The Council of the EU may soon adopt its position (‘general approach’) on the proposed Regulation on the law applicable to the third-party effects of assignments of claims. EU Justice Ministers will vote on 7 June on the latest comprehensive compromise text presented by the Portuguese Presidency of the EU Council.
Assignment of claims is a legal mechanism where a creditor (the transferor) transfers their right to claim a debt to another person (the transferee). The aim of the proposal, which was presented in March 2018, is to address the lack of clarity regarding third-party effects of assignments of claims in cross-border transactions (see EUROPE 11979/1).
The proposal has been causing Member States difficulties for more than two years, the European Parliament having adopted its position in February 2019 (see EUROPE 12193/3). The problem is partly the technical nature of the text, but particularly its link to the financial markets.
EU Justice Ministers held a debate in June 2020 which already provided political guidance on maintaining the principle of universality, non-retroactive application of the proposal and novation (see EUROPE 12499/12). Since then, work has focused on the applicable law and the scope of application.
Applicable law. The draft compromise to be submitted to the Ministers, of which EUROPE has received a copy, ultimately proposes to maintain the Commission’s initial proposal of a general rule that in conflict situations the law of the country in which the transferor has his habitual residence at the time of the conclusion of the transfer contract applies.
“The law of the assignor’s habitual residence received more support than the assigned-claim law as it would lead to more predictability for third parties”, the Presidency explains.
However, the text sets out a series of exceptions “for the proper functioning of financial markets”. For the assignment of cash claims, claims in financial markets and credit claims, the law of the assigned claim would be more suitable.
The text also takes up the Commission’s original proposal to allow a choice between the assignor’s law and the assigned-claim law for securitisation. “The aim of this flexibility is to not affect the current practice of large operators while, at the same time, facilitating the expansion of the cross-border securitisation market to smaller operators”, Lisbon stresses.
Scope of application. The text clarifies that the Regulation does not cover: - the transfer of financial instruments, including securities and derivatives; - the transfer of crypto-assets; - the assignment of claims where the claims are not in intangible form but incorporated in a certificate or represented by a book entry.
Furthermore, it clarifies that the Regulation should cover claims arising from assets irrespective of the technology used for their issuance, transfer or storage, thus including claims arising from crypto-assets that are not financial instruments.
On the thorny issue of secured claims, the Portuguese Presidency is proposing a new solution, as the options presented so far did not reach consensus among Member States (see EUROPE 12674/17, 12659/12, 12516/9).
As a reminder, the proposal deals with the effects vis-à-vis third parties of the assignment of the claim, but not with the effects of the transfer of the security securing the claim, which are governed by national conflict-of-laws rules.
To address this problem, the text ultimately proposes to expressly exclude from the scope of the Regulation the third-party effects of the transfer of security rights over immoveable property and moveable property subject to registration in a public register laid down by law, including any requirements as to form or registration for the effectiveness of the transfer of the security rights and the effects of complying or failing to comply with such requirements for the resolution of priority conflicts over the secured claims.
“The compromise solution draws attention to the effects that may stem from strong registration systems, emphasising their importance, whilst not imposing the application of the lex registrationis to all situations”, explains the Presidency, which considers it to be a balanced solution that takes into account the fundamental characteristics of Member States’ legal systems.
See the compromise text: https://bit.ly/3yZlz9x (Original version in French by Marion Fontana)