Saturday, January 20, 2018

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Practical implementation of the law

MAIN ISSUES

Verifying the presence, amount and maturity of a claim secured by a pledge right 

The Registrar is not authorized to investigate the existence, the amount and the maturity of the claim secured by a pledge right. Pursuant to the principle of formality stipulated in Art. 3, para. 3 of the Law on the Procedure of Registration with the Serbian Business Registers Agency (RS Official Gazette No 99/11), the Registrar decides on the data provided in the application, the supporting documents and registered data, without investigating the validity of the data contained in the application, the authenticity of the supporting documents or the accuracy and legality of the procedures that resulted in the issuing of those documents. 

Maximum amount of the claim 

Pursuant to Art. 7, para. 2 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), a right of pledge is a means to secure the principal claim amount, interest and costs, i.e. the maximum amount of the claim. Pursuant to Art. 62, para. 1, item 3 of the Law and Art. 3, para. 1, item 6 of the Rules on the content of the Register of Pledges on Movable Property and Rights and documents required for registration (RS Official Gazette No 31/13), this amount is a mandatory element of the registration of a right of pledge, and it can be expressed in the national currency and/or foreign currency.

In contractual pledges this amount can be stipulated by the contractual parties in the pledge agreement. 

In judicial pledges the court issues an enforcement decision determining the costs of enforcement. Since the creditor, in its motion, seeks the enforced collection of its claim, which has already been established by a court judgment or other valid act, and which in addition to the principal claim also includes interests and costs awarded in civil proceedings, the creditor must add the awarded costs and interest to the principal amount of the debt.

In establishing a statutory pledge in the procedure of enforced collection, the tax authority calculates, in addition to the principal debt, a special one-off charge for enforced collection amounting to 5% of the total amount of the outstanding tax debt, and this amount is added to the principal debt, along with the interests and other costs arising in the procedure of enforced collection (bailiff’s fee for completing an on-site inventory and appraisal of movable property, public auction, seizure, witnesses, expert witnesses, etc.)
 
Maturity date 

The maturity date is an important but not mandatory element of a pledge right. The maturity date should be specified in the pledge agreement and in the application for the registration of a pledge right. However, if the maturity date is not specified in the agreement, or if it cannot be defined descriptively (as the payment date for one of the installments that has not been paid, when the entire secured claim amount is due to be paid), considering that the maturity date is not part of the mandatory information, there is no reason why the pledge right should not be registered even without that date.
However, this date can be at issue when registering an annotation on the instigation of a settlement procedure, considering that Art. 35, para. 2 of the Law on Pledges of Movable Assets Registered with the Pledge Register (RS Official Gazette No 57/03…64/06) stipulates that at maturity date the creditor acquires the right to collect on the principal debt amount, i.e. on any property pledged as collateral for the debt, plus interests owed and costs arising from the collection of debt. If the maturity date was not registered, and the creditor applies for registering an annotation on the beginning of the debt collection procedure, he should also submit a document proving that the debt has reached its maturity date.

Pledger’s consent to the registration of a pledge right 

The pledger’s consent to the registration of a pledge right in the Pledge Register is required only in the case of a pledge arising under a pledge agreement

In the case of a judicial or statutory pledge (arising from an enforcement procedure, i.e. a procedure for the enforced collection of a debt by direct effect of law), a written statement by the pledger consenting to the registration of a pledge right (lien) with the Pledge Register is not required. As the debtor has already defaulted on the payment of the debt, the creditor ensures the enforced collection of his claim, which is why the consent of the pledger is not required for the registration of a pledge right in this case. The same with the enforced collection of a tax debt in case of default. 

Costs of registration of a pledge right 

The costs of registration of a pledge right are borne by the applicant, pursuant to Art. 5а para. 1 and 2 of the Law on the Serbian Business Registers Agency (RS Official Gazette No 55/04, 111/09 and 99/11), and Art. 42 of the Law on the procedure of registration with the Serbian Business Registers (RS Official Gazette No 99/11), and the amount of the fee is determined by the Decision on the Fee for Registration and Other Services Provided by the Serbian Business Registers Agency (RS Official Gazette No 119/13).

Privatization Agency’s consent to encumbering a movable asset with a pledge

A movable asset of a company with majority public capital cannot be encumbered with a pledge unless this has been approved by the Privatization Agency, pursuant to Article 597, para. 1 of the Law on Companies (RS Official Gazette No 36/11 and 99/11), in connection with Article 456 of the Law on Companies (RS Official Gazette No 125/04), and Article 398а of the Law on Companies (RS Official Gazette No 29/96…36/02). This applies until the expiry of the privatization deadlines prescribed by the law governing privatization, and Article 11 of the Regulation on the terms and conditions for the restructuring of privatized entities (RS Official Gazette No 52/05…59/13). A pledge agreement stipulated without the aforesaid approval does not constitute a legal ground for registering a pledge right.

