Securing debt with a pledge on tangible furniture

Verified 28 March 2024 - Directorate for Legal and Administrative Information (Prime Minister)

The pledge on body furniture is a mechanism that to guarantee a debt. For example, a partner may pledge property to secure a loan. The pledge may be with or without dispossession depending on the creditor obtains possession of the pledged asset(s).

Pledge with Dispossession

The pledge can be used by a business or a head of company to guarantee a occupational debt. In general, the creditor go ask the debtor to provide a guarantee for to ensure payment of the debt.

For example, a business (debtor) takes a loan (debt) from a bank (creditor). In order to offer a guarantee to the bank, the manager will offer to pledge one of his assets (for example, jewelry).

The person pledging property or properties owned by him is called the constituent. It can be the debtor itself, in other words the debtor guarantees the payment of its own debt. This is the case, for example, of a business taking out a loan from a bank and putting one of the machines it holds as security. Thus, the business is both the debtor and the grantor.

It is also possible that the grantor is not the debtor. For example, a partner can pledge a table that belongs to him to secure the debt of the business with which he is associated.

When the creditor of the principal debt gets possession of the property or set of property that is pledged, it is referred to as a "dispossessed" pledge.

Warning  

Disposal pledge means that the grantor is no longer in possession of the pledged asset(s), but remains owner.

What are the obligations of the person who owns the property?

In a pledge with dispossession, the goods are entrusted either to the creditor or to an agreed third party. When the goods are deposited with a third party, a third-party agreement.

The person in possession of the pledged property has custody of it. Thus, it must commit itself to putting in place means to to ensure the preservation and maintenance of property. If it does not fulfill its obligation, the grantor may request the restitution pawned goods. Expenses incurred by the creditor for the retention of the pledged asset(s) shall be reimbursed by the grantor to the creditor.

Where the pledge relates to fungible things, the person who has custody of them shall to separate goods of the same nature which belong to him. If it does not do so, the grantor may claim the restitution fungible things pledged.

The pledge agreement may provide that the grantor may not recover the ownership of the fungible things pledged if they are not separated from those belonging to the custodian. It may also provide that fungible things pledged may be used and replaced by things of same nature and in the same quantity.

Example :

A debtor pledges 1 ton of rice to secure his debt. As it is a pledge with dispossession, the creditor gets possession of this rice. He decides to store it with his own rice when it was not provided for in the convention. The debtor may therefore request its restitution.

In order to preserve the rice, the pledge agreement may provide that the rice may be stored with the rice belonging to the creditor. The agreement may also allow the creditor to use the pledged rice and then replace it with rice of equivalent nature and quantity.

The pledged rice must be kept until the debt it guarantees is fully paid.

What to do with the gains from the pledged asset?

The pledged asset may earn a gain for the creditor. In this case, it must use this gain to repay debt and interest guaranteed by the pledge.

For example, if a pledged machine is leased to a company, the creditor must use the rents to repay the debt and interest.

He may also use the excess of earnings to fulfill his obligation to maintain and preserve the property in his possession.

What happens to the pledge in case of partial repayment of the debt?

The pledge is indivisible even if it guarantees a debt that is passed on to several heirs of the debtor. In other words, the debt must be fully paid so that each heir of the debtor whose share of the debt is repaid can recover their share of the pledge.

For example, a head of company took out a loan from a bank pledging jewelry. He dies before he can pay off his loan. It is therefore his two heirs who have to repay this loan. Everyone has to pay back 50% of the loan. One of the heirs repays his share of the debt and wants to recover his share of the jewelry. As the pledge is indivisible, he must wait until the second heir has paid his share of the debt before he can recover his share of the pledge.

Can a property be earned more than once?

Where a property is pledged more than once, it is the creditor with the largest pledge old who is priority in order to settle his claim, it does not matter whether it is a pledge with or without dispossession.

In some cases, the pledge may be for property that has become a fixed furniture by destination (e.g. plant machinery). In this case, several guarantees may be granted on the property, including mortgages and pledges.

The order of preference then has to be established between these guarantees. The pledge or mortgage agreements whose publication is the oldest have priority over the most recent ones.

To be valid, the pledge must be established in writing.

It shall contain the following elements:

  • Designation of secured debt
  • Quantity of goods pledged
  • Type or nature of property

So that the pledge can be enforceable, it is necessary to publish.

The rules concerning publication depend on the property pledged: a land motor vehicle or trailer, or other body furniture (general case).

