Movable sureties: protect your business claims effectively

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Protecting your receivables is vital for your business. A defaulting customer, a partner in financial difficulty or an insolvent debtor can put a strain on your cash flow. Your debtors' moveable assets are a valuable asset for securing your receivables. French law offers several mechanisms adapted to different situations.

These securities vary according to the nature of the goods: tangible (equipment, inventory) or intangible (receivables, intellectual property rights). By mastering these legal tools, you can significantly reduce the risk of non-payment.

Pledging: the ultimate form of movable security

A pledge is the benchmark security for tangible assets. Article 2333 of the French Civil Code defines a pledge as "an agreement by which the pledgor grants a creditor the right to be paid by preference on a present or future movable asset or group of movable assets".

Pledging with or without dispossession: a strategic choice

Since the 2006 reform, pledging can take two forms:

• Pledge with deliverythe debtor hands over the property to the creditor
• Non-possessory pledgethe debtor retains the use of the property

This distinction offers valuable flexibility. A non-possessory pledge allows the debtor to continue to use his productive assets (vehicle, machinery). It preserves the debtor's ability to generate income to repay the debt.

For the creditor, the possessory pledge offers a major advantage: the right of retention. This right allows the asset to be held until full payment has been made, even against other preferential creditors. It is a formidable weapon in the event of insolvency proceedings.

Incorporation and publicity: essential formalities

The pledge is made in writing. The deed must mention:

• Precise designation of the guaranteed debt
• Description of the pledged asset
• The amount of the secured debt

For non-possessory pledges, publication in the pledge register is essential. This makes the security enforceable against third parties and determines the creditor's ranking. Registration is carried out at the registry of the commercial court of the pledgor's domicile.

The rights of the pledgee

The pledgee has a number of prerogatives:

• A preferential right over the sale price of the property
• A right of retention (actual or notional)
• Simplified right to sell since 2006

If the debtor defaults, the creditor can:

• Order the sale of the property
• Obtaining payment for the property
• Sell the property after giving formal notice (pacte commissoire)

These options make it possible to avoid lengthy and costly legal proceedings.

Automobile pledges: a specific system

A special system applies to automobile pledges. The decree of 14 February 2023 modernised its operation. Registration is now carried out using the vehicle registration system.

This pledge has a number of advantages:

• Simple formalities
• Low cost
• Effective resale rights
• Retaining the use of the vehicle

It is the ideal solution for securing business loans for vehicle purchases.

Pledging: a solution for intangible assets

Pledging is the equivalent of surety 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 intangible movable properties, present or future".

An extended scope of application

Pledges may be taken over a variety of intangible assets:

• Receivables
• Business assets
• Patents, trademarks, software
• Company shares
• Bank accounts

Each type of pledge is subject to specific rules. The pledge of receivables, reformed in 2006, has had its rules simplified by replacing service with notification.

Pledging receivables: a simplified procedure

A pledge of receivables is made in writing. It takes effect between the parties as soon as the deed is signed. To be enforceable against the debtor of the pledged claim, a simple notification is sufficient.

This pledge confers important rights:

• Direct collection of sums paid by the debtor
• Right to preferential payment
• Possibility of assigning the claim in the event of non-payment

Pledging a current account secures a debt on sums credited to an account. It extends to future inflows, making it even more effective.

Pledging a business: a comprehensive guarantee

The pledge of a business covers a range of items:

• Customers and goodwill
• Right to lease
• Trade name and sign
• Machinery and equipment
• Patents and trademarks (if expressly stipulated)

It must be set up by means of a registered deed or private document. Registration is made in the special register kept by the commercial court registry.

This security has the advantage of encumbering a global asset while allowing the business to continue operating.

Ownership-security mechanisms: the efficiency trump card

Security interests based on ownership offer maximum protection. They enable the debtor to escape the assistance of other creditors in the event of default.