The disposal of socially-owned property (capital) by cooperatives and stipulation of a pledge agreement 

A cooperative that uses socially-owned property or capital, must obtain the approval of the Privatization Agency before disposing of such property, and consequently also before stipulating a pledge agreement, pursuant to Article 49а of the Law on Cooperatives (RS Official Gazette No 41/96 and 12/98 and RS Official Gazette No 101/05 and 34/06). Any decision on the disposal of socially-owned property or capital that is not approved by the Privatization Agency will be considered null and void.

Approval of the Government of Serbia for conducting an activity of public interest 

The approval of the Government of Serbia or of the competent provincial or local government authority is required for stipulating a pledge agreement for securing activities outside the scope of services of general interest, and for the disposal (both acquisition and sale) of high-value socially-owned assets transferred to socially-owned companies, that are directly used for activities of general interest stipulated in the Memorandum of Association, to ensure the protection of general interests in a public company, pursuant to Art. 60 of the Law on Public Companies (RS Official Gazette No 119/12 and 116/13-authentic interpretation). In such cases, an approval by the Government or competent provincial or local government authority, or other document corroborating that approval was granted, is required for registering a right of pledge.

The Government’s, or competent provincial or local government authority’s approval of a pledge agreement is also required for other entities carrying on an activity of general interest, if so stipulated by the law governing individual activities of general interest, or by the contract awarded to entities entrusted with performing an activity of general interest regulating their rights and obligation.

Disposal of the property of sport organizations 

Sports organizations, association and societies using socially-owned or state-owned property, may pledge a property outside their ordinary course of business only with the prior approval of the Government of the Republic of Serbia (Art. 189 of the Law on Sport –  RS Official Gazette No 24/11), and in the case of organizations with majority socially-owned, or state-owned capital, the prior approval of the authorized representative of the socially-owned or state-owned capital is also required, except for decisions and/or contracts of small value (Art. 190 of the Law on Sport – RS Official Gazette No 24/11).

Pledge of a company share and priority purchase of shares

Pledging a share in a partnership to a third party requires the consent of the other partners, unless otherwise provided by the Memorandum of Association. The transferor and transferee of the share have joint and several liability for all of the transferor’s liabilities towards the company on the date of registration of the share transfer pursuant to the law on registration, unless the partners have agreed otherwise.

A company with limited liability cannot pledge the share of a company shareholder (Art. 156 of the Law on Companies – RS Official Gazette No 36/11 and 99/11). 

A Memorandum of Association may envisage the approval of the company for the transfer of a share to a person who is not a company shareholder. If the transfer of ownership is stipulated in the pledge agreement, then the pledger, as the owner of the share, is required to obtain the approval of the company’s general meeting for pledging the share before stipulating the pledge agreement (Art. 167 and 177 of the Law on Companies - RS Official Gazette No 36/11 and 99/11), or submit a statement by the authorized representative confirming that the company has granted its prior approval. 

The company approval is not required for selling a share in the procedure for the recovery of outstanding debts from the value of a pledged share.

In case of transfer of a share to a third party, shareholders in a company with limited liability have right to priority purchase, unless this right is excluded by the Memorandum of Association or by law (Art. 171 of the Law on Companies (RS Official Gazette No 36/11 and 99/11). 

Restructuring procedure and registration of a pledge 

Contractual pledge - An entity undergoing privatization may not make decisions concerning the disposal of a movable or immovable property without the prior approval of the Privatization Agency, except for activities that are part of the ordinary course of business, pursuant to Art. 11 of the Regulation on the procedure and method for restructuring an entity subject to privatization (RS Official Gazette No 52/05...59/13). 

A contractual pledge registered before a decision on restructuring was taken will be settled in accordance with the decision on restructuring, which has the force of an executive act, in the sense of Article 20ž of the Privatization Law (RS Official Gazette No 38/01...19/12), and accordingly, when a decision on restructuring has been issued, there are no grounds to register an annotation on the initiation of a settlement procedure.

Judicial and statutory pledge - A pledge right (lien) cannot be registered after a decision on restructuring has been taken, regardless of whether registration is sought on the grounds of an inventory and appraisal of movable assets in a court or in tax procedure. All procedures for the registration of a pledge right will be suspended until the restructuring procedure in the pledger entity has been completed, and latest until 30 June 2014, (Art. 20ž of the Privatization Law – RS Official Gazette No 38/01...19/12). The only exception to the above is the registration of a judicial pledge in the procedure for the recovery of a debt arising from employment relations, considering that Article 9, para. 5 of the Law on Enforcement and Security (RS Official Gazette No  31/11 and  99/11), stipulates that the provisions of other laws on the termination or postponement of the enforced collection procedure will not apply on enforced collection procedures conducted on the basis of a proposal for enforced collection of money claims arising from employment relations.

