EUROPEAN REFORMS OF RETENTION OF TITLE RIGHTS: PROGRESSING TOWARDS MODERN INTERNATIONAL TRADE LAW?

Transcription

1 EUROPEAN REFORMS OF RETENTION OF TITLE RIGHTS: PROGRESSING TOWARDS MODERN INTERNATIONAL TRADE LAW? I. INTRODUCTION 1. Retention of title rights are commonly used to secure trade transactions. These types of acquisition security rights fall within the scope of the UNCITRAL Legislative Guide on Secured Transactions (the Guide). 1 As a rule, a traditional civil law retention of title device will retain all property rights with the seller until the full purchase price is paid. Although the functional similarities between retention of title devices and security rights cannot be denied, there is no clear-cut approach to integrate a property based retention of title device into a secured transactions regime The Guide s approach is to make retention of title devices functionally equivalent to other acquisition security rights. A twofold technique is suggested: the unitary approach adopting a single characterization or the non-unitary approach that leaves room for distinctions but presumes the streamlining of rules between the different acquisition rights regardless of their characterization. Obviously, it is quite challenging to integrate a new secured transactions law into an existing legal system. That is why this preliminary study takes a closer look at the Guide s non-unitary approach 3, allowing States to maintain their concept of retention of title rights as long as retention of title devices are governed by rules that are functionally equivalent to those governing acquisition security rights. This paper explores the aforementioned option by clarifying the principal objectives, policies and recommendations for a functionally equivalent retention of title. Furthermore, we investigate the potential impact of these principles on traditional civil law retention of title devices. The results of our analysis serve multiple purposes: 1) the findings provide States, envisaging a reform, fundamental insights in the required changes to implement the non-unitary approach to retention of title devices; moreover, States are able to counterbalance the (dis)advantages of the unitary and non-unitary approach; 2) recent European reforms implementing the non-unitary approach could be tested on the extent they follow through on functional equivalence; this paper takes a look at the Belgian Security Rights Act of 2013; 4 3) the conclusions will elucidate and further the work of UNCITRAL on secured acquisition financing by developing the relevant principles relating to retention of title rights. The present study should be considered as a starting point for further research in respect of ongoing and envisaged reform initiatives related to acquisition security rights. Obviously international trade could benefit greatly from a uniform retention of title instrument. For the time being harmonization is no real(istic) option, but in view of modernizing international trade law it is sensible to study and compare 1 United Nations, UNCITRAL Legislative Guide on Secured Transactions (United Nations 2010). 2 Michael G. Bridge and others, Formalism, Functionalism, and Understanding the Law of Secured Transactions (1999) 44 McGill LJ 567, The UNCITRAL chooses for the unitary approach in its Model Law (see United Nations, UNCITRAL Model Law on Secured Transactions (United Nations 2016) 45). Since the Model Law does not address the non-unitary approach, further research may be required in this domain in order to guide States towards a correct implementation of the non-unitary approach. 4 Loi du 11 juillet 2013 modifiant le Code Civil en ce qui concerne les sûretés réelles mobilières [Belgian Security Rights Act]. 1

2 different views and to build on a better understanding of the Guide and the recently published Model Law on Secured Transactions. 3. The structure of this paper is as follows: first, functional equivalence of retention of title within the UNCITRAL secured transactions regime is outlined (section II). Second, we discuss selected recommendations for a functionally equivalent retention of title (section III). In this section, the recommendations in the Guide will be compared to the Draft Common Frame of Reference (DCFR). 5 The DCFR is a project that brings together scholarly research and principles concerning European private law. 6 In Book IX, the DCFR formulates rules for proprietary securities in movable assets based on the views and perspectives gained from different European private national laws. The DCFR undertakes a similar task as the Guide by trying to integrate a proprietary device (retention of title) in its secured transactions regime while taking into account States existing legal frameworks and principles. Comparing the Guide with the DCFR will illustrate if and to what extent the Guide aligns with principles and policies underlying the DCFR and by extension European private laws. This could provide a persuasive argument for European States considering implementing the non-unitary approach of the Guide. II. RETENTION OF TITLE IN THE UNCITRAL LEGISLATIVE GUIDE ON SECURED TRANSACTIONS 4. As discussed above the functional, integrated and comprehensive approach is key in the Guide. This approach defines secured transactions as all transactions that create a right in any type of asset meant to secure the performance of an obligation. 