The interrelation of transparency and availability of collateral – German and Belgian law of non-possessory security interests

This article compares German and Belgian law with regard to security interests in corporeal movables, economically analyzing the differences to reach a normative conclusion. Belgium is currently implementing a major reform in this field, which, combined with the different stance of both regimes on transparency of security interests, begs the question whether the Belgian reform could serve as an example to Germany. The article starts by comparing the evolutions both legal systems have undergone in the last century, and which have started from opposite positions. While Belgium principally opposed non-possessory security interests for fear that this would annihilate transparency, Germany allowed for a broad system of non-possessory security interests through retentions or transfers of title, without any kind of publicity. Both systems underwent significant changes, which can roughly be divided into two categories: allowing for a floating charge on the business, and reacting to business’ legal innovations. These evolutions brought into focus the trade-off that used to exist between transparency and extension of the collateral base. These legal evolutions have set the stage for reform in Belgium, a reform which is based on the principle of register publicity of security interests. Next, the article explores the threat posed to non-possessory security interests by the possibility of acquisitions in good faith, in both regimes. Following the legal comparison, this article analyzes the identified differences from an economic point of view, finding three key areas in which transparency can be beneficial. Firstly, transparency reduces the social cost of using secured credit. Secondly, it makes collateral more effective in performing its function, by reducing the scope for acquisitions in good faith taking precedence over security interests. Finally, transparency can also make collateral more effective by optimizing the functioning of the floating charge. In its final part, the article briefly goes into the challenges posed by setting up register publicity, more specifically with regard to privacy issues and gate keeping. The paper concludes that now that technology allows for transparency and the collateral base to be complements, economically speaking, Germany could in fact benefit from a reform following the Belgian model