Agreement on fiduciary transfer of ownership 

The title of ownership in the sense of Article 3, para. 1 of the Law on Basis of Ownership and Proprietary Relations (RS Official Gazette No 6/80 and 36/90 and RS Official Gazette No 29/96 and RS Official Gazette No 115/05 – as amended), entails that the owner has the right to own, use and dispose of an asset within the limits prescribed by law. Art. 1, para. 1 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), stipulates that this law also regulates non-possessory pledges of movable assets and rights, to secure a creditor’s claims. In case of transfer of ownership of a pledged movable property under an agreement on fiduciary transfer of ownership, the creditor becomes the owner of that property with unlimited powers, so there are no grounds to register a pledge right on that same movable asset. The acquisition of property rights on a pledged asset is among the statutory grounds for deleting a pledge right from the Register (Art. 54 of the Law on Pledge of Movable Property Registered in the Pledge Register).

When the debt amount is lower than the value of the asset 

The fact that the value of the pledged asset is greater than the amount of the debt, interests and costs of collection, may be relevant only in the procedure for the recovery of the debt, and the creditor is required to immediately pay the pledger the excess proceeds from the sale of the pledged asset, pursuant to Art. 28, para. 5 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No  57/03…64/06).

Transfer of claims and the debtor’s consent 

In the case when a creditor transfers its claim to a third party - a recipient, the pledger is required to repay the debt to the recipient, upon receiving a notification on the transfer. In this case, Art. 438, para. 1 of the Law on Contracts and Torts (SFRY Official Gazette No 29/78...57/89 and SFRY Official Gazette No 31/93) will apply, pursuant to Art. 1, para. 3 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), and consequently the consent of the debtor is not required for such a transfer, a notification of the debtor on the transfer will suffice. 

ELIGIBLE PLEDGED ASSETS 

Debtors can pledge the same asset as collateral to several creditors

A debtor can pledge the same asset as collateral to several creditors. This fact is only relevant when determining a creditor’s priority of right to collect the debt, pursuant to Art. 30 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), considering that the subordination of debt is determined based on the time (date, hour and minute) of receipt of the application for the registration of a particular right of pledge with the Serbian Business Registers Agency. 

Claims under an insurance contract

Claims arising out of an insurance contract may be pledged, either as a future or as an existent claim. In the case of a future claim, the insured case has not occurred and the creditor acquires the right to collect on the insured amount only when the insured case has occurred. In the case when a pledger’s claim towards an insurance company arose on the occurrence of an insured case, a right of pledge is stipulated in a pledge agreement and registered with the Pledge Register, since this is an existing claim.

Vessels

Pursuant to Article 14, para. 1 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), this Law does not apply to pledge of vessels, as these are registered with other registers and subject to special regulations. According to the Law on Inland Navigation and Harbors (RS Official Gazette No 73/10 and 21/12) and the Law on Maritime Navigation (RS Official Gazette No 87/11) special registers or registries were established, which is why the Pledge Register is not authorized to register vessels that are subject to registration under these laws. 

Money deposited on a bank account 

Money deposited on a bank account can be pledged, but only up to the amount that is actually on the account (i.e., the account balance) on the date when the pledge is created. The “specification” principle requires that the pledged asset be accurately defined or at least definable, which means that only an individually specified asset or claim can be the object of a pledge.

(Opinion of the Ministry of Economy and Regional Development – Sector for Business Registers Administration and Oversight  No 300-06-00-80/2011-09 of 20 May 2011)

Claims arising from a bank guarantee

Claims arising from bank guarantees, both (accessory) and “first call”, or “no objection” (independent) bank guarantees, can be pledged. This is considered as a future claim, which will arise when the conditions are fulfilled to collect on the guarantee.
(Opinion of the Ministry of Economy and Regional Development – Sector for Business Registers Administration and Oversight No 300-06-00-80/2011-09 of 20 May 2011).

Grapevines

Grapevines planted on a particular land lot, are such by nature that they cannot be moved from one place to another without incurring permanent damage. Considering that any such relocation would cause them to lose their functional and practical value, they cannot be considered as movable property in the sense of Article 9 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06).

Fixtures

An agreement on securing a pecuniary claim stipulated before the court in an enforcement procedure, in which the parties have explicitly designated the production plant equipment as a fixture, i.e. “a part of the real property” in the sense of Article 5, para. 1, item 2 of the Mortgage Law, (RS Official Gazette No 115/05), which the court has accepted and ordered registration with the competent real estate registry, cannot be considered as a ground for the registration of a pledge right with the Register of Pledges over Movable Property. By the will of the parties, these movables were designated as fixed assets when stipulating the contract, and accordingly they can only be registered with the real estate registry.