7 Under the functional approach the seller retaining title to the asset until the purchase price is paid (retention of title device) will be considered as a secured creditor providing credit with a right in the asset to secure performance. The comprehensive aspect entails that all secured transactions should be regulated by the same rules or at least the same principles. 8 In addition to the functional approach, the Guide is intent on treating all providers of acquisition financing equally. 9 Acquisition financiers are sellers and lenders providing credit to acquire certain assets. 10 If acquisition financiers obtain a security or proprietary right in the asset, this right will be considered an acquisition security right. 11 Acquisition security rights are subject to separate rules within the Guide. 12 In the introduction, we explained the dual approach to reach functional equivalence between all acquisition financiers. Under the unitary approach the retention of title right is fully integrated in the Guide s secured transactions regime. Retention of title rights will be regulated by the rules governing acquisition security rights and will be treated as an acquisition security right. The buyer is considered to have obtained ownership of the acquired asset, regardless of the seller s retained title. 13 This solution is straight forward, but full integration of retention of title can be challenging for States. Therefore, the non- 5 Study Group on a European Civil Code and Research Group on EC Private Law, Principles, Definitions and Model Rules of European Private Law Draft Common Frame of Reference (DCFR)(Oxford University Press 2010). 6 Ibid 8. 7 Guide (n 1) 23 [62]. 8 Ibid. 9 Ibid See definition acquisition secured creditor at ibid See definition acquisition security right at ibid. 12 Ibid Ibid

3 unitary approach is offered as an alternative. Under the non-unitary approach, States can maintain the form of existing acquisition financing transactions and the characterization that the parties give to their agreement (for example, as sale, lease or loan). 14 To elucidate whether the non-unitary approach is a feasible approach for retention of title rights, a detailed analysis of the relevant recommendations is required. III. FUNCTIONALLY EQUIVALENT RETENTION OF TITLE ACCORDING TO THE GUIDE S RECOMMENDATIONS 5. This section focusses on selected recommendations concerning the implementation of a functionally equivalent retention of title right under the non-unitary approach. The following recommendations will be examined: 1) the buyer s right to create multiple security rights (rec. 190), 2) third-party effectiveness of a retention of title right in a tangible asset (rec. 192), 3) existence of a security right in proceeds (rec. 197 and 199) and 4) enforcement of retention of title right (rec. 200). Each of these recommendations are indicative of the challenges facing States, when considering to adopt the non-unitary approach. The selected recommendations instruct States on what aspects of retention of title need to be changed to make it functionally equivalent to an acquisition security right. To further clarify retention of title under the non-unitary approach, the selected recommendations will be concatenated with the Guide s relevant objectives and policies. The Guide is a framework of interconnected objectives, policies and recommendations. The Guide sets out objectives and the recommendations are the roadmap to reach them. The fundamental policies, in turn, explain the Guide s choice for a certain approach and the recommendations to reach the desired objectives. 15 The fundamental objectives underlying the recommendations for the non-unitary approach are: (1) to promote low-cost credit by enhancing the availability of secured credit (2) to allow debtors to use the full value inherent in their assets to support credit and (3) to provide for equal treatment of diverse sources of credit and of diverse forms of secured transactions. 16 The essential policies shaping the recommendations for the non-unitary approach are: (1) the comprehensive scope, (2) functional, integrated and comprehensive approach, (3) extension of security rights into proceeds, (4) multiple security rights in the same asset and (5) the equality of treatment of all creditors that provide credit to enable grantors to acquire tangible assets. 