1

Is there a difference between something that is collateralizable and pledgeable?

In contracts, I see these terms used interchangeably, but I suspect there is a difference when used as a precise legalese.

The subject could be convertible bond or machine in a factory.

1
  • 1
    Money which has been borrowed or for which there is a line of credit? It's pleadgeable because it's available to be spent, but it's not collateralizable because it's owed to the creditors in case of a bankruptcy. – grovkin May 6 at 8:54
0

I suspect that there is not a difference 99.9% of the time.

"Pledge" in this sense, usually means to formally designate an asset as collateral. But there are some assets in which you cannot directly create a security interest (e.g. personal injury claims are generally not assignable except through the safe harbor of a contingent fee agreement with a lawyer conforming to state laws regulating them, or currency in possession of a debtor).

I could imagine a rare case where the asset itself can't be pledged as collateral for some reason, but the asset can be collateralized by some indirect means (e.g. by having the collateral owned by an entity whose shares can be pledged as collateral, or by pledging the proceeds of a non-transferrable asset, or by holding the asset in a trust that is in the possession of a third-party trustee that functions as as a security agreement).

I could also imagine a case where an asset can be pledged for some purposes, but cannot be collateralized, in a manner that creates a freely transferrable security (a broader sense of what it means for an asset to be collateralized), because the underlying stock or membership interest in an LLC, for example, is subject to restrictions on transfer or a buy-sell agreement in the governing documents of the entity it represents an interest in.

But, I've never actually seen a distinction made between the two terms in any actual transaction.

1
  • 1
    Thanks for the response. Yes, I was thinking of a case where one can pledge but not collateralize a future project, because at the time of the contract stipulation, one cannot determine who would "own" the project. – Frank Swanton May 7 at 21:18

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.