A Story of Stock, Security and Simplicity Sacrificed Under French Law

by Reed Smith


In matters of security over personal property, France for a long time had a complex system of general and particular regimes. It had been hoped that legislative reform in this area, brought about by a 2006 law, and subsequent laws, would offer relative simplicity and security for financing parties. In particular, the new laws enshrined a general common law non-possessory pledge (gage sans dépossession), described at art. 2333 et seq. of the Civil Code. This common law pledge was designed to be user-friendly and requires relatively little formality. However, a recent decision of the commercial chamber of the French Cassation Court, handed down 19 February 2013, has raised questions over the efficacy of such pledges where stock is concerned, and raises other potential issues in this important area of commercial law.

Cassation Court decision

An English bank had been granted a common law non-possessory pledge over the stock of its French debtor company. The terms of the pledge included a resolutive clause (pacte commissoire) providing for the bank to become owner of the stock in the event of non-payment. Just prior to the debtor filing for administration because of insolvency, the bank invoked the clause. It thereby became owner of the stock just prior to the commencement of insolvency proceedings. The bank then claimed the stock in the insolvency proceedings. However, the liquidator defended the bank's claim, arguing that the resolutive clause was null and void. The liquidator pointed to the special security regime applicable to stock, contained in the Commercial Code, and in particular art. L527-2, which provides that "any clause providing that the creditor becomes the owner of the stocks in the event of non-payment of the debt owed by the debtor shall be deemed null and void."

The question for the court was thus whether the parties were bound to the regime regulated by the Commercial Code (art. L. 527-1 et seq.), or could they freely opt for the more flexible common law non-possessory pledge described in the Civil Code (art. 2333 et seq.)? If the Commercial Code regime applied to the exclusion of the Civil Code regime, the bank's claim was bound to fail.

At first instance and on appeal, the bank won the argument. The courts took the view that the parties were free to elect for the common law regime contained in the Civil Code. However, on further appeal to the Cassation Court, the lower court decisions were overturned. The Cassation Court seems to have taken the view that while the language of the relevant provisions was less than clear, the purpose of the special security regime for stock was to protect the debtor and should not be circumscribed through use of the more flexible common law pledge. The maxim specialia generalibus derogant, not expressed as such by the Cassation Court, appears to have been applied.


This decision has come as a surprise to many observers and commentators. For some, it marks a regression from the attempts to liberalise the law in this area, and to allow for choice. The first instance courts had taken a practical view of the matter. However, unless and until there is either a reversal by the Cassation Court or intervention of the legislator, credit establishments are now clearly on notice of the supreme court's position.

The first and most immediate consequence to be drawn from the decision is the immediate need for credit establishments that rely on security over debtor's stock to check and review their current arrangements. If their current arrangements rely on a common law non-possessory pledge, this may need to be remedied.

More broadly, the Cassation Court's decision begs the question as to whether a common law security regime must inevitably bow to a specialised regime. Given the Cassation Court's decision, it would be advisable to ask this question, in any given scenario, given the multiplicity of specialised regimes that exist under French law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.