The Shortcomings of the Commercial-pledge Regulation and Need for Reform

• Author: Annemari Õunpuu
• Pages: 52-59

Annemari Õunpuu

Lawyer

Swedbank AS

The Shortcomings of

Commercial-pledge Regulation

and Need for Reform

1. Introduction

The roots of modern-day generic business security go back to 19th-century England, where the case law

for the f‌i rst time recognised a universal non-possessory charge over all present and future assets of a com-

pany*1. To this day, jurisdictions vary greatly in their approach to the ‘universal pledge’ of the company’s

assets. There are countries, such as Austria, that require a high degree of creditor possession and specif‌i city,

thereby ruling out the possibility of a general pledge and a pledge on future assets*2. At the other end of the

spectrum are common-law countries such as England and the United States. In England, the creditor has

the possibility of a truly global security right for all assets of the company, both present and future, real and

personal property*3. The United States ‘f‌l oating lien’ is of identical nature, allowing for a security right over

present and future movables, with the difference from its English counterpart being that the US version

can be given by companies and individuals alike whilst the English f‌l oating charge may be granted only by

companies. Also, in the United States there are separate state regimes for real property*4. The availability

of a general pledge on a company’s assets seems to go hand in hand with the availability of general debtor-

indexed registries and notice-f‌i ling systems as opposed to strictly asset-title registries. The wider the scope

of the general pledge on company assets, the greater the interest in minimising the possibility of the same

asset being pledged via a specif‌i c f‌i xed security right without the knowledge of the general pledge holder.

The Estonian Commercial Pledges Act took effect on 1 January 1997*5 and in its core aspects has

remained the same to this day. From the early days of its creation, the commercial pledge has received the

treatment of a pledge non grata. It has been called a ‘threat to trade credit’*6, a ‘peculiar phenomenon’ that

exists in parallel with ‘decent securities’, and ‘an outsider’ to the specif‌i city system for reason that it violates

1 E. Ferran. Principles of Corporate Finance Law. Oxford: Oxford University Press 2008, p. 369.

2 W. Faber, B. Lurger. National Reports on the Transfer of Movables in Europe – Volume I: Austria, Estonia, Italy, Slovenia, Euro-

pean Legal Studies. Munich: Selliers, European Law Publishers 2008, p. 182 DOI: http://dx.doi.org/ 10.1515/9783866537019.

3 P.R. Wood. Comparative Law of Security Interests and Title Finance, Vol. 2 in the Law and Practice of International Finance

Series. London: Sweet & Maxwell 2007, p. 6-011.

4 Ibid., p. 6-015.

5 Kommerstpandiseadus. – RT I 1996, 45, 848; RT I 21.06.2014, 31 (in Estonian). English text available at https://www.

riigiteataja.ee/en/eli/527012015013/consolide (most recently accessed on 22.3.2015).

6 M. Wenckstern. Ekspertiis Eesti kommertspandi seaduse eelnõule (Expert Assessment to Draft Act of the Estonian Commer-

cial Pledge Law), 31.10.1995, via P. Varul et al. Asjaõigusseaduse kommentaarid (Law of Property Act, with Commentary).

Tallinn: Juura, p. 368 (in Estonian).

52 JURIDICA INTERNATIONAL 23/2015

http://dx.doi.org/10.12697/JI.2015.23.06