17 Subsequently, the Guide s non-unitary approach is put in a broader context by comparing its recommendations with the corresponding rules in the DCFR. Similarities between the Guide and the DCFR can provide support for the Guide's approach towards retention of title devices and can make the Guide's non-unitary approach more persuasive towards European jurisdictions. Finally, the different principles are briefly verified in a case study. To exemplify the analysis, we will refer to the recent Belgian Act on Security Rights in Movable Assets. 18 The Belgian legislator supports the idea 14 Ibid 337 [76]. 15 Spiros V Bazinas, Key Objectives and Fundamental Policies of the UNCITRAL Legislative Guide on Secured Transactions (2008) 2 Insolvency and Restructuring Int l Guide (n 1) Ibid 23 [61-62], 26 [72]. 18 Belgian Security Rights Act (n 4). See on this Act, Eric Dirix, 'The Belgian Reform on Security Interests in Movable Property, in Secured Transactions Law Reform: Principles, Policies and Practice, Louise Gullifer and Orkun Akseli (ed), (2016)

4 of a functionally equivalent security right in movable assets and specifically included the retention of title right within this group. Hence, a nice example to put to the test. 1. The Right to Grant Multiple Security Rights in the Same Asset 6. The recommendation and policy to allow multiple security rights in the same asset 19 stem from the Guide s objective to make use of the full value of the equity [debtors] may have acquired in their tangible assets subject to retention of title rights. 20 The entire secured transactions regime in the Guide, from the creation of a security right to third party effectiveness, priority and enforcement, is based on the assumption that States will give grantors of security rights the power to vest multiple security rights in the same asset. With regard to retention of title under the non-unitary approach, the Guide explicitly recommends that States should allow buyers the power to grant security rights in assets subject to a retention of title right. However, the maximum amount realizable under the security right is the asset's value in excess of the amount owing to the seller or financial lessor. This second part of the recommendation safeguards the seller's preferred position over competing claimants The DCFR takes another view. According to article IX.-2:105 (b) on the requirements for granting a security right the security provider should have the right or authority to grant a security right in the asset. Since the buyer of an asset subject to a retention of title right does not have title to the acquired asset, he neither has the necessary authority to grant a security right in the asset. 22 Nevertheless the DCFR gives the buyer the authority to grant a security right in the buyer s conditional right to the asset (art. IX.2:104 (4) Sentence 2) or to create the security right in the assets starting from the moment the buyer obtains ownership of the asset (art. IX.2:106 DCFR). 8. As a rule, in a traditional retention of title transaction the buyer cannot claim any property rights in the collateral until the purchase price is paid. Consequentially, creditors of the buyer cannot claim any rights in the tangible asset subject to a retention of title right. 23 Exceptionally creditors can be allowed to vest a security right in the buyer s ownership expectancy right. As set out above, the DCFR fully adheres to these principles. In contrast to the DCFR, recommendation 190 explicitly allows the buyer to vest security rights in the asset subject to a retention of title right. Under the non-unitary approach the seller under retention of title (i.e. the present owner of the good) cannot presume that the buyer does not have authority over the collateral until payment of the purchase price. This recommendation is a significant departure from traditional property law assumptions. The recommendation fits in with the Guide s overall policies and objectives. However, its implementation will require States to introduce an explicit rule granting the buyer under retention of title the authority to vest multiple security rights in the encumbered collateral. Turning to our Belgian example, no such 19 Ibid [67]. 20 Guide (n 1) 343 [100]. 21 This, of course, under the assumption that the seller has taken the necessary steps to make his right effective against third parties in order to achieve his superior position, see infra n DCFR (n 5) Guide (n 1) 343 [99]. 4

