In brief: The business goodwill pledge (nantissement du fonds de commerce) is a non-possessory movable security governed by Articles 106 to 133 of the Code de Commerce (Loi 15-95). It allows a merchant to pledge their business goodwill as security for a debt without losing possession of it. Registration with the commercial registry within 15 days is mandatory for enforceability against third parties. The secured creditor benefits from a right of preference and a right of pursuit over the goodwill.
Definition and legal nature
The business goodwill pledge is a contract by which a merchant (the debtor) pledges their business goodwill as security for the repayment of a debt, without relinquishing possession of the goodwill. It is a non-possessory movable security that differs from a traditional pledge by the absence of dispossession: the merchant continues to freely operate their goodwill throughout the duration of the pledge.
This particularity is explained by the very nature of business goodwill. Requiring the merchant to hand over their goodwill to a creditor would prevent them from carrying out their activity and, consequently, destroy the very value of the security. The legislator therefore devised a publicity mechanism (registration with the commercial registry) that replaces physical dispossession.
The business goodwill pledge is one of the most commonly used securities in business financing in Morocco. Banks frequently require it in addition to other guarantees when granting investment or operating loans.
Scope of the pledge (Art. 107)
Elements included by default
Article 107 of the Code de Commerce specifies that the pledge, in the absence of precise designation in the deed, covers the following intangible elements:
- The sign and trade name: distinctive signs enabling identification of the goodwill
- The right to the lease: right to renewal of the commercial lease, often the most highly valued element
- The customer base and footfall: essential and inseparable elements of business goodwill
- Patents: industrial property rights registered with OMPIC
- Licenses: administrative authorizations attached to the operation of the goodwill
- Trademarks: distinctive signs of products or services
Elements that may be included by stipulation
The parties may conventionally extend the scope of the pledge to the equipment and tools used in the operation of the goodwill. In this case, these elements must be expressly designated in the pledge deed and described with sufficient precision.
Exclusion of merchandise
Merchandise is expressly excluded from the scope of the pledge. This exclusion is justified by the eminently fluctuating nature of stock, whose value varies constantly depending on commercial activity. Merchandise may be subject to a specific pledge (warrant or stock pledge) governed by other provisions.
Formalities for constitution
The pledge deed
The business goodwill pledge must be recorded in a written deed, whether authentic (notarized) or private and duly registered. The deed must contain the following information:
- The identity of the parties (creditor and debtor)
- The amount of the secured debt and its conditions (interest rate, maturity)
- The precise designation of the pledged business goodwill (trade name, address, nature of activity)
- The list of goodwill elements included in the pledge
- The commercial registry registration number
Registration with the commercial registry
The pledge deed must be registered with the commercial registry within 15 days of its date. This registration is the condition for enforceability of the pledge against third parties. It is carried out at the clerk’s office of the commercial court in whose jurisdiction the goodwill is operated.
The registration must state:
- The date and nature of the deed
- The amount of the secured debt
- The goodwill elements included in the pledge
- The identity of the secured creditor
Failure to register within the 15-day period renders the pledge unenforceable against third parties. The creditor then loses their rank and can exercise neither right of preference nor right of pursuit.
Renewal of registration
The pledge registration is valid for a period of five years from its date. It must be renewed before the expiration of this period, on penalty of losing its effect. Renewal is carried out by filing a request at the clerk’s office of the competent court.
Ranking of secured creditors
The ranking of secured creditors is determined by the chronological order of registrations with the commercial registry. The creditor who registers their pledge first benefits from priority ranking over those who register theirs subsequently.
In case of competition between several secured creditors and other privileged creditors, the order of payment is as follows:
- Court costs incurred for the preservation and enforcement of the goodwill
- Creditors holding general privileges (employees, Treasury)
- Secured creditors in order of registration
- Unsecured creditors (without guarantee)
This hierarchy is essential for the secured creditor, as it determines their chances of recovery in case of debtor default. A first-ranking pledge offers significantly greater security than a lower-ranking pledge.
Rights of the secured creditor
The pledge confers upon the creditor two fundamental prerogatives that constitute the very essence of this security.
