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Priority Right of the unpaid seller of professional equipment

Priority Right of the unpaid seller of professional equipment

Priority Right of the unpaid seller of professional equipment

07.03.2013 BE law

No more filing requirement to obtain extended protection.

1)     Abolishment of the filing requirement, automatic protection against the immobilisation of the sold goods

Under current Belgian law, the unpaid seller of movable goods benefits from a priority right (voorrecht onbetaalde verkoper/privilège duvendeur impayé) over the sold assets notwithstanding delivery of such assets to the purchaser, provided that at the time of the insolvency of the purchaser such assets can still be identified and have not become immovable (article 20, 5° of the Belgian Mortgage Act of 1851). If such assets consist of machines, tools or other professional equipment used in commercial undertakings, that priority right will continue for five years as from the delivery notwithstanding such assets having become immovable, if a conformed copy of the invoice of the sale has been filed with the registry (griffie/greffe) of the competent commercial court within 15 days as of the delivery of the goods. 

The law of 14 January 2013 now abolishes this requirement to file a conformed copy. Thus the unpaid seller’s priority right will automatically, without any formality, continue over a period of five years as from the delivery, if after the delivery such goods would become immovable by way of incorporation in an immovable asset or because they would be dedicated by the purchaser to service or operate an immovable asset of the purchaser. 

The law enters into force on 1 September 2013, but the government may set an earlier date by Royal Decree. 

2)     A clear policy choice against adequate publicity? 

The explanatory memorandum that was submitted to Parliament by the legislators who filed the amendment abolishing the filing requirement, considers that this formality has become superfluous because of the expanded accounting laws and the introduction of regular VAT-audits that take place since the filing requirement has been introduced in 1851. Moreover, this amendment was motivated by the wish to reduce the workload of the public servants in charge of the courts’ registries. However, in its memorandum the legislators did not consider the fact that the filing with the registry did allow third party creditors of the purchaser to become aware of such extended protection by consulting the registry. Under the new rules, a lender or general creditor will have to rely entirely on information provided by its debtor in this respect. The new rules thus increase the importance of due diligence and adequate representations and warranties in commercial transactions. The law of 14 January 2013 seems to put an end to important discussions on the future of the priority right of unpaid sellers in the framework of the upcoming new legislation on security interests in movable assets, more generally. 

The preliminary draft of law on security interests in movable goods of the Experts Group chaired by Professor Eric Dirix included an abolishment of the priority right of the unpaid seller itself. According to the Experts Group, the position of the unpaid seller would most adequately be protected either by the registration of a pledge in the central, online register for security interests that would be created by that new law or by the use of a retention of title arrangement.  The Expert Group thus took the view that the specific priority right of the unpaid seller would be superfluous. This draft was criticised by some because the retention of title arrangement would be effective without registration in the new central register. The proposed abolishment of the priority right of the unpaid seller was, however, not retained in the draft of law submitted by the Ministers’ Council to the Parliament. 

The draft law on security interests in movable assets, without the abolishment of the priority right of the unpaid seller, has been approved by the Belgian Chamber and is currently pending before the Commission of Justice of the Belgian Senate. If this version of the draft law would be approved, an unpaid seller of movable goods could seek protection by using one of three techniques: the priority right awarded by law, the retention of title agreed by contract or the registration of a pledge based on a pledge agreement. The fact that only the pledge would require publicity by way of registration could be seen as being at odds with the aim of the draft law to provide creditors with more adequate information on the security interests and priority rights of other creditors in respect of the assets of the debtor. 

From that point of view, should not also the effectiveness of the priority right and the retention of title have been made conditional on prior registration in the central register? 

Note 

The draft law on security interests in movable goods was discussed during a Stibbe seminar on 5 October 2012, which can be viewed on-line in a webinar (Dutch/French only).  Please note that this seminar does not take into account the amendments made by the Belgian Parliament since 5 October 2012.

 

Team

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