5 provision is available. The Belgian legislator adheres to the nemo dat quod non habet principle that prohibits the buyer from granting security rights in the asset subject to a retention of title right Third-Party Effectiveness - Priority 9. Third-party effectiveness serves multiple goals. First, it provides public notice of a pre-existing encumbrance on the grantor s collateral. Second, third-party effectiveness establishes a moment in time to determine the priority positions of multiple security rights in the same asset. 25 From a traditional civil law point of view there is no need for public notice of pre-existing encumbrances or assigning priorities. Pre-existing encumbrances will not extend to assets that the buyer does not yet own and the seller s retained property right will assure his preferred position. 26 In the exceptional cases where a conflict with a third-party arises, the conflict is resolved by reference to the seller s property right. This is different for functionally equivalent retention of title rights under the Guide s non-unitary approach. The policy choices and recommendations in the Guide call for rules regarding third-party effectiveness and priority positions. 10. The policy to allow multiple security rights in the same asset implies competing claims and will require rules concerning third-party effectiveness to address these claims. Competing claimants need to be made aware of the seller s retention of title right in the asset. 27 Taking the necessary steps to make the retention of title right effective against third parties (registration or possession) will provide public notice and crystalize the seller s preferred position. 11. Furthermore, the Guide chooses to treat all providers of acquisition financing equally. All creditors providing credit to acquire assets, be it lenders or sellers, should have priority over creditors with a general non-acquisition security right in the same assets. 28 Under the non-unitary approach the formal distinction between retention of title and other acquisition security rights is maintained but the rules governing these different mechanisms are made functionally equivalent (rec. 188). Rules that favor one security mechanism over another are to be avoided. 29 Accordingly, a seller that transfers title but retains an acquisition security right or a lender that provides acquisition financing will obtain the same preferred status as a seller with a retention of title right. The basis for this approach is to enhance competition between different acquisition financiers. 30 To obtain functional equivalence between all types of acquisition financing the rules governing retention of title need to be adjusted to cohere with the rules governing acquisition security rights. Hence, the seller 24 However, a good faith secured creditor will be able to maintain an unauthorized security right in the encumbered collateral (see Matthias E. Storme, Zekerheden- en Insolventierecht (2016) 404). This is a remedy in case an unauthorized security right is vested, but by no means gives the buyer under retention of title the necessary authority to grant security rights in the collateral. 25 Guide (n 1) 103 [1]. 26 Ibid 347 [116], see also Bridge (n 2) Guide (n 1) 343 [ ]. 28 Spiros V Bazinas, Acquisition Financing under the UNCITRAL Legislative Guide on Secured Transactions (2011) 16 Unif LR 483, 494; Guide (n 1) 26, [72]. 29 Guide (n 1) 344 [102]. 30 Ibid 20 [52] 26 [72]. 5

6 under retention of title can no longer refer to his retained property right to obtain a preferred position. The retention of title holder will not only have to make his right effective against third-parties but he must do so using the same method as other acquisition security right holders (rec. 192). This will take the form of either taking possession of the acquired asset (an economically inefficient option) or registering the acquisition security right within a pre-determined grace period (rec. 192, Alternative B). States can also distinguish between acquisition security rights in inventory and goods other than inventory. In case States make this distinction, the Guide prescribes that a retention of title right in inventory will only be effective against third parties after an additional notification of the earlier-registered security right holder in the inventory (rec.192, Alternative A). A seller with a retention of title right will have to fulfill the prescribed formalities to maintain his preferred position towards non-acquisition security rights. In competition with other acquisition security rights the first in time rule will apply to determine priority. However, the Guide specifies that in case of a competition between a seller with a retention of title or acquisition security right and a lender with an acquisition security right, priority should be given to the seller. The seller s right to the purchase price takes priority over a lender that only partly financed the purchase of the asset Many European civil law jurisdictions maintain a traditional approach towards retention of title devices. In these regimes, the seller s retained property right remains sufficient to maintain his preferred position without any additional publicity of the retention of title right. 