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Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

The primary way to secure transactions involving movable or immovable property is through a pledge.

The status of the pledge creditor is considered to be privileged. The claims of a creditor which are secured by pledge are listed in the creditors’ registry as part of the claims of creditors of the third priority, while 70% of the funds received from the disposition of the subject of a pledge are used to discharge the claims of the pledge creditor.

However, the right of pledge creditors to vote at the creditors’ meetings is sufficiently limited by the Bankruptcy Law. Such creditors are entitled to vote only in cases directly provided for under the law.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

Current payments are outside the general order of priorities for satisfaction of the creditors’ claims and are to be satisfied on a first-priority basis as they fall due and before any other payment. ‘Current payments’ refer to monetary obligations, requests for payment of severance benefits and remuneration of current and former employees employed under an employment contract, and mandatory payments arising after the date of the application for a declaration of bankruptcy. Requests for payment for goods supplied, services provided and works performed after initiation of the bankruptcy proceedings are also considered current payments.

The Bankruptcy Law ranks current payments as follows (in descending order):

  • payments aimed at avoiding industrial or ecological disaster caused by the debtor’s activities;
  • court expenses;
  • salaries;
  • utility payments and operational expenses; and
  • other current payments.

The Bankruptcy Law provides for the following order of priority in which creditors’ claims shall be met:

  • first priority – personal injury claims;
  • second priority – severance benefits, employees’ wages (if any are due) and copyright loyalties;
  • third priority – all other claims, as follows:
    • claims arising out of violation of environmental legislation;
    • claims for taxes and other mandatory payments;
    • claims of secured creditors;
    • claims of unsecured creditors; and
    • claims from challenged suspicious or preferential transactions.

Can this ranking be amended in any way?

The Bankruptcy Law does not allow the priority of redemption of creditors’ claims to be changed. Transactions made by the debtor in violation of the ranking can be challenged and invalidated by the court.

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