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General case

It is not necessary to publish the pledge for it to be enforceable. The mere fact of transferring possession of the property to the creditor is sufficient to render it enforceable.

Ground vehicle with motor or trailer

Where the pledge relates to a land motor vehicle or trailer, it must be entered on the vehicle registration system (or VIS). This entry is only possible if the component is the holder or co-holder of the vehicle registration certificate.

The creditor or grantor must apply to the Minister in charge of the Interior or through a licensed credit institution or financing business.

Who shall I contact

The pledge must be entered at the latest 7 days after receipt of the request. If no reply is received within this period, the pledge shall be deemed to have been entered.

Registration is valid for 5 years. It can be renewed (as many times as necessary) to 5 years. The request must be made at the latest 7 days before the end of the current registration. If there is no renewal, the pledge shall be written off SIV.

When the debtor fails to pay his debt, then the creditor can activate the pledge. He has 2 possibilities :

  • He can seeks legal recognition of the property of the pledged asset or assets. Where the value of the asset(s) exceeds the amount of the secured debt, then the difference must be paid to the original owner of the asset (to the grantor).
  • He can ask for forced sale of the pledged asset or assets. Since it is a professional debt, the public sale must be made by a notary, a commissioner of justice or a sworn goods broker. This sale must take place within 8 days that follow a significance simple with the person holding the pledge (the debtor or the third party settlor).

FYI  

It is possible to provide directly in the pledge agreement that, in the absence of payment of the secured claim, the pledged asset or assets become the property of the creditor.

The rules depend on the property pledged: a land motor vehicle or trailer, or other body furniture (general case).

General case

Once the debt secured by the doorstep has been fully paid by the debtor (principal debt, interest, etc.), the pledge no longer exists.

The person who had custody of the property must return it to the grantor.

Vehicle (excluding fleet and vehicle stock)

Once the pledged debt has been fully paid by the debtor (principal debt, interest, etc.), the pledge no longer exists. The person who had custody of the property must return it to the grantor.

A request for cancelation of the pledge must be made by the grantor or creditor to the Minister in charge of the Interior by electronic means. The application must contain the date of the initial registration and its serial number.

Who shall I contact

The cancelation may also be requested by a credit institution or a financing business authorized by the Minister of the Interior.

When the request for deletion of the SIV is made by the grantor or creditor, one of the following documents must be attached:

  • Proof that the parties agree that the pledge should be removed from the vehicle registration system (or VIS).
  • Act or decision of a court requesting the cancelation of the pledge

Pledge without Disposal

The pledge can be used by a business or a head of company to guarantee a occupational debt. In general, the creditor go ask the debtor to provide a guarantee for to ensure payment of the debt.

For example, a business (debtor) takes a loan (debt) from a bank (creditor). In order to offer a guarantee to the bank, the manager will offer to pledge one of his assets (for example jewelry).

The person pledging property or properties owned by him is called the constituent. It can be the debtor itself, in other words the debtor guarantees the payment of its own debt. This is the case, for example, of a business taking out a loan from a bank and putting one of the machines it holds as security. Thus, the business is both the debtor and the grantor.

It is also possible that the grantor is not the debtor. For example, a partner can pledge a table that belongs to him to secure the debt of the business with which he is associated.

Where the component keep in his possession the pledged item(s) it's called “without dispossession”.

What are the obligations of the person who owns the property?

The grantor who retains ownership of the pledged asset(s) undertakes to establish means of preservation of the asset or assets. If the creditor does not fulfill this retention obligation, the creditor has 2 options:

  • He may avail himself of the lapse of term : it requests the immediate repayment of the principal debt, if the debtor cannot pay then the pledge will be activated.
  • He can ask for a pledge supplement if it considers that the property or the set of properties has lost value.

Where the non-dispossession pledge relates to fungible things, the grantor may use them provided that they are replaced by equivalent things and in the same quantity. It is possible to provide in the pledge agreement that this is not possible.

Example :

A pledge without dispossession is for a certain quantity of rice. The grantor may use the rice in his possession at the time the pledge is made if he is in a position to replace it.

What happens to the pledge in case of partial repayment of the debt?

The pledge is indivisible even if it guarantees a debt that is passed on to several heirs of the debtor. In other words, the debt must be fully paid so that the heirs of the debtor whose share of the debt is repaid can recover their share of the pledge.