32 Contrary to this traditional retention of title approach, the DCFR proposes a regime in which a seller under retention of title is obligated to make his right effective against third parties to maintain his preferred status. In the DCFR, retention of title is a non-possessory security device and governed by the same rules as other non-possessory security rights. Based on article IX.-3:303 DCFR retention of title devices need to be registered in the same manner as other security rights. Furthermore, retention of title is considered an acquisition security right so it is governed by article IX.-3:107 DCFR. The acquisition security right holder will have to register his security right within a period of 35 days to achieve third-party effectiveness and obtain super-priority status (art. IX.-3:107 juncto art. IX.-4:102). The additional formalities in the DCFR for third-party effectiveness of retention of title rights will have the same implications as in the Guide: a noneffective retention of title right can be outranked by other security right holders The rules on third-party effectiveness in both the Guide and the DCFR illustrate the vulnerability of the seller s retained property right. Like security right holders, the seller will have to fulfill formalities to make his preferred position effective against potential competing non-acquisition and acquisition security rights. These rules imply that the seller could lose his property right and its effects towards third-parties if he does not achieve third-party effectiveness within the pre-determined grace period. To soften the severity of the seller s failure to achieve third-party effectiveness, the Guide recommends that the seller s right should be reduced to a non-acquisition security right and subjected to the general priority rules in the event of a registration after the grace period (rec. 194). A similar rule can be found in the DCFR (art.ix.- 3:107, paragraph (2)). However, there will be no remedy if the seller neglects to make his retention of title right effective against third parties. 31 Bazinas, Acquisition Financing (n 28) Roderick A Macdonald, Transnational Secured Transactions Reform: Book IX of the Draft Common Frame of Reference (2009) ZEuP, 774;Netherlands: Article 3:92 Nieuw Burgerlijk Wetboek ; France: Article 2368 Code Civil, Belgium: Article 81 Belgian Security Rights Act (n 4). 33 DCFR (n 5)

7 As a result, States will have to provide rules that are similar for all acquisition financiers, including retention of title holders, to obtain their preferred status. Preferably these mechanisms will take the form of registration instead of possession of the collateral. Additionally, States should explicitly extend these rules to retention of title holders despite the fact that in traditional civil law retention of title devices the retained property right usually makes registration or possession of the collateral unnecessary. 14. The Belgian case demonstrates that mandatory registration is an arduous issue. In the original Belgian Security Rights Act of 2013, publicity of retention of title rights was excluded. 34 Meanwhile Belgium has amended its Security Rights Act. One of these amendments considers the option for retention of title holders to register their right. 35 This amendment is meant to lead the way towards a mandatory registration of retention of title rights in the future. 36 The Belgian Security Rights Act of 2013 confers a super-priority status upon the seller under retention of title. 37 The seller benefits from this preferred position without taking any measure to make his right effective against third parties. 3. Security Rights in Proceeds of Disposition 15. The Guide adopts the fundamental policy that security rights will be extended in the generated proceeds. This policy is based on the assumption that the economic value of the encumbered asset is the creditor s ultimate source of payment [and] the security right should be extended into whatever proceeds are received upon the disposition of the encumbered asset 38 or the value may be in the proceeds, rather than in the original collateral. 39 This policy is the Guide s approach to achieve the objective to allow debtors to use the full value inherent in their assets to support credit The Guide explicitly chooses to extend or create a security right in proceeds on behalf of the secured creditor or seller respectively (rec. 19 and 197). Important is that under the non-unitary approach a security right is created in the proceeds instead of extending the retention of title right. 41 The security right in proceeds needs to be made effective against third parties (rec. 198) and specific rules will determine the priority of the seller s new security right in proceeds (rec. 199). The Guide offers States two approaches to determine priority between competing claims in proceeds (rec.199). Alternative A differentiates between the proceeds of inventory and goods other than inventory. 