The Ordinance of 15 September 2021 radically modernised the law on security interests, one of the pillars of security in commercial transactions. This major reform has simplified and rationalised many mechanisms, in particular special pledges, while introducing new guarantees adapted to current economic realities. For creditors and debtors alike, understanding these changes is fundamental to securing their commitments and optimising their financing. Navigating this reshaped legal landscape requires a clear vision of the tools available, how they work and their purpose. For an overview, our complete guide to personal property security law provides a solid basis for tackling these specific mechanisms.
Pledging of stocks: a system now governed by ordinary law
The pledge of stocks, an essential financing tool for many businesses, has seen its regime completely reformed. The legislator's objective was to put an end to a complexity that had become superfluous by integrating it into the general system for pledging fungible assets.
Repeal of specific 2006 provisions
The 2021 Order repealed the 2006 Act, which had created a specific and autonomous regime for stock pledges. This legislation, although useful at the time, had become a source of confusion by coexisting with ordinary pledge law. This simplification aims to unify the rules and make the security system clearer and more effective for economic operators. This change is part of a wider modernisation drive that has also affected mechanisms such as specific arrangements for general shop warrantsThe principles have been rethought to adapt to new economic logics.
Application of the general non-possessory pledge system
From now on, stock pledges will be subject to the common law system of pledges without dispossession, governed by articles 2333 et seq. of the Civil Code. This means that the general rules for creating, publicising and enforcing a pledge apply. The pledge is created in writing, which must precisely describe the inventory pledged, its quantity and its value. To be enforceable against third parties, the pledge must be entered in a special register kept by the commercial court registry. In the event of non-payment of the debt, the creditor may request the judicial allocation of the stock or have it sold at public auction. This unification simplifies management for companies, which no longer have to juggle with different sets of rules.
Pledging motor vehicles: specific features maintained
Unlike stock pledges, motor vehicle pledges are subject to special rules, particularly as regards publicity. This is due to the very nature of the asset, which is registered and traceable by the State.
A common law pledge with specific publicity
The pledge on a motor vehicle is a pledge without dispossession under common law in terms of its substantive conditions. However, what sets it apart is its publicity procedure. To be enforceable, it is not registered with the registry, but is declared to the administrative authority responsible for registering the vehicle. This declaration is a condition for the validity of the guarantee vis-à-vis third parties.
Registration procedure, duration and transfer
The pledge declaration is made via the vehicle registration system (SIV). It must be made by the creditor within fifteen days of the date of the pledge deed. The registration is valid for five years and may be renewed. If the vehicle is sold, the pledge is transferred along with ownership of the asset, provided that the formalities have been properly completed. The purchaser is then informed of the existence of the security interest on the property he or she is buying.
Termination and administrative status certificate
The pledge is extinguished by full payment of the secured debt. The creditor is then required to provide the debtor with a pledge release certificate, which will enable the registration to be cancelled. The existence (or absence) of a pledge is recorded on the administrative status certificate, a document that is essential for any sale of the vehicle. This certificate, formerly known as the "certificat de non-gage", ensures the transparency and security of transactions for the buyer.
The agricultural warrant: a security maintained and its legal regime
A historic credit instrument for the farming community, the agricultural warrant has been maintained by the 2021 reform, which has, however, clarified and modernised its system. It enables farmers to use their crops or equipment as collateral to obtain financing.
Purpose, status of settlor and warrantable assets
Only a farmer, whether an owner, farmer or sharecropper, may grant an agricultural warrant. The warrant may relate to a wide variety of farm assets, including crops that are hanging by the roots or have already been harvested, soil products, livestock and farm machinery. The law lists precisely the assets that can be "warranted", providing lenders with legal certainty.
Drawing up warrants (content, publicity, formalities)
The agricultural warrant must be recorded in a notarial deed or a private deed. To be enforceable, it must be entered in a special register held at the registry of the commercial court in whose jurisdiction the assets are located. The entry must mention the identity of the parties, a description of the assets covered by the warrant, their location and the amount of the secured debt. This publication is essential to inform third parties of the existence of the security.
Transmission by endorsement
One of the key features of the agricultural warrant is the way in which it is transferred. The document evidencing it is a commercial paper, transferable by simple endorsement. This endorsement transfers all the rights attached to the warrant to the new holder (the endorsee). This ease of circulation makes it a very flexible credit instrument, allowing the original creditor to refinance by easily transferring its claim.
Effects (right of retention, realisation, collective proceedings)
The creditor holding a warrant has a right of retention over the pledged assets, even if they are not in his physical possession. In the event of non-payment on the due date, the creditor may have the goods compulsorily sold within eight days of simple notification to the debtor. In the event of insolvency proceedings against the operator, the warranties creditor has a preferential right and may claim priority over the sale price of the warranted assets.
