Security interests in movable property: a diversified legal arsenal

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In an unpredictable economic environment, creditors are looking to secure their claims. Collateral security is an effective mechanism for guaranteeing the recovery of a debt without using real estate assets. These legal instruments offer increased protection to creditors wishing to limit the risk of non-payment.

The four types of personal property security under Article 2329 of the Civil Code

Article 2329 of the French Civil Code, enacted by Order no. 2006-346 of 23 March 2006, lists four categories of security interests, the definition, classification and rules for the creation of which have been amended as follows modernised and simplified by the 2021 ordinance :

Movable liens

These legal securities confer a preferential right on certain creditors because of the quality of their claim. Article 2330 of the Civil Code specifies that privileges are "granted by law" - they are never the result of an agreement between the parties.

Movable liens fall into two categories:

• General liens, which cover all of the debtor's movables (legal fees, funeral expenses, salaries, etc.).
• Special liens that encumber a specific asset (lessor's lien, curator's lien, furniture vendor's lien, etc.).

The order of 15 September 2021 reduced their number from 9 to 4 for special privileges, and from 8 to 4 for general privileges.

Pledging tangible movable property

A pledge is defined in Article 2333 of the Civil Code 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".

It comes in two forms:

• Pledging with dispossession: the debtor hands over the asset to the creditor
• Non-possessory pledge: the debtor retains the use of the asset

Pledges are always contractual. Its effectiveness is due in particular to the right of retention that it confers on the pledgee. It should be noted that the pledges and collateral have been greatly simplifiedIn particular, the 2021 ordinance.

Pledging intangible movable property

Pledging is the equivalent of a pledge for intangible property. Article 2355 of the Civil Code defines it as "the assignment, as security for an obligation, of intangible movable property or a group of present or future intangible movable property".

The pledge may relate to :

• Receivables
• Company shares
• Business assets
• Patents...

It is the only movable security that can be either conventional or judicial.

Property retained or assigned as security

This category includes :

• Retention of title clause
• The security trust
• Assignment of receivables as security

Article 2372-1 of the French Civil Code sets out the legal regime for property retained as security. The main advantage of these mechanisms is that the creditor benefits from an exclusive right over the property, enabling it to avoid competing with other creditors.

The right of retention: an atypical security measure

Although not mentioned in article 2329, the right of retention plays a central role in movable sureties. It allows a creditor to retain an asset until his claim has been paid in full.

The Court of Cassation refuses to classify it as a security interest (Cass. com., 20 May 1997, no. 95-11.915), preferring to regard it as a right in rem enforceable erga omnes (Cass. 1re civ., 24 Sept. 2009, no. 08-10.152).

Despite this doctrinal controversy, its effectiveness is now enshrined in Article L. 643-8 of the French Commercial Code, which places it outside the order of creditors in the event of insolvency proceedings.

Characteristics of movable securities

General versus special sureties

A movable property security is said to be general when it relates to all of the debtor's movable property. It is special when it relates only to certain specific assets.

Only movable liens can be general. Other security interests (pledge, collateral security, ownership security) are necessarily special.

Possessory and non-possessory securities

The question of dispossession is a major distinguishing criterion. As N. Martial-Braz, "the distinction between possessory and non-possessory security interests is of particular importance in movable property" (RD bancaire et fin. 2014, dossier 35, no. 5).

This distinction influences :

• Enforceability of the security interest against third parties
• Rights of use and enjoyment of the encumbered asset
• How safety is achieved

A pledge may be with or without dispossession, whereas a right of retention by its nature implies dispossession of the debtor.

Security interests conferring a preferential right vs. an exclusive right

Traditional security interests (liens, pledges without retention, simple pledges) confer a preferential right: the creditor is paid before unsecured creditors, but remains subject to competition with other preferential creditors. It is essential to understand the complex hierarchy of security interests and the order of priority of creditors to secure its position, particularly in the event of insolvency proceedings.

On the other hand, certain security interests offer an exclusive right over the asset, enabling the creditor to escape the competition altogether:

• Right of retention
• Security ownership

Article L. 643-8 of the French Commercial Code expressly recognises this exclusivity in the event of insolvency proceedings, by placing these rights "outside competition".

Collateral security granted by a third party

Long referred to as "real surety", this technique allows a third party to guarantee the debt of another person by pledging one of their assets as collateral.

Following controversial case law (Cass. ch. mixte, 2 Dec. 2005), the Order of 15 September 2021 clarified its legal regime. The new article 2325 of the Civil Code provides that "a contractual security interest may be constituted by the debtor or by a third party" and makes certain rules applicable to surety bonds.

This hybridisation restores the mixed nature of this guarantee, even if the legislator did not use the expression "real guarantee".

In a complex and constantly evolving economic environment, the choice and implementation of movable securities require specialised legal expertise. Visit master the strategies for protecting your trade receivables and benefit from in-depth expertise to choose the right coverWhen it comes to your business, the support of a lawyer is essential in order to optimise the security of your operations and anticipate the risks of default.

Sources

• Civil Code, articles 2329 to 2375
• French Commercial Code, Article L. 643-8
• Order no. 2006-346 of 23 March 2006 on securities
• Order no. 2021-1192 of 15 September 2021 reforming the law on securities
• Cass. com. 20 May 1997, no. 95-11.915, JurisData no. 1997-002191
• Cass. 1st civ., 24 Sept. 2009, no. 08-10.152, JurisData no. 2009-049541
• P. Simler, "Sûretés sur les meubles - Présentation générale et classement", JurisClasseur Civil Code, Art. 2329, Fasc. unique, 17 February 2023
• N. Martial-Braz, "Sûretés avec et sans dépossession, une summa divisio désuète?", RD bancaire et fin. 2014, dossier 35, no. 5
• L. Bougerol, "Sûretés préférentielles et sûretés exclusives, une autre summa divisio?", RD bancaire et fin. 2014, dossier 36, no. 5.

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