34 Avant-Project de Loi modifiant le Code Civil en ce qui concerne les sûretés réelles mobilières, n 2463/001, Exposé des motifs, Belgian Parliament, October , 41; Eric Dirix, The New Belgian Act on Security Interests in Movable Property (2014) Int Insol Rev, 177; Michèle Grégoire, The Law of 11 July 2013 Amending the Belgian Civil Code with Respect to Security Interests in Movable Assets, and Repealing Various Provisions in this Area, in The Draft UNCITRAL Model Law on Secured Transactions, Why and how? (2016), Project de loi modifiant diverses dispositions relatives aux sûretés réelles mobilières, n 2138/001, Exposé des motifs, November , Ibid Belgian Security Rights Act (n 4) art Guide (n 1) Bazinas, Key Objectives and Fundamental Policies (n 15) Guide (n 1) 20 [50]. See also Alejandro M. Garro, Creation of a Security Right and its extension to acquisition financing devices (2010) 15 UNIF L Rev (375) The seller only retained title to the original collateral and not the proceeds, the seller will be given a security right and not an extended property right see Guide (n 1) 359 [160]. 7

8 Alternative B implements one rule regardless of the type of proceeds or the type of asset that generated the proceeds. In alternative A, the security right in proceeds of inventory will have the status of an acquisition security right except if the proceeds are in the form of receivables. In the case of receivables, the right is reduced to a non-acquisition security right. Receivables are considered an important type of asset that will often be encumbered by a general non-acquisition security right. The automatic creation of a security right in proceeds in the form of receivables with the status of an acquisition security right could defeat the purpose of an earlier registered security right in the debtor s present and future receivables. For proceeds, other than receivables, the seller s super-priority in proceeds of inventory is conditional on the seller or lessor notifying earlier-registered secured creditors with a security right in the same assets as the proceeds of inventory (rec. 199, Alternative A, (b)). Proceeds of goods other than inventory (e.g. equipment) are more exceptional and the seller s security right will be given super-priority status regardless of the type of proceeds (rec. 199, Alternative A (a)). The creation of a security right in the proceeds of goods other than inventory with super-priority status is less likely to disadvantage other creditors. 42 If States decide against making a distinction between proceeds of inventory and equipment, they can choose for alternative B. Since most proceeds will come from the sale of inventory and will take the form of receivables, Alternative B follows the policy choice made in Alternative A and gives all security rights in the proceeds of disposition the status of a non-acquisition security right (rec. 199, Alternative B). 17. In the DCFR, security rights will generally not extend into the proceeds. The underlying reasoning is that other providers of credit should have a fair chance of securing their rights to payment by encumbering the proceeds in the course of financing the general dealings of the buyer. 43 The DCFR does formulate exceptions to this rule. Article IX.-2:306 DCFR states that a security right is automatically created into proceeds due to a defect or damage to the encumbered asset or into the civil and natural fruits of the encumbered assets (art. IX.-2:306 (1) and (2) DCFR). A security right in the proceeds of disposition is only possible if the parties have explicitly agreed to the creation of a security right into proceeds (art.ix.- 2:306 (3) DCFR). As in the Guide, the security right of a retention of title holder in the proceeds of disposition needs to be made effective against third parties. Once the security right in proceeds is made effective, it will enjoy the same super-priority status as the retention of title right in the original collateral (see art. IX.-4:104-4:105 DCFR) In a traditional civil law retention of title transaction, the seller will retain all property rights to the asset sold. The buyer does not have the authority to transform, process or dispose of the collateral. In the Guide and the DCFR, a buyer under retention of title is presumed to want to resell, process or transform the acquired assets. 45 The encumbered asset can be considered as a dynamic part of the buyer s collateral 46 that can generate proceeds. The Guide and the DCFR establish rules concerning rights in the proceeds of the encumbered collateral but both regimes set clear that sellers cannot obtain more than a security right in such proceeds. As shown 42 Ibid 360 [ ]. 43 DCFR (n 5) Ibid Guide (n 1) 359 [158]; DCFR (n 5) art. IX.-5:203-5: Macdonald (n 32)

