The regulation of 5 August 2005 on monetary collateral agreements, as amended (the 2005 regulation), gives a beautiful authorized framework for collectors as its insolvency ring-fencing provisions defend safety rights over qualifying collateral ruled thereby from any nationwide or worldwide insolvency proceedings.
On 13 February 2020 the Luxembourg Arrondissement Courtroom dominated on whether or not the beneficiary or pledgee of a Luxembourg regulation pledge granted over a checking account may gain advantage from the safety granted by the 2005 regulation with respect to insolvency proceedings initiated towards his debtor previous to the entry into drive of the 2005 regulation.
In 1993 the beneficiary or creditor granted a mortgage to a debtor. As safety for this mortgage, the debtor granted a Luxembourg regulation pledge over his checking account a yr after the date on which the mortgage was prolonged.
The debtor went bankrupt in 2002 and the creditor notified the enforcement of the pledge to the account financial institution (with which the pledged account was held) first in 2009 and for a second time in 2018 (ie, after the 2005 regulation turned efficient).
Following the refusal of the account financial institution to switch the credit score steadiness of the pledged checking account to the creditor pursuant to the enforcement by the creditor of the account pledge, the creditor summoned the account financial institution earlier than the Luxembourg Arrondissement Courtroom.
The creditor claimed that the account pledge was legitimate and enforceable however the pending insolvency proceedings. The creditor invoked Article 27 of the 2005 regulation, which gives that the 2005 regulation applies to monetary collateral preparations entered into earlier than the 2005 regulation took impact. The creditor additional argued that Article 20(1) of the 2005 regulation gives as follows:
Monetary collateral preparations in addition to the enforcement occasions, netting agreements and the valuation and enforcement measures agreed upon by the events in accordance with [the 2005 Law] are legitimate and enforceable towards third events, commissioners, receivers, liquidators and different comparable individuals however reorganisation measures, winding-up proceedings or some other comparable nationwide or overseas proceedings.
In different phrases, the creditor argued that the retroactive utility of the 2005 regulation with respect to monetary collateral agreements concluded earlier than its entry into drive needs to be prolonged to insolvency proceedings opened earlier than its entry into drive. In response to the creditor, if the legislature had wished to exclude insolvency proceedings opened earlier than the entry into drive of the 2005 regulation from the scope thereof, it might have expressly offered for such exclusion therein, which it didn’t.
The court docket rejected the creditor’s arguments based mostly on the precept of the non-retroactive utility or impact of legal guidelines, as mirrored in Article 2 of the Civil Code.
The choose underlined that despite the fact that Article 27 of the 2005 regulation states that such regulation applies to monetary collateral preparations current earlier than its entry into drive, the 2005 regulation is silent as to its applicability to insolvency proceedings opened earlier than its entry into drive.
The choose dominated that accepting the applying of the 2005 regulation to insolvency proceedings opened earlier than its entry into drive would represent a breach of:
- the precept of equality of collectors; and
- the suspension of particular person actions or proceedings as from the choice opening the insolvency proceedings.
The judgment doesn’t put into query the pliability and creditor-friendliness of the authorized framework provided by the 2005 regulation however places it within the context of the final rules of civil regulation, in addition to the collective procedures regulation.
The judgment confirms that the precept that the 2005 regulation applies to monetary collateral preparations created earlier than its entry into drive doesn’t lengthen in the identical approach to insolvency proceedings opened earlier than its entry into drive.