Security in Finance Transactions

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Published in PLC Cross-border Finance Handbook, 2008

Real estate

1. Please briefly state what is considered real estate in your jurisdiction. What are the most common forms of security granted over it? How are they created and how are they perfected (that is, made valid and enforceable)?
Under Romanian law, real estate (generally known as immovable property) covers land, buildings and those movable assets attached to land or buildings as fixtures. Movable assets affected by the owner of an immovable in order to exploit the respective immovable asset become “immovable by destination”. The usufruct and easements over an immovable property are also considered immovable assets. Security may be granted over immovable property by way of mortgage. Mortgages are expressly regulated by the Romanian Civil Code of 1864.
Security over “immovable by destination” or other movable assets accessory to an immovable property which may be detached therefrom may fall however under Title VI of Law no. 99/1999 regarding security interests in movable property (“Security Interests Law”). Security over immovable property is created by executing a mortgage agreement, in the form of a notarised deed in Romanian language. A number of conditions must be complied with for the mortgage to be valid, including:

  • The debtor must be the owner of the mortgaged property and have full legal capacity.
  • The mortgage agreement must identify each piece of mortgaged property and establish the maximum secured amount.
  • The mortgage can be granted only over existing property (in principle, mortgages cannot be granted over future assets, except for mortgages established as security for a mortgage loan according to Law No. 190/1999 regarding mortgage loans).

The creation of a mortgage under Romanian law does not imply any transfer of title. The debtor is free to transfer the ownership over the mortgaged immovable asset unless the parties have entered into a restrictive covenant preventing this which has been registered with the Land Book. If no such restrictive covenant has been registered and the mortgagor transfers the ownership title to a third party, the mortgage shall remain in place and the transfer should not affect the lender’s right to realise the mortgaged property in satisfaction of the outstanding secured debt, provided that registration of the mortgage with the Land Book was performed before the transfer of the mortgaged property.
Mortgages (and any restrictive covenant prohibiting the subsequent transfer of, or further encumbrance over the relevant asset) must be registered with the Land Book in which the mortgaged property is registered. The registration is valid for 15 years and may be renewed. The mortgage over any “improvements” to the initial mortgaged immovable asset must be additionally registered with the Electronic Archive for Security Interests in Movable Property (“Electronic Archive”). Thus, mortgage agreements are usually registered both with the Land Book and the Electronic Archive. The registration has as purpose servicing notices to third parties with respect to the creation of the security interest. The rank of a mortgage depends on the time of registration with the Land Book. The first creditor who has registered the mortgage agreement will be preferred.

Tangible movable property

2. Please briefly state what is considered tangible movable property in your jurisdiction, for example, machinery, trading stock (inventory), aircraft and ships? What are the most common forms of security granted over it? How are they created and how are they perfected?
The most common form of security over tangible movable property is the security interest in movable property created pursuant to the provisions of the Security Interests Law. Tangible movable property includes, inter alia, machinery, commodities, vehicles, stocks, harvested crops, aircrafts, ships etc. Tangible movable assets generally comprise all assets which may be transported or which may travel self propelled from place to place.

Notarised form is not required for validity of the security agreements in movable property. The Security Interests Law requires that a security agreement specifies the maximum secured amount.

Negative pledges or undertakings in respect of security interests granted over movable property are generally prohibited. Any negative pledge or undertaking that prohibits the creation of another security interest over the same asset and which, if breached, triggers anticipated payment of a debt is null and void. The exception is where a creditor has objective reasons to believe that either:

  • The secured asset was, or is about to become, endangered; or
  • The prospects for payment were, or are about to be, hindered.

The transfer to a third party of a secured asset is valid even if:

  • The third party is aware that there is a prior agreement prohibiting the sale of the respective asset; or
  • The agreement states that such a transfer would be a breach of contract.

For serving notice to third parties and obtaining priority, security interests in movable property must be registered with the Electronic Archive. A registration is valid for 5 years and may be renewed. However, depending on the type of the secured asset, additional publicity formalities might be necessary. For certain categories of assets, special perfection requirements are applicable. For example, security interests over ships and aircrafts can be perfected only by registration with the registries (kept by the competent authorities) where the respective assets are registered. Security interests in movable property are ranked chronologically based on the precise moment when registration was completed.

Shares and financial instruments

3. What are the most common forms of security granted over financial instruments, such as shares and other securities? How are they created and how are they perfected?
The most common form of security granted over financial instruments is a security interest in movable property. Security interests over shares (i.e. includes both shares of joint stock companies and social parts of limited liability companies) are created by written agreement containing specific mentions of the amount due and the value and category of the shares. In case of bearer shares and shares issued in material form, the security interest must be mentioned on the respective pledged shares. Security interests in shares of closed companies shall be registered with the Registry of Shareholders kept by the respective company. Security interests over shares of public companies must be registered with the Central Depositary (provides settlement, clearance and registration for all listed securities). In addition, security interests over shares of closed companies shall be registered with the Electronic Archive. Please note that the transfer of ownership over shares is subject to certain formalities which might require in certain cases cooperation of the person granting the security interest over shares in case of enforcement or court intervention. Further, the transfer of shares held in a limited liability company to a person which is not a shareholder requires the approval of shareholders representing at least three quarters of the registered capital.

