A contractual pledge of goodwill is a transaction by means of which the owner of goodwill accepts to assign it, without losing ownership, as collateral for one or several debts to the benefit of one or several creditors.
In order to grant a pledge, one must first be the owner of goodwill (lease-managers may not pledge goodwill) and the object of the pledge must be qualified as commercial goodwill.
Non-trading goodwill and craft-based goodwill cannot be pledged.
Pledges are granted in an official deed or a registered privately-signed deed.
This must either be the instrument containing the sale of the goodwill, or the pledge agreement.
An original copy of the privately-signed deed or enforceable copy of the notarized deed must be submitted within 60 days of their signature to the Trade and Industry Registry for the purposes of registering the pledge. (See the procedure) .
If several pledges are granted, the rank of creditors is determined in chronological order of registrations entered on the Register of Pledges held at the Trade and Industry Registry.
Pledges recorded on the same day are ranked equally.
Effects of registration
Pledges are maintained for ten years by registration, which may be renewed before expiry of this period.
Renewal must exactly reproduce the first registration.
If the names, the amount of the debt, or the description of the pledged property are amended, justification may be required.
Annotations in the margin
The following are noted in the margin of the register entry:
- Precedence and subrogations for which justification must be provided to the Trade and Industry Registry by means of an official deed or registered privately-signed deed
- The new registered office of the business if the goodwill pertains to a business that has been moved
- Changes in names of either party or the rescheduling of the debt, or any other amendment to the wording of the entry
- Cancellation of registration
If a debtor defaults, secured creditors may not appropriate the goodwill for themselves nor dispose thereof.
They may seize the goodwill pursuant to Articles 555 et seq. of the Code de procédure civile, or directly proceed to a make a sale at public auction in accordance with the procedures laid down by Articles 563 et seq. of the same Code (see Article 13 of the Ordinance of 23 June 1907)
If a sale at public auction takes place, secured creditors have preferential rights over unsecured creditors in respect of the price of the goodwill.
Secured creditors are, however, outranked by creditors holding legal title by virtue of the law of privileged claims (see Articles 1935 & 1938 of the Code civil). In particular, this concerns the privilege of the Treasury and that of wages and salaries.
Secured creditors also have resale rights if the goodwill is sold or transferred.
Cancellation of registered liens
Registered liens are cancelled when an official deed of release, or a judgment with the status of res judicata, is submitted.