9 above, the Guide and the DCFR take very different views on the priority status of the seller s right in the proceeds. In the DCFR there is no automatic extension to proceeds but if the parties to a retention of title transaction agree to create a security right in the proceeds, it will maintain its super-priority status. This is contrary to the Guide in which the seller s security right in the proceeds will only in exceptional cases obtain acquisition security right status. The creation of security rights into proceeds under the non-unitary approach will not necessarily offer much additional protection for the seller since his position will likely become more vulnerable towards competing claimants. In summary, States should be aware that both regimes presume that the buyer will resell the encumbered collateral and that proceeds can be generated. The seller under retention of title in both regimes is protected by allowing him to obtain a security right in the proceeds. However, the rules in the Guide concerning priorities of security rights into proceeds make the seller s security right in the proceeds more vulnerable to competing claims than in the DCFR. 19. As regards the Belgian case study, it is clear that the legislation does not fully adhere to these principles. The Security Rights Act of 2013 implements a rule extending the seller s right to proceeds. 47 However, the extension of the retention of title rights into proceeds is only a remedy in case of the buyer s unauthorized transfer of the collateral. 48 The seller s priority status in the proceeds of an unauthorized transfer is not explicitly mentioned but presumably the seller will retain his super-priority position. The law does not allow for the extension of retention of title into the proceeds in case of an authorized transfer or a transfer in the ordinary course of business. 49 Moreover, it remains unclear under the Belgian regime if parties are allowed to agree to an extension of a retention of title rights into the proceeds of authorized transfers (as in the DCFR). 4. Enforcement 20. The Guide introduces a regime that aspires to (1) the equal treatment of diverse sources of credit and diverse forms of secured transactions and (2) the efficient enforcement of a secured creditor s right. 50 The pursuit of these objectives will require a new approach towards a seller s enforcement rights under a functionally equivalent retention of title. In recommendation 200, the Guide outlines which aspects of the seller's enforcement rights States need to address to create a functionally equivalent retention of title. According to the Guide the rules for postdefault enforcement of a retention of title right should focus on: (1) the seller's right to obtain possession of the asset, (2) whether the seller is required to dispose of the asset, (3) the seller s right to the surplus of appropriation and (4) the seller's deficiency claim towards the debtor. 51 In addition to the recommendation, the Guide is clear that to achieve functional equivalence buyers and other interested parties should be enabled to compel the retention of-title seller to abandon the assertion of its right of ownership and to sell the assets as if it were an acquisition secured creditor. 52 In other words, 47 Belgian Security Rights Act (n 4) art. 70 juncto Ruud Jansen, Eigendomsvoorbehoud in Joke Baeck and Marc Kruithof (eds), Het nieuwe zekerheidsrecht Intersentia (2014) Ibid Guide (n 1) Ibid Guide (n 1) 369 [194]. 9

10 the Guide does not prevent the seller from reclaiming his property after the buyer s default and termination of the sale agreement. However, as for other acquisition security rights, the Guide recommends a regime in which buyers and other secured creditors can compel the seller under retention of title to sell the asset and distribute the proceeds. The manner in which the seller is to be compelled to realize the asset instead of reclaiming it, is not explicitly described in the Guide. Presumably the same rules would apply as for security rights under recommendation 156 and following This is different in the DCFR that explicitly maintains a regime in which the seller under retention of title cannot be forced to realize the collateral. The seller can terminate the sale agreement upon the buyer s default and reclaim the sold goods. 54 The position of the retention of title seller is further confirmed in art. IX.-7:105 DCFR which clearly states that any pre-default agreement that transfers ownership of the encumbered assets to the secured creditor post-default cannot be considered void in the case of a retention of title device. The commentary to the DCFR states that it goes almost without saying that IX. 7:105 cannot apply to retention of ownership devices since in these cases the secured creditor already is and remains the owner. 