Recent developments

Effective from 15 April 2014, Circular No. 08[1] provides clarification regarding the registration of security transactions for movable assets, and addresses a number of practical issues, such as the description of secured assets. Circular No. 08 amends and supplements both Circular No. 05[2] on the registration of security transactions directly by post, fax, and/or email at the registration centres, and Circular No. 22[3] on the online registration of security transactions.

The detailed or general description of secured assets

Circular No. 08 makes it clear that if the secured assets have not been clearly or properly described as required, then the registering agency may reject the requested registration.

For secured assets being road vehicles, rail vehicles or inland waterway vessels, which are neither goods circulated in the process of production or business, nor assets to be formed in the future, Circular No. 08 clarifies the existing requirement under Decree No. 83[4], for accurately indicating the frame number of such vehicles or vessels,  by mandating that the applicant describe every single frame number of a vehicle or vessel in sufficient detail, including figures, letters and special characters.

With regards to the description of secured assets being inventory/goods circulated in the process of production or business, the applicant may include the name, the type, the quantity, the specific location of warehouses and any other relevant information. In the description for secured assets being property rights, the applicant may include the specific name of such property rights, the legal basis of such property rights, the value amount of such property rights, and any  other relevant information.

Under the law, it may seem that describing these details is only optional since failure to do so is not specifically mentioned as a case where the registering agency may reject the application. However, depending on the nature of each specific case, it may be better to include a detailed description as a matter of practice to reserve the priority rights of the lenders.

De-registration of security transactions

Under Circular No. 08, in the case where the secured party does not execute the application for the de-registration of a security transaction, the application may be executed by the securing party and submitted together with (i) a consent letter regarding the de-registration of the security transaction by the secured party or (ii) a notice of settlement of the security and of the secured party.

Grounds for refusal of security transaction registration

Circular No. 08 introduces a completely new provision that  allows security transaction registration to be refused on certain grounds. Some notable grounds for refusal, which may lead to difficulties in practice, are (i) if the registration request form is not filled in completely or appropriately, (ii) if the asset’s description does not meet the requirements of this Circular, (iii) if the registrant uses the frequent customer codes of other organizations or individuals, and (iv) if the enforcers and civil judgment enforcement agencies issue requests for registration suspension or termination.

Effective time for the registration of supplementing security transactions

Circular No. 08 clarifies that if at the time when the original security agreement is concluded, the parties have not yet reached any agreement on the security for obligations arising in the future, then the effective time of registration for those supplemented obligations to be secured will be the time of registration for such supplements, and not the time of the initial registration.

In addition, Circular No. 08 also clarifies that the National Registration Agency for Security Transactions will be the competent registering agency for the following categories of secured assets:

a) Property rights arising from contracts or transactions on real estate (e.g., property rights arising from residential house sale and purchase contracts, etc.); and b) Property rights arising from contracts or transactions on aircrafts and sea vessels (e.g., property rights arising from sea vessels/shipbuilding lease contracts, etc.).