Borrowing against art

Types of security interest

In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?

The typical security interest would be a pledge over the movable asset that may be established either by registration in the Pledges Registry administered by the Czech Chamber of Notaries based on a written agreement made by the notary public in the form of a notary deed or by delivery of the movable asset to the pledgee or to the custodian.

Consumer loans

If the borrower borrowing against art assets in your jurisdiction qualifies as a consumer, does the loan automatically qualify as a consumer loan, and are there any exemptions allowing the lender to make a non-consumer loan to a private borrower?

If the borrower qualifies as a consumer and does not demand the loan as an entrepreneur for the purposes of his or her business activities, the Act on Consumer Loans applies. The case law specifies that, even if the parties agree in the loan documentation that the loan is a commercial loan, but it is evident that the financial means shall not be used for the borrower’s business activities, the loan shall be deemed a consumer loan and all relevant consumer protection provisions shall apply.

Register of security interests

Is there a public register where security interests over art, antiques or collectibles can be registered? What is the effect of registration? Is the security interest registered against the borrower or the art?

Yes, the Pledges Registry. A pledge is registered against the artwork and is perfected by registration based on the pledge agreement in the form of a notary deed. After registration, the collateral may remain in the borrower’s possession. An advantage of registration is that, if there are more pledges over the artwork, a registered pledge has priority over a pledge that is not registered. For the rank of the registered pledge, the moment of registration is relevant.

Non-possessory security interests

Can the lender against art collateral perfect its security interest without taking physical possession of the art?

Yes, the security interest can be perfected without handover of the artwork to the lender by means of: (i) registration of the pledge in the Pledges Registry - the pledge is perfected by registration; (ii) the handover of the collateral to the custodian; or (iii) by marking the collateral as subject of the pledge - however, only if so stipulated in the pledge agreement.

Sale of collateral on default

If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?

In principle, the parties may agree on the means of enforcing the security interest including the direct sale of the collateral in writing in the loan documentation. The lender (the pledgee) must proceed with due care and sell the collateral at the price for which comparable collateral can usually be sold at that time under comparable circumstances; the collateral may never be sold within a grace period of 30 days after the notification of the sale to the borrower and the registration in the Pledges Register (if applicable). If the borrower does not qualify as a consumer or a small or medium-sized enterprise the parties may also agree that the lender may acquire the ownership over the collateral for an arbitrary or predetermined price. If the written agreement on a private sale was not concluded then the lender may sell the collateral only by judicial sale or public auction, which requires an enforceable court judgment unless the borrower agreed in advance, in the form of a notary deed, that his or her obligations arising from the loan will be directly enforceable.

Ranking of creditors

Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?

The law establishes the priority of the subsequent security interest over a pledge already established (by a pledge agreement) but not yet registered in favour of the liens over movables established by an administrative decision of the state authorities (such as tax authorities to secure payment of due taxes) or the statutory liens over movables. In addition, the retention right of the commission agent on stored items to secure the outstanding payments from the consignment agreement take precedence over the pledge irrespective of whether the pledge has already been perfected.