Retention of title: upstream protection

Retention of title allows the seller to retain ownership of the goods sold until the price has been paid in full. Article 2367 of the Civil Code states that "ownership of an item may be retained as security by the effect of a retention of title clause".

The benefits are considerable:

• Easy to use
• Effectiveness in the event of collective proceedings
• Right to reclaim the property

To be fully effective, the clause must:

• Be accepted in writing at the latest on delivery
• Appear in the general terms and conditions of sale
• Be written in clear and unequivocal terms

Retention of title may extend to fungible goods of the same kind (such as stocks) and to processed products if the clause so provides.

The movable property security trust: the ultimate shield

A movable security trust is the ultimate form of protection. It is based on the temporary transfer of ownership of the debtor's assets to a trustee. Article 2372-1 of the Civil Code sets out the rules.

The mechanism is as follows:

• The settlor transfers ownership of an asset to the trustee
• The latter holds it in a separate special purpose vehicle
• In the event of default, the creditor recovers the asset or its value

The trust can cover all types of movable property:

• Tangible assets
• Receivables
• Securities
• Intellectual property

Its effectiveness in the event of insolvency proceedings is remarkable. Assets placed in trust escape the proceedings because they no longer form part of the debtor's assets.

Assignment of receivables as collateral

The assignment of receivables as security allows receivables to be used as collateral. There are two main mechanisms:

1. Dailly assignmentreserved for trade receivables assigned to a credit institution
2. Assignment of receivables under ordinary lawdedicated by theOrder of 15 September 2021 (article 2373 of the Civil Code)

These mechanisms transfer ownership of the claim to the creditor by way of security. If the debtor defaults, the creditor retains ownership of the claim up to the amount due.

Assignment of sums of money: an effective innovation

The Order of 15 September 2021 introduced the transfer of a sum of money by way of security (article 2374 of the Civil Code). This allows ownership of a sum of money to be transferred as security for an obligation.

This mechanism has several advantages:

• Easy to use
• Immediate liquidity
• Effectiveness in the event of collective proceedings

This security offers a modern alternative to traditional guarantees.

Strategies for choosing and combining securities

Faced with this diversity of securities, a strategic approach is required.

The hierarchy of effectiveness in collective proceedings

Collective proceedings are the litmus test for security interests. A clear hierarchy is emerging:

1. Security interests based on ownershipsecurity trust, retention of title, assignment of receivables
2. Collateral with an effective right of retentionpledge with delivery
3. Preferential securitynon-possessory pledges, various types of collateral
4. Legal privilegesby rank

This hierarchy should guide your choices. In unstable economic times, give preference to securities in the first two ranks.

Adapting to the nature of the property

The nature of the asset determines the appropriate security:

• Tangible operating assetsnon-possessory pledge or trust security
• Non-essential tangible goodspledge with delivery
• Trade receivablesDailly assignment or assignment under ordinary law
• Business assetspledging of funds
• Intellectual propertySpecific collateral

A precise analysis of the debtor's assets enables us to identify the best guarantees.

Combining several security interests

The most effective strategy is often to combine several complementary securities:

• Pledge on equipment + pledge on business assets
• Ownership reserve + personal guarantee
• Assignment of receivables + pledge on inventories

These combinations strengthen your protection by diversifying the sources of reimbursement.

Recent trends in case law

Recent case law confirms the effectiveness of property-based securities:

• Recognition of the exclusive nature of the security trust
• Protection of reserved creditors in insolvency proceedings
• Effectiveness of the right of retention, even in a safeguard plan

The Cour de cassation has also clarified the formal conditions for the validity of movable sureties, reiterating the importance of scrupulous compliance with formalities.

To implement a personal property security strategy tailored to your assets and receivables, our team of lawyers offers you a personalised audit. We look forward to hearing from you.

Sources

• Civil Code, articles 2329 to 2374
• Decree no. 2023-97 of 14 February 2023 on automobile pledges
• Order no. 2021-1192 of 15 September 2021

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