Pledge rights on mortgage-secured claims 

Pledge rights to mortgage-secured claims are not treated as claim rights under Article 10 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06) and hence cannot be registered with the Pledge Register. An agreement on pledge of a mortgage-secured claim (super-mortgage) is subject to registration with the real estate registry as the basic public register of real estate and related real rights, in the sense of Article 21 of the Law on Mortgage (RS Official Gazette No 115/05). 

Public utility installations, telecommunication networks, oil and gas pipelines

Pursuant to Article 138, para. 1, Article 142 and 145 of the Law on the State Survey and Cadaster (RS Official Gazette No 72/09....65/13), the National Geodetic Institute - Public Utility Register is responsible for the registration of public utility installations and related equipment and fixtures under Art. 15 of the Rulebook on the state survey and public utility installations register (RS Official Gazette No 63/10) that enable the functioning and efficient use of the installations, including rights related to these installations. 

Equipment installed in gas stations

When pledging equipment installed in a gas station, if the supporting documents show that the pledger has put the entire gas station up as collateral to secure a debt, then the gas station is considered as a commercial facility subject to Art. 4 and 70 of the Law on State Survey and Cadaster (RS Official Gazette No  72/09....65/13), and as such it is subject to registration with the Real Estate Registry kept with the National Geodetic Institute (RGZ).

Substations

A substation, which is a part of the energy network, cannot be subject to any pledge rights registered with the Pledge Register. It is a fixed asset and installation that enables the functioning and efficient use of the power grid. The registration of public utility installations and related real rights is under the competence of the National Geodetic Institute - Public Utility Installations Cadaster, pursuant to Art. 145 of the Law on State Survey and Cadaster (RS Official Gazette No 72/09....65/13).

Machinery installed in a building 

Machinery installed in a building can only be the pledged if a certified court expert from the appropriate field of expertise establishes and confirms that the equipment can be removed from the building in which it was installed without permanently damaging the real property. 

Claims arising out of checks issued

Pledge rights on claims that arise out of checks issued cannot be registered with the Pledge Register. Pledging a check is not in line with its legitimate nature, considering that a check is a means of payment, that payment is due on sight, and that the law stipulates extremely short terms for presenting checks for payment. 

Right to a share in profits

The right to a share in profits is the right of company shareholders, based on the share they own in the company. It is indivisible from the share and may not be pledged independently. This stems from Article 177, para. 1 and Article 152 of the Law on Companies (RS Official Gazette No 36/11, 99/11).

Pledging a claim on the basis of a future (conditional) dividend

The right of a shareholder to a portion of the company’s earning (dividend) is incorporated in the share itself and in business transactions it is indivisible from the share which entitles the shareholder to that right. Consequently, a right of pledge on a claim on the grounds of a future, i.e. conditional dividend, cannot be registered with the Pledge Register. This stems from Articles 251 and 253 of the Law on Companies (RS Official Gazette No 36/11, 99/11).

The registration of rights of third parties with respect to financial instruments in the sense of Article 216, para. 1, item 4 of the Law on Capital Market (RS Official Gazette No 31/11) is under the competence of the Central Securities Register.

TYPES OF PLEDGE RIGHTS 

A. CONTRACTUAL PLEDGE


A Pledge Agreement as a legal ground of a contractual pledge right and documents required for registration  

Only a pledge agreement with the content and in the form as foreseen by Art. 2, para. 1 and Art. 3 para. 1 of the Law on Pledge of Movable Assets Registered with the Pledge Register (RS Official Gazette No 57/03…64/06), accompanied by the pledger’s statement in which he expressly agrees that the pledge creditor may register the pledge right in the Pledge Register, pursuant to Art. 5, para. 2 of the same Law (if the registration application is filed by the pledge creditor), constitute a valid legal ground for registration of a contractual pledge.

The pledge agreement must be legalized when the object of pledge is an ownership interest and when so specified by a separate law.

Provision of Art. 7, paras. 1 and 2 of the Rules on the content of the Register of Pledges on Movable Property and Rights and documents required for registration (RS Official Gazette No 31/13), specifies a  list of documents required for registration of a contractual pledge. In addition to the pledge and the pledger’s statement, along with the registration application, it is necessary to submit an extract from the competent register for the legal entity, if it is not registered in any register kept by the Serbian Business Registers Agency, i.e., an extract from the competent foreign register when a party to the pledge agreement is a foreign legal entity, or other appropriate document providing valid mandatory registration data. When the entity applying for registration is a natural person, he should submit a proof of identity (a photocopy of the ID card for a domestic national, or a copy of the passport for a foreign national, or other documents providing valid data required for registration).

A pledger’s statement, i.e., a legal document  signed by the owner, by which he unilaterally agrees that, if the debt is not paid in full by the maturity date, the pledge creditor may satisfy his secured claim from the value of the pledged asset, does not constitute a valid legal ground for the registration of a non-possessory pledge.

A long-term cooperation agreement (a loan agreement, or similar) may constitute a ground for registration of a non-possessory pledge only if it contains all the essential elements of a pledge agreement as foreseen by the  Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06).

