Bankruptcy Law

The assets included in the disposal plan may be subject to security interests. Article L. 642-12 of the Commercial Code , which deals with this situation, distinguishes between two situations, depending on whether or not the security secures the repayment of a loan, in which the rights of creditors holding such security are sacrificed to a greater or lesser extent.
In the event of an assignment co …

Assignment of a security interest

The assets included in the disposal plan may be subject to security interests. Article L. 642-12 of the Commercial Code , which deals with this situation, distinguishes between two situations, depending on whether or not the security secures the repayment of a loan, in which the rights of creditors holding such security are sacrificed to a greater or lesser extent.

In the event of an assignment concerning assets subject to a special privilege, pledge, charge or mortgage that do not guarantee financing granted to the debtor, the court must allocate to each of these assets, for the purposes of sharing the price and exercising the preferential right, the share of the price determined on the basis of the inventory and appraisal of the assets and corresponding to the ratio between the value of this asset and the total value of the assets assigned. The deposit of the funds paid by the transferee at the Deposit and Consignment Office (Caisse des dépôts et consignations), which is equivalent to a deposit with a view to the distribution of the price and the exercise of the preferential right, exempts the creditors, from that date, from renewing the mortgage registrations on the assets concerned . However, their rights are considerably reduced as a result, since the price agreed in the disposal plans is often symbolic or, at best, considerably lower than the actual value of the assets transferred, and their pledge is only exercised over a proportion of that price. Moreover, the court may adopt the allocation of the shares of the price between the mortgaged assets proposed by the purchasers, if this appears appropriate in the light of the general scheme of the plan submitted to it . Furthermore, until the price has been paid in full, which entails the purging of registrations, creditors with a right of resale may only exercise it in the event of disposal of the asset sold by the transferee . Article R. 642-20 of the Commercial Code  provides that the assignee must inform the bodies in charge of the procedure in advance of any proposed disposal of an assigned asset. They must also inform the court if the disposal was not envisaged when the offer was filed . The bankruptcy judge and any creditors with a right of resale are also notified without delay. Lastly, payment of the sale price precludes the assignee from exercising the rights of creditors registered against the assets .

Where, on the other hand, special security interests guarantee the repayment of a loan granted to the company to enable it to finance an asset, Article L. 642-12(4) provides that the burden of these security interests is transferred to the transferee ipso jure. Consequently, the court is not even required to rule on this point , provided that the transferee does not thereby incur commitments in excess of those it had entered into , and the creditor is not required to make an amending entry . In reality, rather than transferring security interests, the text transfers the burden of repayment of loan instalments subsequent to the transfer to the transferee and, correlatively, releases the debtor. The judgment which must adopt the disposal plan can only have the effect of transferring security interests validly registered and admitted to the insolvency procedure and not those taken as security for debts only admitted on an unsecured basis . The securities transferred to the assignee include those that guarantee loans intended to finance the acquisition of the debtor's business as well as the loans necessary to improve it through works . On the other hand, the charge on a loan pledge is not transferred to the transferee of the business when the purpose of the credit is too imprecise to allow it to be linked to any asset .

The assignee to whom the security is transferred is required to pay to the creditor, who has duly declared his claim within the time-limits provided for in Article L. 622-24, the instalments agreed with him and which remain due from the date of transfer of ownership or, in the case of a management lease, enjoyment of the asset to which the security relates . The assignee of the debtor's plant and equipment, financed by a loan secured by a pledge, is only required to pay the creditor bank the amount of instalments not yet due on the date of transfer of ownership . If the transferee fails to pay the instalments due after the transfer of ownership, the creditor bank may exercise its right of pursuit by seizing the mortgaged property transferred under the disposal plan .

The provisions of Article L. 642-12(4) may be waived by agreement between the assignee and the secured creditors . According to the Court of Cassation, the agreement between a creditor and the assignee of the debtor company on the amount owed by the latter in respect of future instalments of a loan secured by a pledge of a business is not one of those which prevent the transfer of the security .

Lastly, the provisions of Article L. 642-12 do not affect the retention of title acquired by a creditor over assets included in the assignment . Thus, the court adopting the disposal plan of a debtor who had constituted a pledge with dispossession on movable property may not, unless the holder of the pledge abuses it, demand its restitution until it has paid in full, in principal, interest and costs, the debt for which the pledge was given as security .

Where the court is called upon to record the transfer of a special privilege, a pledge, a charge or a mortgage, the other party or parties or the holder or holders of the security are summoned, at least fifteen days before the date of the hearing, by registered letter with acknowledgement of receipt, by the court registrar on the instructions of the receiver, where one has been appointed, or of the legal representative . The court verifies that the required conditions have been met and notes in the judgment adopting the plan the securities to be transferred .

Applicable to the receivership procedure on reference from art. L. 631-22 C. com.

Cass. com., 1 February 2000, LawLex202100003079JBJ (RJ).

Cass. com., 7 November 2018, LawLex202300004450JBJ (RJ).

Cass. com., 17 May 2011, LawLex202100003092JBJ (RJ).

Cass. com., 23 November 2004, LawLex202300002724JBJ (RJ).

Cass. com., 29 November 2016, LawLex202100001168JBJ (LJ).

Cass. com., 20 March 2019, LawLex202100001169JBJ (LJ).

Cass. com., 19 October 2010, LawLex202100003094JBJ (RJ).

C. com., art. L. 642-12, al. 5. See for an application, Cass. com., 20 May 1997, LawLex202300002567JBJ (RJ).

Cass. com., 3 May 2011, LawLex202300004445JBJ (RJ).

Cass. com., 14 January 1997, LawLex202300002564JBJ (RJ).

C. com. R. 642-7, applicable to the receivership procedure by reference from art. R. 631-40 C. com. 

C. com. R. 642-19, para. 1, applicable to the receivership procedure by reference to art. R. 631-40 C. com.

Applicable to the receivership procedure on reference from art. R. 631-40 C. com.

C. com. L. 642-2, II, 7°, applicable to the receivership procedure by reference from art. L. 631-22 C. com.

Cass. com., 4 October 2005, LawLex202100003093JBJ (RJ).

Cass. com., 30 October 2012, LawLex202100003095JBJ (RJ).

Cass. com., 7 July 2009, LawLex202100003080JBJ (RJ) ; 29 September 2015, LawLex202100001172JBJ (RJ).

Bankruptcy Law

600. Assignment of a security interest

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600. Assignment of a security interest

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Les décisions de justice citées dans ce paragraphe :

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Les notions juridiques connexes

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