55 In the DCFR the buyer or other secured creditors will not be able to compel the seller to abandon his assertion of ownership as is the case in the Guide. 22. In a traditional civil law retention of title regime, the seller s enforcement rights are efficient since the seller, in case of default, can terminate the sale agreement and assert his ownership right over the assets. The Guide attempts to find a middle ground between efficient enforcement rights for the seller under retention of title and functional equivalence with other acquisition security rights. This leads to an approach in which the seller maintains his right to reclaim the sold goods after the buyer s default. However, the seller s right can be limited by other stakeholders who can compel the seller to abandon his proprietary claim and sell the assets. Compared to the DCFR, that adheres to the seller s right to assert his property rights and reclaim the assets, the Guide goes farther in its pursuit of functional equivalence by allowing the seller s enforcement right to be restricted by other stakeholders. Evidently the Guide s approach will imply a more extensive adjustment to the concept of retention of title than the approach taken in the DCFR. 23. According to the Belgian Security Rights Act the seller has the right to reclaim the collateral upon the buyer s default. 56 However, the seller will be obligated to refund any surplus to the buyer or other stakeholders. 57 The Belgian law does not provide for rules that allow the buyer or other stakeholders to compel the seller to realize the encumbered collateral instead of reclaiming possession. Consequently, the seller s property position is not affected in the new Belgian regime. IV. CONCLUSION 24. The previous sections clearly demonstrate that the recommendations for the non-unitary approach are likely to affect the traditional property rights of retention of title holders. The objectives, policies and recommendations in the Guide support a regime in which the buyer is given more authority over the encumbered assets and the seller will be considered more as a secured lender and less as an owner. The non-unitary approach allows States to retain the retention of title concept but involves recommendations 53 Guide (n 1) DCFR (n 5) Ibid Jansen (n 48) Belgian Security Rights Act (n 4) art

11 that will change this security device at the heart. This will make the integration of retention of title under the non-unitary approach in existing legal frameworks rather complex. The comparison with the relevant articles in the DCFR brings about the same conclusion: the characterization of retention of title devices is maintained but the rights and obligations of the seller are adapted, be it differently on some aspects. Hence, the essential lesson is the fact that the property position of the seller is altered to fit within the general secured transactions regime. This conclusion prompts a new question: is it efficient to maintain the formal retention of title characterization, when the concept is fundamentally altered? If integration under the non-unitary approach requires far-reaching changes, it might be less time consuming and easier on States to opt for the unitary approach and simply abolish the retention of title right. UNCITRAL seems to have come to this conclusion by making the unitary approach, the approach of choice in the UNCITRAL Model Law on Secured Transactions. Secured transaction law reforms are a cornerstone of modernizing international trade law. An efficient law for the creation, protection and enforcement of security interests, in our case a retention of title right, increases access to credit and reduces its cost. Many States are aware of this and (envisage to) introduce new rules. However, practice demonstrates that this is not (always) a smooth process. 58 The brief Belgian case study evinces that the introduction of functional equivalence does not necessarily result in the intended outcome. To improve the results of secured transaction law reforms and enhance their worldwide compatibility, States need to be very well instructed on the way forward. International initiatives, such as the work of UNCITRAL, are valuable tools to reach this goal. However, when tabula rasa is no option, States will turn to the non-unitary approach. This involves a lot of interpretation to translate the general principals in actual working tools adapted to the national legal framework. In this respect heaps of (research) work remains to be done. PhD Inge Van de Plas and Prof. dr. Melissa Vanmeenen Research Group Business & Law University of Antwerp - Belgium E: melissa.vanmeenen@uantwerpen.be 58 For a general overview of different reforms, see: Louise Gullifer and Orkun Akseli (ed.), Secured Transactions Law Reform: Principles, Policies and Practice, (2016) 542 p. 11