All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

Pledging consists of assigning, as security for an obligation, an intangible movable property or a set of intangible movable properties, present or future . It can be conventional or judicial. The pledging of securities accounts is governed not by the general provisions of Article 2355 of the Civil Code but by the special provisions of Articles L. 211-20 and following of the Monetary and Financial …

Principle

Pledging consists of assigning, as security for an obligation, an intangible movable property or a set of intangible movable properties, present or future . It can be conventional or judicial. The pledging of securities accounts is governed not by the general provisions of Article 2355 of the Civil Code but by the special provisions of Articles L. 211-20 and following of the Monetary and Financial Code .

In accordance with Article L. 211-20, I of the Monetary and Financial Code, the pledging of a securities account is constituted, both between the parties and with respect to the issuing legal entity and third parties, by a declaration signed by the account holder . This must be dated and contain: the designation “Declaration of pledge of financial securities account” or “Declaration of pledge of financial securities registered in a shared electronic recording system”; the statement that the declaration is subject to the provisions of Article L. 211-20; the name or corporate name and address of the pledgor and the pledgee or their registered office if they are legal entities; the amount of the secured claim or, failing that, the elements allowing the identification of this claim; the identification elements of the special account when such an account exists or, failing that, the identification elements of the financial securities identified by a computer process; the nature and number of the financial securities initially registered in the pledged account . The pledge must be considered valid and enforceable against third parties, by the sole effect of the declaration signed by the account holder, without any notification to the custodian of the pledged securities account being required, notwithstanding any contrary clause in the pledge agreement . However, the pledge is not enforceable against a bank in the absence of a dated and signed declaration by the account holder, containing the prescribed mentions . The fact that the document recording the pledge bears an incorrect and outdated title, such as “declaration of pledge of financial instruments account” instead of the new designation “declaration of pledge of financial securities account,” and refers to the former Article L. 431-4 of the Monetary and Financial Code instead of Article L. 211-20 of the same code does not constitute a formal defect likely to result in its invalidity . The same applies when the pledge document does not include the statement that “the declaration is subject to the provisions of Article L. 211-20 of the Monetary and Financial Code” . Finally, the temporary unavailability of a security does not prevent its pledging .

Included in the pledge base are the financial securities that were initially in the pledged account, those that are substituted for or complement them in any way, as security for the initial claim of the pledgee, as well as their fruits and proceeds in any currency; the financial securities and sums in any currency subsequently credited to the pledged account, as security for the initial claim of the pledgee, since they are considered to have been delivered on the date of the initial pledge declaration .

The pledgee may obtain, upon simple request to the account holder, a certificate of pledge of securities account, which includes an inventory of the financial securities and the amounts in any currency recorded in the pledged account as of the date of issuance of this certificate . The incomplete nature of the certificate cannot lead to the invalidity of this security since its issuance is merely an option offered to the pledgee who can obtain it upon simple request . Indeed, the validity of the pledge of securities does not require either the issuance of a certificate of pledge by the account holder or its registration in the latter's books .

The pledged account takes the form of a special account opened in the name of the holder and maintained by an authorized intermediary, a central depository, or, where applicable, the issuer. In the absence of a special account, the financial securities mentioned in the first paragraph, as well as the sums in any currency identified for this purpose by a computer process , are deemed to constitute the pledged account.

The secured creditor defines with the securities account holder the conditions under which the latter may dispose of the financial securities and the amounts in any currency appearing in the pledged account. The secured creditor benefits in all cases from a right of retention over the financial securities and amounts in any currency appearing in the pledged account .