Right of preference
The right of preference allows the secured creditor to be paid in priority from the sale price of the business goodwill, before unsecured creditors and lower-ranking secured creditors. This right is exercised on the proceeds of the goodwill, whether the sale is voluntary or forced.
Right of pursuit
The right of pursuit allows the secured creditor to follow the goodwill into whichever hands it passes. If the debtor transfers their business goodwill to a third party, the secured creditor retains their security over the goodwill and may exercise their rights against the new buyer. This mechanism protects the creditor against attempts by the debtor to remove the goodwill from the security by selling it.
Right to information
The secured creditor also has a right to be informed of any modification affecting the pledged goodwill, particularly in the event of relocation of the goodwill (change of address), termination of the lease or putting it up for sale. These events may affect the value of the security and the creditor must be able to react accordingly.
Enforcement of the pledge
When the debtor fails to meet their repayment obligations, the secured creditor may proceed with the enforcement of the security, that is, the forced sale of the business goodwill to obtain payment from the proceeds.
Public auction procedure
Enforcement is carried out by way of public auction, ordered by the competent court. The procedure comprises the following steps:
- Formal notice to the debtor that remains unsuccessful for a period of eight days
- Application to the commercial court to obtain authorization to proceed with the sale
- Service of the order on the debtor and all registered creditors
- Publicity of the sale in a journal d’annonces légales and by posting
- Auction before the court or by a designated auctioneer
- Distribution of the price among creditors according to their rank
The debtor may, at any time before the sale, purge the pledge by paying the full amount of the secured debt, plus costs.
Judicial attribution
As an alternative to auction, the creditor may request the court for judicial attribution of the business goodwill in payment of their debt. This option, less common, requires an expert valuation to determine the value of the goodwill.
Cancellation of the pledge
Cancellation of the pledge registration from the commercial registry occurs in the following cases:
- Full payment of the secured debt: the creditor issues a release that the debtor has registered with the commercial registry
- Amicable agreement between the parties extinguishing the security
- Court decision ordering cancellation, particularly in case of dispute
- Non-renewal of the registration upon expiration of the five-year period
Cancellation releases the goodwill from the security and allows the merchant to freely dispose of their goodwill without the former secured creditor being able to assert any rights.
Pledge and collective proceedings
In the event of the opening of judicial reorganization or liquidation proceedings against the debtor, the business goodwill pledge is subject to specific provisions:
- The secured creditor must declare their claim to the trustee within the legal deadline
- The right to enforce the security is suspended during the observation period in the case of judicial reorganization
- In the case of liquidation, the secured creditor is paid from the sale price of the goodwill according to their rank
These provisions aim to reconcile the protection of the secured creditor with the objective of saving the business in difficulty.
Reference text: Code de Commerce (PDF) — Loi 15-95, Art. 106 to 133
Frequently asked questions
What is the difference between a pledge and a mortgage?
A mortgage applies to real estate and is governed by land law, while the business goodwill pledge applies to intangible movable property and falls under the Code de Commerce. Both are non-possessory securities published in a registry (land registry for mortgages, commercial registry for pledges). In practice, banks often require both guarantees simultaneously to secure significant financing.
Can the merchant sell their pledged goodwill without the creditor’s consent?
Yes, the merchant remains free to sell their business goodwill even in the presence of a pledge. However, the secured creditor benefits from a right of pursuit that allows them to assert their security against the new buyer. Furthermore, the secured creditor is informed of the sale through legal publications and may oppose the price to obtain payment of their debt. In practice, the buyer generally proceeds with purging the pledge during the transaction.
How much does it cost to register a pledge with the commercial registry?
The costs of registering a pledge include clerk’s office fees (a few hundred dirhams), registration duties proportional to the amount of the secured debt, and any fees of the notary or chartered accountant who drafted the deed. The total cost is modest relative to the value of the security constituted, which makes the pledge an accessible security for SMEs.
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Do you need a pledge to secure financing or want to understand your rights as a secured creditor? Contact Upsilon Consulting for tailored legal and accounting support.
