Non-possessory pledge

A pledge (gage) is the agreement by which the grantor gives a creditor the right to be paid in priority out of a tangible movable asset or a set of such assets, present or future (article 2333 of the French Civil Code). In its non-possessory form, the company keeps the pledged assets: inventory, machinery or equipment. The pledge becomes enforceable against third parties on registration in the register of security interests over movable assets (registre des sûretés mobilières), kept since 1 January 2023 by the court registry of the place where the debtor is registered. The written agreement identifies the secured debt, the quantity of the assets and their kind or nature. The registration is effective for five years and is renewed before it expires. Several pledges over the same asset rank in the order of their registration. A duly published pledge ranks ahead of a possessory pledge granted later. When the pledge covers fungible goods, such as a stock of raw materials, the company sells them in the course of its business on condition that it replaces them with the same quantity of equivalent goods, unless otherwise agreed. If the company fails in its obligation to preserve the pledged assets, the creditor invokes the acceleration of the debt or demands additional assets as security. Article 2286 gives the non-possessory pledgee a right of retention, which the opening of safeguard or judicial reorganisation proceedings makes unenforceable during the observation period and the performance of the plan. On non-payment, the creditor has the asset sold, applies for court-ordered transfer of ownership or enforces a pacte commissoire.

A non-ferrous metals trader borrows €40m secured by a non-possessory pledge over its copper stock, valued at €55m. The lender registers the pledge in the register of security interests over movable assets at the competent court registry. The trader sells and buys back copper every week. The agreement allows this provided an equivalent quantity stays in the warehouse. The loan runs for seven years. The lender renews the registration before the end of its fifth year.

• Check the description of the pledged assets and the minimum quantity of inventory to maintain.
• Negotiate the right to sell fungible goods in the ordinary course of business.
• Track the renewal of the registration, which is effective for five years, for a longer loan.
• List the goods your suppliers sell under retention of title, which the lender excludes from the pledged assets.