In accordance with para. V of Article L. 211-20, the secured creditor holding a certain, liquid, and payable claim may, for financial securities, French or foreign, admitted to a trading platform, shares or units of collective investment undertakings, as well as sums in any currency, enforce the pledge, civil or commercial, eight days—or at the expiration of any other period previously agreed with the account holder—after formal notice to the debtor delivered in person or sent by registered mail . This notice is also notified to the pledgor when they are not the debtor and to the account holder when the latter is not the secured creditor. The formal notice must contain, under penalty of invalidity, the following indications : in the absence of payment, the pledge may be enforced by the creditor within eight days or at the expiration of any other period previously agreed with the pledgor; the pledgor may, until the expiration of the aforementioned period, inform the account holder or the manager of the identification IT process of the order in which the sums or financial securities should be attributed in full ownership or sold, at the creditor's choice. The invalidity of the formal notice sent by the holder of the pledge on a financial instruments account, for omission of the indications that must be included, is not subject to the requirement of harm caused to the debtor, as in the case of invalidity of notifications . The creditor who has not complied with the formality of prior formal notice is liable to return the entire portfolio realized . The same applies to one who liquidates the pledged securities without having previously given notice to the debtor to correct their debtor position . The creditor who proceeds with the transfer of securities outside the framework of the enforcement of the pledge they benefited from, that is, without prior delivery of a formal notice by registered letter or in person, a formality essential to the implementation of this security, cannot, after the annulment of the transfer, still claim to benefit from the pledge .

Within the limit of the amount of the secured claim and, where applicable, in compliance with the order indicated by the pledgor, the enforcement of the pledge of the pledged account or securities occurs according to the rules set by Article D. 211-12. For sums in any currency, enforcement occurs directly by transfer of full ownership to the secured creditor. For financial securities, French or foreign, admitted to trading on a trading platform designated by the pledgor or, failing that, by the secured creditor, enforcement occurs by sale on a trading platform or according to an offer referred to in 1° of Article L. 411-2 or by transfer of ownership of the quantity determined by the secured creditor. This quantity is established by the secured creditor based on the last available closing price on a trading platform. Finally, for shares or units of a collective investment undertaking as defined in 3 of II of Article L. 211-1, designated by the pledgor or, failing that, by the secured creditor, enforcement occurs by presentation for redemption or transfer of ownership of the quantity it determines. This quantity is established by the secured creditor based on the last available valuation of said shares or units.

CA Nîmes, 13 July 2017, LawLex202300006038JBJ.

CA Aix-en-Provence, 22 October 2020, LawLex202300006026JBJ.

Cass. com., 30 November 2022, LawLex202300002386JBJ, previously cited.

CA Paris, 29 January 2021, LawLex202300005668JBJ; CA Nîmes, 18 February 2021, LawLex202300006028JBJ; CA Bastia, 9 December 2020, LawLex202300006029JBJ, considering that a bank cannot transfer the pledged securities by its client when the letters it produces contain neither a formal notice to pay the debt nor a warning that failure to pay within a given period could result in the realization of the pledge.

Cass. com., 28 March 2006, LawLex202200009198JBJ. Cf. Nîmes, 13 July 2017, LawLex202300006038JBJ, considering that the realization of a portfolio of securities after the sending of a formal notice not containing all the mentions required by Article D. 211-11 of the Monetary and Financial Code cannot be challenged when the invalidity resulting from the non-compliance with these formal rules does not cause harm to the debtor.

CA Nîmes, 18 February 2021, LawLex202300006028JBJ, previously cited.

Cass. com., 18 November 2008, LawLex202200009199JBJ.

CA Aix-en-Provence, 22 October 2020, LawLex202300006026JBJ, specifying that the declaration of pledging of securities signed by the account holder does not need to be notified to the issuing company; Cass. com., 20 June 2018, LawLex202200009195JBJ.

CA Versailles, 17 May 2022, LawLex202300006024JBJ.

CMF, Art. D. 211-10.  See, for applications, CA Aix-en-Provence, 22 October 2020, previously cited; CA Reims, 9 July 2019, LawLex202300006033JBJ, holding that the registration of a pledging of securities accounts, pursuant to a declaration that fully complies with the provisions of Article D. 211-10 of the Monetary and Financial Code, becomes perfect without any additional publicity formalities being required.

Cass. com., 30 November 2022, LawLex202300002386JBJ.

Cass. com., 23 January 2019, LawLex202200009194JBJ.

CA Nîmes, 13 July 2017, LawLex202300006038JBJ; CA Saint-Denis de la Réunion, 18 September 2015, LawLex202300006041JBJ.

Cass. com., 30 September 2008, LawLex202200000875JBJ.

Company Law (en cours)

82. Principle

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82. Principle

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