A lease agreement as a legal ground 

A lease agreement stipulated between a lessee and a lessor, even though it contains all the essential elements of a pledge agreement, as foreseen by Art. 2, para. 1 and Art. 3, para. 1 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), does not create a qualified legal ground for the registration of pledge right unless signed by the pledger.   

B. STATUTORY PLEDGE

Movable assets are not the property of the pledger 

In the procedure of registering a statutory pledge one cannot contest a proprietary right in a movable asset on which a pledge has been placed. This fact may be the subject of an objection filed against the Tax Administration’s minutes of the procedure of inventorying and appraising the movables, within three days from the day of being served the minutes, pursuant to Article 100, para. 5 of the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02….108/13).

Appraised value of inventoried movables is below actual value 

The inventoried movables will be appraised in the tax procedure, within the meaning of the Law on Tax Procedure and Tax Administration (RS Official Gazette Nos. 80/02….108/13) which, in Article 100, paras. 5 and 6, foresees that the debtor may file an objection in the procedure of inventorying and appraising the movables within three days from the day of being served the minutes, and that the enforced collection will be stayed until a decision is passed on the objection. Filing the objection with respect to the appraised value of inventoried movables in the procedure of registration of a pledge right will have no effect on the registration of a pledge, if the registration is done based on the final decision by a competent tax administration. 

Fixed assets as the subject of a pledge

Pledged fixed assets will remain in the pledger’s (taxpayer’s) possession and therefore, the establishment of a pledge over assets in a tax procedure as collateral for a tax debt will not be an obstacle for conducting regular business activities.

Appeal against a tax decision and the registration of a pledge (lien)


A taxpayer’s appeal filed against a decision by the Tax Administration will be the subject of a separate tax procedure and will have no effect on the enforcement of the decision, within the meaning of Article 147, para. 1 in connection with Article 77, paras. 1 and 3 of the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02….108/13).  Such an appeal will not stay the enforcement of the administrative tax act and therefore, the final decision by the competent Tax Administration branch office will constitute a ground for the registration of a statutory pledge (lien) in the procedure of enforced tax collection (besides the minutes of inventory and appraisal of movables).

The pledger is a natural or legal person 

In a tax procedure, the tax authority will redact the application for registration of pledge by specifying whether the taxpayer - pledger is a natural or a legal person – limited liability company, i.e., whose movable assets are the subject of registration of a pledge right (lien). Over whose movable assets the pledge rights will be constituted will depend on the type and liability of the taxpayer.  Natural persons or entrepreneurs are liable with their personal property and with that of their household members while members of a limited liability company are not liable for the company’s debts except in case of abuse of the limited liability rule, pursuant to Article 18 of the Law on Companies (RS Official Gazette No 36/11 and 99/11).

Pledger – a third person providing security for another’s debt 

The pledger is not necessarily the debtor of a secured claim – this could also be a third party providing security for another person’s debt within the meaning of Article 17, para. 2 of Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06).

In the tax procedure of enforced collection of a tax debt, the Tax Administration may make an inventory of the movables belonging to family members liable for the obligations of the taxpayer - when the taxpayer is a physical person, but not of the taxpayer’s property and income exempt by law within the meaning of Articles 85 and 102 of the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02…108/13). All adult members of the taxpayer’s household will stand subsidiary surety for the payment of a tax debt for personal income tax from self-employment activities with their assets, within the meaning of Article 157 of the Individual income tax law (RS Official Gazette No 24/01…6/14). Pursuant to the said article of the Personal Income Tax Law, a person who takes over, with or without compensation, a part or the entire assets with which the entrepreneur conducts his business activity will also stand surety jointly and severally with the entrepreneur for the entrepreneur’s debts arising from the conduct of his business activity prior to the transfer of the assets, up to the value of the taken over assets.

In the procedure of deferring payment of a tax debt, a third person may voluntarily assume the liability for and guarantee the settlement of a taxpayer’s debt either by stipulating a surety contract or agreement with the Tax Administration or by having the Tax Administration, in agreement with the guarantor, inventory and appraise the movables in possession of the pledger - guarantor, as a collateral for the taxpayer’s tax debt, and record that in the minutes.

In an enforcement procedure, parties can make an agreement before the court to the effect that a third person will secure the enforcement debtor’s debt with his movables also, which he will pledge in favor of the creditor, thus guaranteeing, in the debtor’s name, the repayment, i.e., the collection of  the debt. In such a case, the petitioners, i.e., the parties to such an agreement are all three sides: the creditor, the debtor and the pledger.

