1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

RT under Luxembourg law is principally based on case law. It is a contractual instrument based on the principle of freedom of contract, primarily used to secure the payment of goods, by virtue of which the seller retains the ownership of the asset sold until full payment of the purchase price by the buyer.

However, it should be noted that Article 567-1 of the Commercial Code sets special rules concerning the validity and the effects of RT in case of bankruptcy proceedings.

  1. Please describe the characteristics and scope of your country’s RT rules

Due to the fact that RT is essentially based on the principle of freedom of contract, in principle the scope of RT can be relatively large and without any formalism. RT can therefore be used in civil and commercial contracts.

However, the provisions of Article 567-1 of the Commercial Code set some conditions in order to recognize the effects of RT in case of bankruptcy of the buyer (for the description of these conditions, see points 5 and 6 d. below).

Consequently, considering the fact that one of the main interests of RT is to secure the seller in case of bankruptcy of the buyer, it is strongly recommended to sellers to insure that RT clauses included in their contracts comply with the conditions of Article 567-1 of the Commercial Code.

It also has to be noted that under the provisions of Article 567-1 of the Commercial Code, only non-fungible assets can be subject to RT. As the provisions of Article 567-1 of the Commercial Code only apply in case of bankruptcy of the buyer, there is some chance that, outside the framework of insolvency proceedings, an action based on RT concerning a fungible asset may achieve a positive outcome.

  1. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

RT can be considered as regulated in Luxembourg.

  1. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

According to the provisions of Article 1138 of the Civil Code, risk passes in principle to the party
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who has ownership over the goods. This Article is the illustration of the principle “res perit domino”, meaning that the owner shall bear the risk of any damage or loss which may occur to the goods.

Taking into consideration the fact that by virtue of the RT the buyer does not become the owner of the good, the risk will normally stay with the owner of the good, i.e. the seller.

That is why, in practice, the parties frequently agree otherwise by including a clause stipulating that the buyer will bear the risk from the moment of delivery, irrespective of the date of the transfer of ownership.

  1. What are formal requirements, if any, including timing, to perfect the seller’s right?

With regard to the validity of the RT, Luxembourg does not prescribe any particular formalism. However, for evidence purposes and to benefit from the provisions of Article 567-1 of the Commercial Code, the RT should be in writing. Apart from this, there is no specific requirement as long as the wording of the RT clearly indicates that the ownership of the asset remains with the seller until full payment of the purchase price.

In the event of bankruptcy of the buyer and in order to recognize the enforceability of RT, Article 567-1 of the Commercial Code requires that:

  • the RT must be in writing,
  • the RT must be concluded prior to the delivery of the asset,
  • the asset sold by the seller must be a non-fungible movable asset and must still be available as such at the opening of the bankruptcy proceeding.

Upon fulfilment of these conditions, the seller can claim the asset sold and delivered to the buyer under RT within three months following the latest of the publications of the judgment declaring the opening of the bankruptcy proceeding, provided by Article 472 of the Commercial Code.

  1. Effectiveness
  1. Does sale to a third-party break RT? What if goods have been transformed or sold?

If yes, is there a possibility to transform the RT in case of a sale to a third-party?

RT may be enforceable against third parties, depending on whether the third party has acted in good faith or not.
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If a subsequent buyer acting in good faith buys an asset subject to RT, the RT will not be enforceable against it, and the seller will not be able to claim repossession of the asset from the subsequent buyer. This solution results from the protection conferred by Article 2279 of the Civil Code to buyers acting in good faith, under which, regarding movable assets, “possession gives title”.

In such a case, the seller will only be able to claim the benefit of any remaining purchase price due by the subsequent buyer to the original buyer and/or to recover the unpaid amount from the original buyer.

If the subsequent buyer was aware that the asset was subject to RT, the provisions of Article 2279 of the Civil Code will be disregarded and the seller will be able to claim repossession of the asset from the subsequent buyer.

  1. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

Assuming that the defaulting buyer is not insolvent, the seller has to introduce an ownership claim before the Luxembourg courts in order to obtain recognition of his or her ownership under the asset in respect of which payment has not been made.

However, such an ownership claim could be deprived of any effect if the buyer has the possibility to use and dispose of the asset prior to the completion of the proceeding.

Consequently, the first step of any action aiming at repossessing movable property should be a seizure claim in order to safeguard the seller’s asset with a protective and provisional measure until the outcome of the ownership claim.

The procedure, including the seizure claim and the ownership claim, will typically last several months, depending on the attitude of the buyer.

  1. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

In the same way as for third-party purchasers acting in good faith, RT will not be enforceable by the seller against a buyer’s creditor who has, in good faith, acquired the possessory right over the asset from the buyer. Such a security holder will benefit from a right of retention over the asset in its possession and will be able to retain it until complete payment has been made.

  1. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law
  1. Goods still with buyer

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According to the conditions of Article 567-1 of the Commercial Code, RT will be enforceable against the buyer’s bankruptcy trustee (the “curateur”) if (i) the RT has been concluded in writing, (ii) the RT has been concluded prior to the delivery of the asset and (iii) the asset, which is a nonfungible movable asset, is still in the buyer’s possession in its original state at the opening of the bankruptcy proceeding.

In such a case, the seller can claim the return of the asset from the bankruptcy trustee within three months following the latest publication of the judgment declaring the opening of the bankruptcy proceeding.

  1. Goods already sold by buyer

As already explained under point 6 b. the options open to the seller depend on whether the third party has acted in good faith or not.

If the subsequent buyer, who is supposed not to be under bankruptcy proceedings, was aware that the asset was subject to RT, the seller will be able to claim repossession of the asset from the subsequent buyer.

If the subsequent buyer acted in good faith, the RT will not be enforceable against it and the only way for the seller to attempt to recover his or her debt will be to introduce a declaration of debt within the Luxembourg Commercial Court (Chambre commerciale du tribunal d’arrondissement) in the framework of the original buyer’s bankruptcy proceedings.

  1. Time limits to declare title to receiver

If the goods are still with the buyer at the opening of the bankruptcy proceedings, the seller can claim the return of the asset from the bankruptcy trustee within three months following the latest publication of the judgment declaring the opening of the bankruptcy proceedings.

If the goods have already been sold, the seller can make a declaration of debt within the time limit fixed by the judgment declaring the opening of the bankruptcy proceedings. This time limit is generally fixed at 20 days as from the judgment.

  1. Who pays storage, insurance and transport during discussions with receiver?

The costs for storing the goods under RT and insurance are usually included in the bankruptcy proceedings’ costs, whereas the costs for transporting the goods under RT back to the seller must be paid by the seller.

  1. Model clause(s) — Drafting tips

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NOTE: The following language is based on contractual provisions commonly seen in this country, but readers should always consult legal counsel before including an RT clause in a contract.

Unless otherwise specified in writing, all goods sold by the seller to the buyer remain the seller’s property until the purchase price has been fully paid. The buyer is held responsible for the goods upon delivery and must insure them against any loss or damage.