Glossary
Right of retention
Right of retention (droit de rétention)
The right of retention allows a creditor holding an asset of its debtor to refuse to return it until the creditor is paid.
Definition
The right of retention is a creditor’s power to keep a thing belonging to its debtor until its claim is paid. Article 2286 of the French Civil Code grants it to the person to whom the thing was handed over until payment, to the person whose unpaid claim arises from the contract obliging it to deliver the thing, to the person whose claim arose from holding the thing, and to the creditor holding a non-possessory pledge. The right is lost by voluntarily giving up possession. It is enforceable against other creditors, including those holding security over the same asset. A carrier, warehouse keeper or repairer that holds a company’s inventory or machinery and is not paid falls within these cases. In insolvency proceedings, the insolvency judge (juge-commissaire) may authorise the debtor to pay a prior claim to recover a thing lawfully retained, when the continuation of the business justifies it (article L. 622-7 of the French Commercial Code). The same article makes the right of retention of a non-possessory pledgee unenforceable during the observation period and the performance of the plan, unless the asset is included in a sale of the business. A creditor holding a pledge over a securities account has a right of retention over the securities and sums credited to the account in all cases (article L. 211-20 of the French Monetary and Financial Code).
Worked example
A building materials manufacturer entrusts €12m of inventory to a logistics provider, to which it owes €1.5m of unpaid invoices. The provider retains the goods until payment. The manufacturer’s lender, which holds a pledge over this inventory, must pay the €1.5m to recover and sell it. To account for this risk, the lender sets up a reserve equal to the amounts owed to the provider.
Points to check
- List the service providers that hold your inventory or equipment and your debts to them.
- Pay on time the providers that hold pledged assets to avoid a reserve on the financed base.
- In insolvency proceedings, prepare the application to the insolvency judge to recover an essential asset that is being retained.
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