Conversion of debt into permanent state-owned equity 

Debt conversion could be applied to outstanding obligations of the Public Revenue Agency of the Republic of Serbia, the Pension and Disability Insurance Fund of the Republic of Serbia and the Health Insurance Fund of the Republic of Serbia. If the Serbia government adopts a conversion program, which is subject to registration in the Business Entities Register, the obligations of the legal persons that are the subject of conversion will cease to exist, the Development Fund of the RS shall take over the obligations towards the organizations whose revenues were the subject of conversion and the creditors will satisfy their claims in proportion to the structure of the converted obligation from the revenues to be realized through the sale of the legal persons’ equity. The fact that a request has been filed for conversion of a debt into permanent equity owned by the State, and that such a request will probably be granted, has no effect on the registration of a pledge right (lien) with the Pledge Register. 

It can only be of influence on the enforcement procedure. 

An entrepreneur is liable for all liabilities arising from his activity with his entire assets 

Pursuant to Article 85 of the Law on Companies, (RS Official Gazette No 36/11 and 99/11), an entrepreneur (i.e. sole trader) is liable for all liabilities incurred in connection with the pursuit of his business activity with his entire assets, including any assets he acquires in connection with the pursuit of his business activity. Moreover, his liability will not cease once the entrepreneur has been deleted from the register. Based on the above, an entrepreneur has the status of a natural rather than that of a legal person and therefore he is liable not only with the assets of his business but with his entire property.

Motion to postpone enforced collection 

A motion to postpone an enforced collection procedure and to stipulate an agreement for the payment of a tax debt in installments, will not defer the registration of a pledge right based on the final decision and the minutes of inventory and appraisal of movables by the competent branch office of the Tax Administration. Such a motion will be decided on in a separate tax procedure and will not have any effect on the pledge right within the meaning of Article 79, para. 4 of the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02….108/13), since the obligation still remains in effect if the pledger fails to settle the debt within the deferred deadline.

Tax debt, penalties and interests 

The amount of a claim secured by a pledge right can include, in addition to the tax debt, fines and interests arising after closing a business, if prescribed by the final decision of the Tax Administration’s competent branch office. The total amount of a debt established in a separate tax procedure cannot be contested in a pledge right registration procedure but only in a procedure instigated before the Tax Administration, using legal recourses foreseen by the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02….108/13).

Debt repayment and the statute of limitations for claims 

The fact that a taxpayer has repaid his debt, partially or in full, the contesting of the appraisal of inventoried movables and the statute of limitations can only be invoked in a tax procedure instigated before the Tax Administration, pursuant to Article 100, para. 5 – by filing an objection, and pursuant to Article 142 of the Law on Tax Procedure and Tax Administration (RS Official Gazette No 80/02….108/13) – by filing an appeal. Pursuant to the principle of formality stipulated in Article 3, para. 1, item 3 of the Law on the Procedure of Registration with the Serbian Business Registers Agency (RS Official Gazette No 99/11), the Registrar is not authorized to delve into the regularity and lawfulness of the procedures resulting in the legal acts based on which a statutory pledge is registered.  

В. JUDICIAL PLEDGE 

Non-final decision on enforcement

Аn appeal against an enforcement decision will not stay the execution thereof, unless otherwise specified by law, pursuant to Article 40, para. 3 of the Law on Enforcement and Security (RS Official Gazette No 31/11). Therefore, a non-final decision on enforcement will constitute a valid legal ground for the registration of a pledge right in the Pledge Register. 

A photocopy of a judgment and other documentation does not constitute a valid proof 

An uncertified photocopy of a court judgment, bearing no certificate of finality, i.e., bearing no evidence that the judicial procedure has been finally concluded, or other documentation which has not been submitted in the form of an original copy or a certified copy will not be deemed a valid proof in a pledge right registration procedure. The provision under Article 6, para.2 of the Law on the Procedure of Registration with the Serbian Business Registers Agency (RS Official Gazette No. 99/11) stipulates that the application must be accompanied either by the original documents or attested copies of entry or certified copies, unless otherwise prescribed.
 
Temporary injunctions and temporary pledges

No pledge right can be acquired through a temporary injunction, however, the court may, in a ruling issued to secure a claim by imposing a temporary injunction prohibiting the pledger from disposing of a certain movable asset, decide to award a temporary pledge right to the enforcement creditor (Article 295 of the Law on Enforcement and Security– RS Official Gazette No 31/11, 99/11 and 109/13 – decision by the Constitutional Court). In such a case, the above solution constitutes a legal ground for the registration of a temporary pledge right in the Pledge Register. A temporary pledge right shall remain in force until the expiry of the temporary injunction term.

Movables are not the property of the pledger

In the procedure of registering a judicial pledge based on the enforcement decision and the minutes of inventory and appraisal of movables, one cannot contest a proprietary right in a movable asset on which a pledge has been placed. This issue may be the subject of a litigation procedure instigated before a competent court. Pursuant to the principle of formality stipulated in Article 3, para. 1, item 3 of the Law on the Procedure of Registration with the Serbian Business Registers Agency (RS Official Gazette No. 99/11), the Registrar is not authorized to delve into the regularity and lawfulness of the procedures resulting in the legal acts based on which a judicial pledge is registered.

