Digitization of all securities is now allowed

Par ediallo - 6 October, 2021 - 06:53

It is done, the law of securities is finally reformed. It is now legal to sign a contract for all securities (guarantees granted to a creditor to enable him to obtain the payment of a sum due in case of default of the debtor). This column by Caprioli & Associés details the characteristics of this reform.

The reform of the law of securities was expected for several years. It is now done with the Ordinance n° 2021-1192 of September 15, 2021 on the reform of the law of securities, published in the Official Journal of September 16.

The ordinance introduces a major innovation into the Civil Code: it authorizes the digitization of all securities, whereas today it was only possible for securities constituted by authentic instruments and by private signature instruments executed by a person for the needs of his profession.

GENESIS OF THE REFORM

A first reform had taken place with the Ordinance n° 2006-346 of March 23, 2006 relating to securities, then a working group led by Professor Michel Grimaldi, under the learned banner of the Association Henri Capitant had proposed a preliminary draft reform of the law of securities in September 2017.

The PACTE law n°2019-486 of May 22, 2019 launched the reform process. According to its Article 60, I, 13°, the government is authorized to "modernize the rules of the Civil Code relating to the conclusion by electronic means of private signature acts relating to real or personal securities in order to facilitate their use."

The purpose of the ordinance was to take "the measures within the scope of the law necessary to simplify the law of securities and to reinforce its effectiveness, while ensuring a balance between the interests of creditors, whether or not they hold securities, and those of debtors and guarantors". The PACTE law authorized the government to proceed by ordinance no later than May 23, 2021.

In the end, it was nearly four months late that the ordinance was adopted. But it should be noted that the deadline for the authorization had been extended by four months thanks to article 14 of the law n° 2020-290 of March 23, 2020 of emergency to face the covid-19 epidemic and thus until September 23, 2021.

The reform concerns surety bonds, movable privileges, pledges of tangible movables, pledges of receivables, retention of title, security trusts, real estate security interests, assignment of receivables as security and assignment of money as security.

THE CONTENT OF ARTICLE 26 OF THE ORDINANCE

Article 26 amends article 1175 of the Civil Code by simply deleting its second paragraph, under which: "(an exception is made to the provisions of the preceding article (art. 1174)) 2° deeds under private signature relating to personal or real securities, whether civil or commercial, unless they are made by a person for the needs of his profession.

"It was not until some twenty years after the Act of 13 March 2000 on evidence and electronic signatures and the European Directive of 8 June 2000 on electronic commerce that the exception to the equivalence of paper and electronic writing was finally abolished.

From now on, article 1175 states as an exception to the digitization "the acts under private signature relating to family and inheritance law, except for the agreements under private signature countersigned by lawyers in the presence of the parties and deposited in the minutes of a notary according to the modalities set out in articles 229-1 to 229-4 or in article 298.

"Thus, all securities can be dematerialized. However, the formalism that governs each security must be respected.

THE DIGITAL FORMALISM APPLICABLE TO SECURITY INTERESTS

In practice, it will be necessary to examine the formalism of each security in order to determine the technical requirements to be respected in order to be in conformity with the applicable texts.

In order to illustrate our point, we will limit ourselves to taking two significant examples of the numerical formalism that protects the constituents of the said securities: a personal security, the surety bond, and a real security, the pledge.

The surety bond: This is the most widespread security, since it affects everyone and concerns primarily consumers, who deserve special protection which is manifested through its formalism.

The new article 2297, paragraph 1 of the Civil Code provides: "Under penalty of nullity of his undertaking, the natural person guarantor shall himself affix the statement that he undertakes as guarantor to pay to the creditor what he is owed by the debtor in the event of the latter's default, up to a limit of an amount in principal and incidental sums expressed in words and figures (...)".

The formalism will mainly concern two points. Firstly, the handwritten note that must be written by the guarantor may be written on a computer keyboard.

We will then speak of a typed note instead of a handwritten one, which implies the possibility of dematerializing the act. Secondly, the deed of guarantee must be signed and dated. This signature, if it is electronic, will have to intervene immediately after the compulsory mention.

The pledge: The purpose of this tangible security is to grant the creditor a preferential right: hence the importance of its registration in a register held by the court clerk's office (art. 2337, al.1er c. civ.).

In this case, there is no dispossession of the property. But before the reform, difficulties remained insofar as there was no single register of publicity because of the existence of several special securities, each of which was published in a specific register.

The main innovation resulting from the ordinance is the centralization of movable registrations and only the pledge on an automobile is not concerned. For its implementation, centralized publication in a register will require both regulatory provisions and the development of an electronic register.

It is conceivable that Blockchain technologies (probably private or consortium) will be used, which seem appropriate for the registry functions where pledges will be registered. The entry into force is planned for January 1, 2023.

This reform, which tends to remove the ban on the digitization of personal and real property securities, was expected and the legislator must be congratulated for it.

According to the Report to the President of the Republic on Ordinance No. 2021-1192 of September 15, 2021 on the reform of the law of securities: "removing this obstacle, which is unjustified in the digital age, is essential to encourage international economic operators to use French law".

Eric A. Caprioli