Security Interest - Civil Law Countries

Civil Law Countries

No civil law country recognizes a unified security interest remotely similar to the broad U.S. security interest or the English floating charge, let alone a family of specialized security interests that can together attach the same types of property. The two countries that come closest are the Netherlands and Germany, but even then, their equivalents are overly hypertechnical, require mountains of expensive paperwork to create multiple security devices (the very evil that UCC Article 9 was designed to address) and are still narrower than Article 9.

Most civil law countries recognize some kind of security interest, but it is normally severely restricted in that it applies only to certain types of movable property, the property has to be specifically described in rigorous detail, the creditor has to publicize the interest in a burdensome fashion, the creditor's enforcement rights upon default are quite weak, and so on. Even worse, the concept of a floating lien that attaches to after-acquired property and accounts receivable is either unavailable or is tightly restricted in scope in most civil law countries.

Unfortunately, many civil law countries do not recognize security interests or, for that matter, priority among creditors, with the result that loans are either priced accordingly as unsecured debt or are simply unavailable. This is one reason why it is so difficult for entrepreneurs to raise money (whether by way of equity or debt) and build startups in much of the world. In those countries, investors are always essentially unsecured and are thus hesitant to invest, and in event of default are more likely to resort to extralegal methods for recovery (or, if all the money is gone, revenge).