For example, a head of company took out a loan from a bank pledging jewelry. He dies before he can pay off his loan. It is therefore his two heirs who have to repay this loan. Everyone has to pay back 50% of the loan. One of the heirs repays his share of the debt and wants to recover his share of the jewelry. As the pledge is indivisible, he must wait until the second heir has paid his share of the debt before he can recover his share of the pledge.

Can a property be earned more than once?

Where a property is pledged more than once, it is the creditor with the largest pledge old who is priority in order to settle his claim, it does not matter whether it is a pledge with or without dispossession.

In some cases, the pledge may relate to property that has become a fixed furniture by destination (e.g. plant machinery). In this case, several guarantees may be granted on the property, including mortgages and pledges.

The order of preference then has to be established between these guarantees. The pledge or mortgage agreements whose publication is the oldest have priority over the most recent ones.

To be valid, the pledge must be established by written. It shall contain the following elements:

  • Designation of secured debt
  • Quantity of goods pledged
  • Type or nature of property

So that the pledge can be enforceable, it is necessary to publish.

The rules concerning publication depend on the property pledged: a land motor vehicle or trailer, or other body furniture (general case).

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General case

The creditor must send to the commercial court registry the original or a dispatch the pledge agreement and the entry note for a pledge without possession (in 2 copies if the request is made by post):

Write-in slip for a pledge without dispossession

Who shall I contact

Registration is valid for one 5-year term. At the end of this period, the creditor must send a request for renewal, otherwise the pledge will be written off by the commercial court registry.

The application for renewal must be made to the Registry which entered the pledge using the following form:

Warranty renewal voucher without dispossession

If the pledge is modified, the creditor must also make a change publication at the Registry of the Commercial Court. He must send an original or a dispatch the pledge agreement and the entry form for the modification of a pledge (in 2 copies if sent by post):

Amending registration form for a non-possessory pledge or pledge

Vehicle (excluding fleet and vehicle stock)

Where the pledge relates to a land motor vehicle or trailer, it must be entered on the vehicle registration system (VRS). This entry is only possible if the component is the holder or co-holder of the vehicle registration certificate.

The creditor or grantor must apply to the Minister of the Interior for registration or through a licensed credit institution or financing business.

Who shall I contact

The pledge must be entered at the latest 7 days after receipt of the request, if no reply is received within this period, the pledge shall be considered to have been entered.

Registration is valid for 5 years. The pledge may be renewed (as many times as necessary) to 5 years. The request must be made at the latest 7 days before the end of the current registration. If there is no renewal, the pledge shall be written off SIV.

When the debtor fails to pay his debt, then the creditor can activate the pledge. He has 2 possibilities :

  • He can seeks legal recognition of the property of the pledged asset or assets. Where the value of the asset(s) exceeds the amount of the secured debt, then the difference must be paid to the original owner of the asset (to the grantor).
  • He can request forced sale of the pledged asset or assets. Since it is a professional debt, the public sale must be made by a notary, a commissioner of justice or a sworn goods broker. This sale must take place within 8 days that follow a significance simple with the person holding the pledge (the debtor or the third party settlor).

FYI  

It is possible to provide directly in the pledge agreement that, in the absence of payment of the secured claim, the pledged asset or assets will become the property of the creditor.

Once the debt to which the pledge relates has been fully paid by the debtor (principal debt, interest...), the pledge must be written off.

General case

Once the pledged debt has been fully paid by the debtor (principal debt, interest, etc.), the pledge must be written off the security rights registry and other related transactions.

The creditor must send the debarment note to the registry of the commercial court which entered the pledge. It must also indicate the date of entry of the pledge and its serial number:

Request the cancelation of a pledge without dispossession

The constituent may also request the cancelation of the pledge. To do so, he must attach to the debit slip one of the following supporting documents:

  • Proof that the parties agree that the pledge should be canceled
  • Court decision requesting the removal of the pledge
  • Document recording the sale of the pledged property together with the receipt recording payment of the price and a copy of the extract from the entries in the specific register

The cost of the radiation varies depending on the type of radiation made. It can be total or partial.

Vehicle (excluding fleet and vehicle stock)

The application for cancelation of the pledge entry must be made by the grantor or creditor to the Minister of the Interior electronically. The application must contain the date of the initial registration and its serial number.

Who shall I contact

It may also be requested by a credit institution or a financing business authorized by the Minister of the Interior.

Where the request for cancelation is made by the grantor or creditor, one of the following documents must be attached:

  • Proof that the parties agree that the pledge should be canceled
  • Act or decision of a court requesting the cancelation of the pledge

Who can help me?

The public service accompanying companies

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