a detailed analysis of the situation of the pledgee and the protection offered by the pledge of a securities account in the event of the safeguarding, reorganisation or judicial liquidation of the grantor, based on the complete guide to securities account pledging.
The secured creditor's legal right of retention
The main strength of securities account pledges in insolvency proceedings lies in a key concept: the right of retention. Article L. 211-20 of the French Monetary and Financial Code gives the pledged creditor a legal right of retention over the securities and sums registered in the account. This right is the cornerstone of creditor protection, as it enables the creditor to retain control of the pledged assets, even after the opening judgment.
A special right of retention
It is important to distinguish this right of retention from the more general right of pledge provided for in the Civil Code. The pledgee's right of retention does not derive from physical dispossession of the securities, which are immaterial by nature, but directly from the law. It arises from the simple declaration of the pledge, a formality that makes the security enforceable against everyone, including the insolvency authorities. Its effectiveness is therefore closely linked to the rigour with which the formalities for pledging collateral have been respected. As a result, the general rules governing pledges, in particular those that would allow the court to substitute the security, do not apply. The creditor benefits from a particularly strong legal position.
Opposability and primacy in collective proceedings
The enforceability of this right of retention is absolute. It survives the opening of the insolvency proceedings and is binding on both the administrator and the liquidator. The secured creditor is not a creditor like the others. Thanks to this right, he is placed outside the competition of other creditors, even those benefiting from powerful legal privileges, such as the super-privilege of salaries or legal costs. This primacy assures the pledged creditor that the value of the securities and sums held in the account will be allocated as a priority to the repayment of its claim.
Impact of the decision to open collective proceedings
As soon as the opening judgment is handed down, the course of events changes. The pledged creditor, although protected by his right of retention, has to deal with the mandatory rules governing insolvency proceedings, in particular the freezing of liabilities and the cessation of individual lawsuits.
The moratorium effect and blocking completion
The fundamental rule is that all legal proceedings must cease. The opening of insolvency proceedings entails a ban on payment of all claims that have arisen previously. For the secured creditor, this means that his claim, even if it had fallen due, becomes temporarily ineligible. As a result, it can no longer enforce its security. The procedures for realising collateralAll other actions, such as the sale or allotment of securities, are suspended. Attempting to realise the security despite this prohibition would constitute an illegal payment, which could be cancelled.
The advantages of a right of retention during the observation period
If realisation is blocked, the right of retention remains fully useful during the observation period. It acts as a shield. Firstly, it protects the creditor against a forced sale of the pledged securities by the administrator. The provisions of the Commercial Code that authorise the administrator, with the agreement of the official receiver, to sell certain company assets do not apply to assets subject to a lien. Similarly, the substitution of a guarantee by another, often less protective, guarantee is ruled out.
Secondly, this right can become a negotiating lever. If the pledged securities are essential to the continuation of the business, the administrator may have to ask the official receiver for authorisation to pay the claim in order to "withdraw" the pledged asset, in accordance with article L. 622-7 of the French Commercial Code. The creditor can thus obtain early payment, a very favourable outcome in the context of insolvency proceedings.
The position of the secured creditor at the end of the procedure
The final fate of the pledged claim depends on the outcome of the insolvency proceedings. The creditor's rights will not be exercised in the same way depending on whether a recovery plan is adopted or the company is liquidated.
In the event of a safeguard or continuation plan
If a safeguard or continuation plan is approved by the court, the secured creditor must comply with the payment deadlines set out in the plan. Its right of retention remains, but it will only be able to realise its security if the debtor fails to meet the plan's deadlines. The pledge therefore acts as an insurance policy to ensure that the plan runs smoothly. In the event of default, the creditor will regain his freedom of action and will be able to realise his security to recover the unpaid part of his debt, once it has been recognised as a liability.
In the event of compulsory liquidation
When a court-ordered liquidation is declared, outstanding debts become immediately due and payable. The pledgee can then exercise its rights more directly. There are two main scenarios.
If the company is sold as a whole, the right of retention is in principle transferred to the sale price. The creditor will be paid from the share of the price corresponding to the pledged assets, in preference to all other creditors. If the pledged debt financed the acquisition of the shares themselves, the credit agreement is transferred to the buyer, who must continue to repay it.
In the event of a separate sale of assets, the liquidator may seek to realise the pledge. However, the pledgee retains control. He may request the judicial allocation of the securities or, in the case of listed securities and mutual fund units, use his option to allocate them directly. This allocation is made on the basis of their value, without having to go through an auction and without being subject to competition from other creditors.
Preferential creditors defeated
The effectiveness of the pledge of a securities account is measured by its ability to circumvent the principle of equality of creditors and to take precedence over the most solidly established privileges under French law. This is where its nature as a security interest with a right of retention comes into its own.
Priority over other creditors
The mechanism for realising the pledge, in particular the option of direct allocation of the securities or sums, enables the creditor to be paid without going through the procedure of collective distribution of the price of the assets. In practical terms, the creditor is paid directly from the value of the pledged securities. He therefore does not compete with creditors under article L. 622-17 of the Commercial Code (claims arising for the purposes of the proceedings) or creditors with a legal lien, such as the tax authorities or social security bodies. His right of retention gives him an absolute preferential right over the pledged assets.
The role of the liquidator and the right of withdrawal
The liquidator is not totally powerless. He retains one prerogative: that of paying off the creditor in order to recover the pledged assets in the interests of the general body of creditors. Under article L. 642-20-1 of the French Commercial Code, the liquidator may, with the authorisation of the juge-commissaire, pay the debt in full in order to obtain release of the pledge. If the liquidator does not exercise this option, he must, after a certain period, authorise the creditor to realise his guarantee. The creditor therefore retains the initiative. If the liquidator proceeds with the sale of the securities himself, the creditor's right of retention is automatically transferred to the sale price, and he will be paid before any other creditor, without any possible discussion as to his ranking.
Faced with the complexity of insolvency proceedings, and in order to effectively defend your pledged debt, the assistance of a lawyer is crucial. Our firm has a practice dedicated to these issues and can help you secure your rights. Contact our team for an analysis of your situation.
Sources
- Monetary and Financial Code, in particular article L. 211-20 and articles D. 211-10 to D. 211-14-1.
- Commercial Code, in particular the provisions relating to safeguard, reorganisation and compulsory liquidation proceedings (Book VI).
- Civil Code, in particular the articles relating to the law on securities.
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