How to establish security interests
Ranking of pledges and mortgages
Can ranking of consensual security be changed by agreement of creditors?
Common in rem security interests
Availability of floating charge
Trust and parallel debt issues
Availability of private sale
Security and loan transfers
How to establish security interests
To establish a valid security interest, a title instrument and an act of perfection (ie, an act of publicity) are required.
Title instruments include:
- movables pledge agreements, account pledge agreements, receivables pledge agreements, quota or share pledge agreements, pledge on assets identified by a detailed description (floating charge) and mortgage agreements; and
- guarantee agreements and surety agreements.
Depending on the security interest, the act of perfection may be one or more of:
- the registration of the security with the respective registry;
- the notification of the debtor;
- the transfer of the respective collateral to the secured party; or
- the notarisation of the agreement.
In case of a guarantee or surety (personal security interests), the act of perfection is the signing of the security agreement.
Ranking of pledges and mortgages
The rank of real estate mortgages, pledges on movables, account pledges, receivables pledges, pledges on assets identified by detailed description and quota or share pledges is determined by the time of registration. The applications are considered in the order of their submission.
Can ranking of consensual security be changed by agreement of creditors?
The ranking can be modified only with the consent of all interested parties. The new ranking must be registered with the relevant registry.
Common in rem security interests
Figure 1 lists common in rem security interests.
Figure 1
Availability of floating charge
Hungarian law recognises a floating charge in the form of a pledge over assets identified by a detailed description. The pledge also extends to future assets, without any amendment of the underlying security document.
Trust and parallel debt issues
The creditors may appoint one of themselves or a third party to be their collateral agent. It is not necessary for the creditors to be a party to the security agreements.
The collateral agent must be registered in the relevant registries as a security holder. Following registration, only the collateral agent is entitled to enforce the security on behalf of the other creditors.
Figure 2 shows the availability of private sale for various security interests.
Figure 2
Upon the transfer of loans (ie, secured claims), which may be made by way of assignment or transfer of contract, those security interests that secure the transferred loans and have an accessory nature (this includes the asset pledges and charges, as well as the suretyship) are transferred to the new lender by virtue of law.
Depending on the type of security, the transferor shall hand over to the transferee the security asset or, if the security is registered, provide the transferee with the appropriate documentation for registering the relevant security for the benefit of the new lender.
Security interests – apart from independent pledges – may be transferred only together with the transfer of the secured claims.
Independent pledges may be assigned or transferred to other financial institutions in whole or in part without transferring the underlying claims. The party to whom the independent pledge has been assigned replaces the assignor in the relevant security agreements.
For further information on this topic please contact Melinda Pelikan at Wolf Theiss by telephone (+36 1 4848 800) or email ([email protected]). The Wolf Theiss website can be accessed at www.wolftheiss.com.