Restrictions on assignment, and pledges on a set of receivables
In the contemporary practice of secured financing, the registered pledge on a set of movables or property rights is an extremely common form of security. This is a flexible instrument which at least in theory gives the financing parties a sense that they hold collateral in the borrower’s entire enterprise (apart from real estate, which cannot be encumbered by a pledge). But when taking security interests in property rights, it is necessary to consider various contractual or statutory restrictions on the freedom to assign rights.
As an example of a statutory restriction on assignment under Polish law, in contracts with the National Health Fund for delivery of healthcare services, effective assignment of receivables under such contracts requires the consent of the president of the National Health Fund. Claims arising under such contracts constitute significant collateral securing credit granted to hospitals and other healthcare institutions, representing in economic terms the borrowers’ most valuable assets.
Contractual restrictions on assignment of rights (pactum de non cedendo) mean that receivables cannot be assigned unless the borrower has consented or other conditions are met. Otherwise, the assignment will not be effective.
There is also a debate in the legal literature on the extent to which a pactum de non cedendo clause affects the ability to encumber a particular right via a pledge. For example, Tomasz Trocki takes the view that a non-assignment clause only limits the alienability of a right, but does not completely exclude it, and thus the right can be successfully encumbered with a pledge (“Pledge on a claim covered by a pactum de non cedendo clause,” Monitor Prawa Bankowego, June 2019). Under that view, the non-assignment clause would apply, and exert effect, only when it comes to the transfer of a definitive right to the pledgee, that is, when the pledgee actually seeks satisfaction against the pledged asset. Then the pledgee will have to obtain the consent of the obligor under the claim secured by the pledge, in order to effectively acquire title to the asset.
This seems like a reasonable view. It captures the essence and function of non-assignment clauses in commercial practice, while reconciling the demand for flexibility in trade with protection of the obligor’s rights. But this raises the question of how this structure should be applied to a situation where there is a registered pledge against a set of movables and intangibles constituting an organisational whole, which includes claims arising out of legal relationships containing restrictions on assignment.
To resolve this issue, it may be helpful to examine the definition of the legal category of a set of movables and intangibles. The legal literature includes two theories on the legal nature of a pledge on a set of items:
- Under the first view, a pledge on a set of items functions much like a sum of individual pledges on each item in the set, comprising a whole in the form of a set of movables and intangibles.
- Under the second view, a set of pledged items is a legally distinct category, and the pledge is established holistically on one pledged asset, i.e. the set, which individual elements become a part of in the form of movables or intangibles.
These two conceptions and their practical implications were discussed by Łukasz Szegda and Krzysztof Wojdyło in their article “Is a set a separate legal category?” in the Polish edition of our firm’s 2011 Yearbook.
Regardless of which legal conception of a set is adopted, the existence of a non-assignment clause does not prevent establishment of a pledge against a set of receivables. The problem does not arise until the creditor seeks satisfaction under the pledge covering a set of receivables which includes rights with restrictions on alienation.
If we adopt the conception that a pledge on a set of items is de facto the sum of specific individual pledges on the movables and intangibles entering the set, then it should be concluded, in the face of a non-assignment clause, that without the obligor’s consent it will not be possible to enforce the pledge against that specific right. Thus, in practice the pledgee will assume ownership of the set (or the set will be sold in a public tender), but excluding the specific right.
If, however, we treat the set as a legally separate construction, we face the question of whether the legislative intent was to exclude the obligor’s consent in the case of execution against the enterprise or a set of assets as a whole when it includes rights covered by a non-assignment clause.
In my view, it would be hard to defend that interpretation for systemic and functional reasons. There are no legal rules or regulations excluding a pactum de non cedendo clause in a situation where the creditor seeks satisfaction by enforcing its rights under the pledge. In each situation, the obligor under a claim covered by a non-assignment clause should be legally protected to the same extent. The procedure under which a creditor seeks satisfaction should be irrelevant to the obligor.
To summarise, in my view the position presented by Tomasz Trocki should be followed also with respect to a set of movables and intangibles, recognising that, as in the case of a pledge on an individual receivable, the pledge on a set covers all possible rights entering into the set—also those as to which a restriction on the freedom of assignment has been imposed. Nonetheless, to effectively acquire a right subject to a restriction on assignability, the pledgee will have to obtain the consent of the obligor under the given claim at the stage of enforcement of the pledgee’s security interest. Any other interpretation would not be consistent with the overall legal system and principles.
Mateusz Tusznio, adwokat, restructuring adviser, Banking & Project Finance practice, Wardyński & Partners