Collection of a pecuniary claim

The provision of Article 154, para. 1 of the Law on Enforcement and Security (RS Official Gazette No 33/11...109/13-decision by the CC) prescribes that the enforcement creditor will acquire the pledge right on the claim upon delivery of the decision, i.e., conclusion on debt collection from the debtor, from which it can be inferred that no mandatory registration of a judicial pledge is foreseen, within the meaning of Art. 87, para. 1, Art. 88, para. 1, item 3) and Art. 199, para. 1 of the same Law.

BANKRUPTCY AND PLEDGE RIGHT 


Opening of a bankruptcy procedure 

Pursuant to Article 49 of the Law on Bankruptcy (RS Official Gazette No 104/09, 99/11-as amended, and 71/12-decision by CC and 83/14), secured rights acquired through enforcement and security in the last 60 days before the date of opening the bankruptcy proceedings for the purpose of enforcement or security will cease to be valid and such creditors will not be deemed secured creditors. Based on the decision by the bankruptcy judge, the Pledge Registrar is required to deleted the secured right thus acquired from the Register.  

Bankruptcy creditors can collect their debt from the bankruptcy debtor only in a bankruptcy procedure. Pursuant to Article 80, para. 2 of the Law on Bankruptcy (RS Official Gazette Nos. 104/09, 99/11-as amended and 71/12-decision by CC and 83/14), following the opening of a bankruptcy procedure, secured claims may be satisfied only through the bankruptcy procedure, except where the decision abolishing the prohibition on enforcement and collection has been rendered in accordance with this law. Therefore, a pledge right cannot be registered after the opening of the bankruptcy procedure, i.e., in a situation when, following the inventory and appraisal of movable assets and prior to the submission of the application for registration, a bankruptcy procedure is opened against the debtor (pledger). The provision under Article 93, para. 1 of the same Law stipulates that, from the day of opening of the bankruptcy procedure, neither enforced collection of claims nor any other measure of enforcement may be ordered and implemented against the debtor, i.e., his assets except the enforcement relating to liabilities of the bankruptcy estate and expenses of the bankruptcy procedure.

The same is the case with contractual pledges, considering that creditors can fully exercise their rights only in a bankruptcy procedure.

Transfer of claim after the opening of the bankruptcy procedure 

An agreement on the transfer of a claim for a fee after the filing of a bankruptcy procedure against a pledger can only be registered in the Pledge Register as an annotation relevant for legal transactions, but not as a change of the pledge creditor. The reason for this is that secured rights too can only be exercised in a bankruptcy procedure, pursuant to Article 80, para. 2 of the Law on Bankruptcy (RS Official Gazette Nos. 104/09, 99/11-as amended and 71/12-decision by CC and 83/14).

Adopted reorganization plan and registration of a pledge 

All claims and rights of the creditors and other parties and obligations of the bankruptcy debtor are governed solely by terms stated in the reorganization plan, pursuant to Article 167 of the Law on Bankruptcy (RS Official Gazette Nos. 104/09, 99/11-other laws and 71/12-decision by CC and 83/14). The adopted reorganization plan has the force of an executive title and is considered to be a new contract for the settlement of the claims presented therein. Any transactions entered into and actions taken by the bankruptcy debtor must be in compliance with the adopted reorganization plan and therefore the registration of a pledge right is also only possible in line with the reorganization plan. Based on the foregoing, in case of an already registered pledge, it is not possible to register even an annotation on the commenced debt settlement procedure.
 
REGISTRATION OF AMENDMENTS TO A PLEDGE RIGHT  

Annex to the pledge agreement

An annex to the pledge agreement constitutes a legal ground for the registration of amendments to data on a registered pledge in the Pledge Register.  Amendments to essential elements of the registered pledge have the nature of a new entry within the meaning of Article 63 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06). Along with the registration of amendments to data on the registered pledge, the exact time (day, hour and minute) of the receipt of the application for registration at the Serbian Business Registers Agency must be entered as well.   

A claim arising from banking activities that, by its nature, is not transferable to another legal person not registered for performing banking activities  

A bank’s claim against its client based on a current account overdraft agreement, by its nature, is not transferable to another legal person which is not in the banking business, since that claim is associated with a current account. Pursuant to provisions of Article 40 of the Law on Payment Transactions (FRY Official Gazette No 3/02 and 5/03 and RS Official Gazette No 43/04...31/11), only banks may perform activities such as maintaining individual or corporate accounts and execute in-house and interbank payments from and to those accounts.  Based on the foregoing, any transfer of a claim arising from the current account overdraft agreement to a business company which is not part of the banking business is in conflict, by its own nature, with transactions to a business company which is not registered for performing payment transaction activities reserved for banks. Therefore, any transfer of a claim arising from the current account overdraft agreement by a bank to another legal person which has not been established as a bank and whose business operations are not subject to the law governing banks, cannot pose a valid legal ground for the registration of a change in the registered pledge right.  

