Are you looking for a way to repay a debt or finance a property without using a bond or mortgage? The pledge procedure has several advantages, including that of being inexpensive. Find out what collateral, also called pledge in some situations, consists of. We also tell you the procedure to follow as well as the prices. Everything you need to know about how collateral works.
What is collateral: definition
Pledge is a legal situation detailed in articles 2355 to 2365 of the Civil Code. Pledge is a technique of guaranteeing a debt. It allows an owner to repay a debt or finance a property. It may be business or agricultural assets, securities, life insurance contract, invention patent, company share, trademark, etc. In all cases, the pledge represents a movable real security relating to incorporeal goods, that is to say objects without real existence.
In the event of non-payment, the creditor who benefits from the pledge may sell or have the goods sold and thus recover the money due. Collateral is sometimes called pledge. In fact, it is the type of property pledged that determines whether it is a pledge or a pledge.
What is collateral used for?
To repay a debt
In the first case, the collateral is used to settle a debt. Thus, the debtor will pledge part of his movable property to repay his debt. The pledged assets will be sold or assigned to the creditor. The latter will recover the money in this way.
Indeed, if on the due date of the debt, the creditor has not been paid, he can seize the court to request the forced sale of the property (judicial sale) or the attribution of the property (judicial attribution).
Namely: companies generally pledge their business to be able to repay their debts. If the pledge relates to stocks (raw materials, supplies, etc.), the creditor cannot be anyone. It must be a credit institution or a finance company.
To finance a property
If the bank is reluctant to lend you money (for example, to buy business premises), it may ask you to pledge part of your property. It can be your vehicle or a financial investment, for example. And if the lender cannot repay, the bank will use the pledged assets.
In addition, the pledge is a contract that allows the borrower to avoid having recourse to the suretyship or the mortgage. Generally, this type of guarantee is only valid for loans for which only the interest is reimbursed (loans in fine).
The different possible pledges
There is not just one pledge but several since various movable assets can be the subject of this procedure:
- vehicles: this is then a pledge. In the event of resale of a car, the buyer requests a certificate of non-pledge;
- securities, shares, SICAVs, etc.;
- life insurance contracts. Banking establishments rather speak of “delegation of debt”.
How does a pledge procedure take place?
First, be aware that any pledge procedure must be the subject of a written contract. Otherwise, the pledge will have no effect. The document must be signed by the debtor AND the creditor to be valid. On the other hand, the signature can be executed in various ways:
- under private signature, that is to say between two natural persons, without a public officer intervening;
- in the form of an authentic deed, drawn up by a notary or a bailiff.
The deed must be registered with the competent administrative department in order to be made public. The debtor then has 15 days to send the signed contract and a registration form:
- either at the registry of the commercial court (operating equipment, goodwill);
- either at the prefecture (vehicle);
- at the tax center (stocks of wines, spirits).
Note: the contract must be published in 3 copies (debtor, creditor, registration service).
Does the pledge pay off?
Registering the deed of pledge is chargeable. The price of the procedure depends on the amount of the claim.
The amount of the procedure varies between 13 and 137 €.
How does collateral work?
In a pledge procedure, the property is returned to the creditor. The latter acquires possession, but not ownership. The creditor has a right of retention of the pledged property. If the debtor cannot repay, then he retains control over the property.
Note that the creditor also has a right of preference. This means that he can pay himself before all other creditors.
The advantages and disadvantages of collateral
The main advantage of collateral is to avoid the borrower having to resort to costly guarantees such as surety bonds or mortgages. No additional costs are to be expected when using collateral to repay debt or finance property.
However, collateral also has some disadvantages. First, it is better to have substantial savings to initiate a procedure. Then, as soon as the account is pledged, it is blocked, that is to say that the borrower can no longer dispose of the funds present in this account. And the money added to the account also falls into the collateral. The lending institution must validate each of your transactions. In addition, the pledge remains an inflexible guarantee compared to the other existing ones.
Can we know the collateral of a company?
Anyone has the right to make a request to the competent department (clerk of the commercial court, prefecture, tax office) and obtain a statement of a company’s pledges.
Is called « statement » the summary document which shows the sums owed by the company, the name of its claims and their order of repayment as well as its state of indebtedness.
What is cinematic collateral?
We talk a lot about pledging business assets, there is also the lesser known cinematographic pledge.
This can relate to the stock of the film, the existing film or to be made (filed), the full or partial right to exploit the film. In all cases, the procedure is accompanied by registration in a public register held by the National Center for Cinematography, for a period of 5 years.
The creditor can then collect the receipts from the exploitation of the film in order to be reimbursed. He may also have a right of preference and the right to become the owner of the film, if the debtor proves to be in default.