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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?

Movable property

The main types of security available for movable property are pledges and transfers of title for the purpose of taking security. Assets serving as security can be receivables, bank accounts (eg, deposits) or machines. There is no official register of such securities and they do not require the involvement of a notary. Still, strict publicity requirements must be complied with.

In practice, the most relevant form of security is the assignment of receivables as a security device. In order to gain valid security over receivables, the third-party debtor must be notified of the assignment or appropriate records in the assignor’s accounts must be kept.

The priority of a pledge or assignment depends on the time the respective publicity requirement was met.

Immovable property

The two main types of security available for immovable property are mortgages and the transfer of title in property. When creating a mortgage, the debtor remains owner of the property. When transferring the title over property, the debtor transfers the ownership to a trustee, which holds the property for the debtor under a trust agreement.

Both types of security require notarisation and must be registered with the Public Land Registry in order to become valid. The priority of security usually depends on the chronological order of entry into the Public Land Registry.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

The Insolvency Code does not explicitly provide for formal rules on classes or ranking of creditors’ claims. Systematically, the following creditor groups can be ranked as follows:

  • Creditors with a right to property regarding assets of the debtor’s estate and creditors with security on assets of the debtor’s estate – such rights are generally not affected by the opening of insolvency proceedings and must be directly claimed towards the debtor or insolvency administrator;
  • Creditors that can demand full payment out of the debtor’s estate because their claims arise after opening of the insolvency proceedings (eg, trade creditors contracting with the administrator or landlords for lease payments commencing after opening of proceedings) – such claims must be directly filed to the debtor or insolvency administrator;
  • Unsecured creditors – such claims must be filed by formal submission to the insolvency court and receive an insolvency quota; and
  • Statutorily or contractually subordinated creditors – such claims can be filed only if allowed by the court.

Can this ranking be amended in any way?

Generally, this ranking is compulsory. Creditors may declare subordination before or within insolvency proceedings; in practice, this is often done by shareholders or major creditors in order to support the debtor company.

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