Company recapitalization and change in a pledged asset when the latter is a company share 

When the pledged asset is a company share, the recapitalization of the company is of no relevance for the registration of a change in the pledged asset. A share is proportional to the investment, which means that any capital increase is extended to the share, i.e., the pledge as well. Therefore, there is no need to register company recapitalization as a change in a pledged asset in the Pledge Register. 

REGISTRATION OF ANNOTATION 

Transfer of possession of movable assets 

Provision of Article 1, para. 1 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06), foresees, among other, that this law governs pledges without transfer of possession for the purpose of securing a creditor’s claims. This law is a lex specialis relative to Article 968 of the Law on Contracts and Torts (SFRY Official Gazette No 29/78...57/89 and FRY Official Gazette No 31/93), which stipulates that the pledgee acquires a pledge right when the pledged asset is delivered to him. Therefore, if the pledger has not settled his obligation on maturity, the creditor may, and is legally obliged to, register in the Register of Pledge that he has instigated a claim settlement procedure, provided that he has acted fully in compliance with Article 36, within the meaning of provisions of Article 37 of the Law on Pledge of Movable Property Registered in the Pledge Register.

Entry of the annotation on the opening of the procedure for the settlement of claims of joint and several pledge creditors 

If there are two or more registered creditors with respect to a single pledge right, the application filed by only one of them is sufficient to instigate the procedure of registering the annotation that the debt settlement procedure has been initiated.  

In the situation where, in the ruling on registration of a pledge right, there are two or more persons listed on the creditors’ side (joint and several pledge creditors), taking an action by any one of them, if not objected by any other, filing the application for registration of the initiated procedure for satisfaction of claims included, will have the same legal effect as if the action had been taken by all other pledge creditors as well.   

Registration of the annotation of a dispute and the annotation of significance for legal transactions 

The annotation of a dispute may be requested by the pledger, the pledge creditor and any other person who has instigated a civil procedure related to a pledge right, a pledged movable asset or right or to any other relations among the parties in connection with the registered pledge, within the meaning of provisions of Article 64, paras. 2 and 3 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06).

As an annotation in the Register, within the meaning of Article 8 of the Law on the Procedure of Registration with the Serbian Business Registers Agency (RS Official Gazette No 99/11), it is possible to enter also any other fact or document of significance for legal transactions that is related to a registered pledge. 

Value of unpaid debt and annotation 

The procedure of registering the annotation that the debt settlement procedure has been initiated does not involve determining the value of unpaid debt, interest and other costs but only whether the conditions have been met as foreseen by Article 36 of the Law on Registered Pledges on Movable Assets (RS Official Gazette No 57/03…64/06), which stipulates that the debt settlement procedure is initiated when the pledge creditor has given notice to the debtor and the pledger (when these are different persons) of his intention to collect on the value of the pledged asset. With proper proof of delivery of the notice, the creditor may register the annotation that the procedure for the collection of the debt has been initiated, regardless of the value of the unpaid debt.  

Telefax and the registration of annotation on the initiation of a debt collection procedure

The fact that a pledge creditor has given the pledger notice that the debt collection procedure has started by fax is of no relevance for the registration of an annotation that a debt collection procedure has been initiated. The fulfillment of the conditions for the registration of an annotation on the initiated debt collection procedure stipulated under Article 36 of the Law on Pledge of Movable Property Registered in the Pledge Register (RS Official Gazette No 57/03…64/06) is valuated with respect to delivery of the notice by registered mail to the pledger, or debtor, if other than the pledger, i.e., with respect to the undisputed fact that the pledger has been informed of the creditor’s intention to collect on the value of the pledged asset upon maturity of the debt secured by the registered pledge, confirmed by the pledger’s own signature.

STRIKE-OFF OF A REGISTERED PLEDGE 
  
The sale of assets in a bankruptcy procedure 

Any asset sold in a bankruptcy procedure is acquired by the buyer without any encumbrances within the meaning of Article 133, para. 12 of the Law on Bankruptcy (RS Official Gazette No 104/09, 99/11-as amended and 71/12-decision by  CC and 83/14). To have a pledge right deleted from the Register, an application must be filed by the bankruptcy administrator or buyer – new owner for the strike-off of a pledge right from the Register, or the bankruptcy judge must order the strike-off of encumbrances occurring prior to the sale, i.e., the registration of other rights acquired by sale.

The sale of assets in the enforced collection of claims

A pledge right is terminated with the sale of the pledged asset in an enforced collection procedure. Upon collecting on the purchase price, the buyer may request the strike-off of a pledge right based on the conclusion establishing that the purchase price has been paid, within the meaning of Article 99 of the Law on Enforcement and Security.  

  
Copyright 2007 by APR