Cash pledge or assignment of a sum of money as security (new in 2021)
The 2021 reform enshrined a common practice in the Civil Code: pledging a sum of money, often referred to as "cash pledging". This is not a traditional pledge, but a transfer of ownership by way of security.
Transfer of ownership and legal basis (art. 2374 C. civ.)
The mechanism, which is now governed by articles 2374 et seq. of the Civil Code, involves the settlor transferring ownership of a sum of money to the creditor by way of security. The creditor thus becomes the owner of the funds. This is not a simple preferential right over a sum, but a full and complete transfer of ownership, which constitutes an extremely robust guarantee. This logic of transferring ownership of a collateral asset is reminiscent of the new legal challenges posed by transmission of digital assetswhich also redefines the notion of possession and ownership.
Formalities, rights of the assignee and disposition of the fruits/interest
Setting up this guarantee is very simple: it requires a written document and the actual delivery of the sum of money, which can be done by transfer to an account opened in the name of the creditor. Unless otherwise agreed, the creditor may dispose of the funds. If the sum of money earns interest, the parties can agree what to do with it: it can be set off against the secured debt, capitalised or returned to the guarantor.
Unwinding of the guarantee (default, payment of guarantee claim)
The fate of the guarantee depends on the outcome of the principal obligation. If the debtor pays his debt, the creditor must return the sum of money initially paid. If the debtor defaults, the creditor may keep the sum of money up to the amount of the unpaid debt. Set-off then takes place automatically, without any judicial formalities, giving this security a formidable effectiveness.
Assignment of receivables as security (new in 2021)
Another major innovation of the 2021 reform is the assignment of common law receivables as collateral, which offers a more accessible alternative to the Dailly mechanism, previously reserved for credit transactions carried out by financial institutions.
A new mechanism outside the Dailly Act
Enshrined in articles 2373 et seq. of the French Civil Code, this security allows any creditor, not just banks, to assign a claim as security for a debt. For example, a supplier can guarantee payment by assigning an invoice it holds on one of its own customers to its creditor. The assignment deed must be in writing and must identify the assigned receivables. The assignment takes effect between the parties and becomes enforceable against third parties on the date of the deed.
Charging principles and rules
The debtor of the assigned claim only needs to be notified of the assignment if the secured creditor wishes to receive payment directly. As long as the secured claim is not due and unpaid, the assignor (the original debtor) continues to receive payments on the claim it has assigned. In the event of default, the secured creditor may notify the assignment to the debtor of the assigned claim in order to obtain payment. The sums paid are then deducted from the secured debt.
Repealed warrants: oil and hotel
In the interests of simplification, the reform has abolished a number of special warrants that had fallen into disuse or whose usefulness had become marginal.
Reminder of how it works and reasons for repealing it
The oil warrant and the hotel warrant were very specific types of security, tailored to particular sectors. The former allowed oil stocks to be pledged, while the latter covered hotel equipment. These two mechanisms, which were complex to implement and rarely used in practice, have been repealed. The needs they covered can now be met by the more flexible and unified pledge under ordinary law. For those interested in the history of these instruments, archives can be consulted at the old security that was the oil warrant or on the history and mechanisms of the hotel warrant. Their disappearance illustrates the legislator's desire to retain only truly effective legal tools.
Pledging of goods represented by a storage receipt (PACTE Act)
Introduced before the major reform of 2021, by the 2019 PACTE Act, this mechanism has modernised the pledging of goods stored with a third party.
Definition and special features
This security is used to pledge goods that have been deposited in a warehouse and for which a storage receipt has been issued. This document represents the goods, and possession of it is equivalent to possession of the goods themselves. The pledge does not relate directly to the goods, but to the document representing them.
Operation and enforceability
The pledge is constituted by the endorsement of the storage receipt in favour of the creditor, with a statement to the effect that it is given as security. The warehouse must also be notified. This notification makes the pledge enforceable against everyone. This system greatly facilitates inventory financing without the need for cumbersome formalities, relying on the trust and professionalism of third-party warehousemen. It is an excellent illustration of the way in which the law is adapting to modern logistics practices and the dematerialisation of securities, a subject that cuts across the following areas the operation of voucher receipts traditional.
The reform of security law has reshuffled the deck when it comes to movable securities. The simplification of existing systems and the introduction of new tools such as cash pledges and the assignment of receivables under common law offer new opportunities for companies and their creditors. Choosing and putting in place the most appropriate security for a transaction remains a delicate exercise that involves the financial security of the parties involved. To benefit from Solent Avocats' expertise in commercial law and secure your operations, our firm can help you analyse and structure your guarantees.
Sources
- Civil Code (in particular articles 2333 et seq. on pledges, and 2373 et seq. on transfers by way of security)
- Commercial Code (particularly for agricultural warrants)
- Order no. 2021-1192 of 15 September 2021 reforming the law on securities
- Act no. 2019-486 of 22 May 2019 on the growth and transformation of businesses (PACTE Act)
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