Claims and receivables

4. What are the most common forms of security granted over claims and receivables (such as debts or rights under contracts)? How are they created and how are they perfected?
The most common form of security granted over claims and receivables is an assignment of receivables for security purposes. The assignment of receivables for security purposes is commonly used to create security over: receivables, contractual rights and benefits (but ultimately such would not ensure the benefit of certain rights which are granted intuituu personae), rights and receivables deriving from insurance policies.
The assignment of receivables for security purposes may be performed pursuant to a written agreement between the assignor and assignee. The assignment of receivables for security purposes represents a conditional assignment and can be enforced only in case of the debtor’s default with respect to the secured obligations. The consent of the assigned third party is not required by law for the validity of the assignment.
Under the Security Interests Law, the assignment of receivables for security purposes must be registered with the Electronic Archive to ensure priority with respect to other creditors and must be notified to the assigned third party.

Intellectual property

5. What are the most common forms of security granted over registered and unregistered intellectual property? How are they created and how are they perfected? Consider if applicable:

  • Patents.
  • Trade marks.
  • Other intellectual property rights, such as copyright and registered designs.

The same rules as for security interests in movable property apply. Security interests over patent rights, trademarks and industrial designs are perfected by registration with the Electronic Archive and the State Office for Inventions and Trademarks. Perfection of security interests over copyrights requires only registration with the Electronic Archive.

Commercial security

6. What types of commercial or quasi-security (that is, legal structures used instead of taking security) are common in your jurisdiction? Is there a risk of such structures being recharacterised as a security interest? Consider the following and give brief details:

  • Sale and leaseback.
  • Factoring.
  • Hire purchase.
  • Retention of title.
  • Other structures.

A contract might be recharacterised by the court based on the underlying intention of the parties at the time the contract was entered into. If the real intention of the parties was to create a security interest, the court can recharacterise the agreement as a security agreement, notwithstanding the name of the agreement. Thus, any agreement meant to secure the performance of an obligation with an asset shall be subject to the rules of publicity, priority and enforcement applicable to security interests in movable property in order to produce effects towards third parties. Sale and leaseback, retention of title, factoring, leasing of assets, are used in practice, but the suitability to each particular transaction shall be assessed as such operations are subject to different sets of rules governing their treatment. It is to be noted that security agreements created under Security Interests Law are writs of execution which facilitate the enforcement, while not all the agreements underlying factoring, sale and retention of title or other “commercial” security structures are writs of execution. Other instruments used in order to secure the performance of counterparty’s obligations in commercial relations are promissory notes, cheques or bills of exchange. They are writs of execution under Romanian law.

Risk areas

7. Are there types of assets over which security cannot be granted or is difficult to grant? Consider the following and give brief details:

  • Future assets.
  • Fungible assets (a pool of assets that are indistinguishable from each other and that may change over time).
  • Other assets.

Future assets
In principle, mortgage cannot be granted over future real estate property (see Question 1). In respect of movable assets, the Security Interests Law expressly allows creation of security interests over future assets. Security over movable future assets will enter into force when the relevant assets have come into existence and the debtor acquires ownership over the respective assets.

Fungible assets
Fungible assets, such as stocks of merchandise, may be validly pledged or assigned, according to the provisions of the Security Interest Law. Attention must be paid to the modality of describing such assets and the mechanism established in the security agreement depending on their nature and their destination (e.g., if they are meant for processing, sale, etc.). If the security interest is created generically over a category of fungible assets, the security interest may be enforced over fungible assets falling within the respective category which are within the patrimony of the grantor of the security interest at the moment of enforcement. If certain fungible assets are identified and marked as being the object of the security interest, they may have a treatment similar with a non-fungible asset.

Other assets

  • Security interests in movable property may also be created over a company’s “fond de commerce”, which is considered to be a movable intangible asset. This type of security interest is similar to a floating charge and must be registered with the Romanian Trade Registry as well as with the Electronic Archive.
  • Specific requirements are imposed by Security Interest Law for the validity of security interests over balances existing in bank accounts. Bank accounts must be clearly identified in the security agreement.

8. Do company law rules affect the granting of security? In particular:

  • Financial assistance rules. For example, if a company granted security to secure debt used to purchase its own shares (or the shares of a subsidiary), would this breach such rules?
  • “Corporate benefit” rules. For example, if a parent company granted security in respect of a loan to its subsidiary, would this breach such rules?
  • Other rules?

Unlawful financial assistance
Romanian Company Law prohibits a Romanian company to advance funds, to grant loans or to create guarantees/security interests in view of the acquisition of its own shares by third parties. There is an exception covering transactions concluded by credit institutions and other financial institutions in the normal course of their business and acquisitions of shares by employees provided that the net assets shall not be decreased below the subscribed share capital and those reserves which cannot be distributed pursuant to the provisions of the law and of the constitutive act. These provisions of Romanian Company Law are similar with art. 23 of the Directive 77/91, in the old form.

By way of interpretation, the prohibition might be considered to apply irrespective whether the acquisition is made directly by acquiring shares of the respective company or indirectly.

The prohibition regarding financial assistance is provided in the section regulating joint-stock companies. The prohibition should not apply to limited liability companies, as pursuant to the general interpretation rules, prohibitions should be restrictively construed. However, there are decisions of Romanian courts that have applied before other joint-stock companies specific rules to limited liability companies based on similarity grounds (the existence of the same rationale). Thus, there is some degree of uncertainty as to the application of the prohibition of financial assistance in case of limited liability companies. The Directive 77/91 clarifies in art. 1 the type of companies to which it applies and it appears to refer to joint stock companies and this is an element that should be reasonably considered in the process of establishing the scope of the application of the above-mentioned prohibition in Romania.

Corporate benefit rules
A Romanian company may exercise those rights and undertake those obligations which correspond to its authorised purpose (as evidenced in its articles of incorporation, it being considered that the main purpose of a commercial company is the obtaining of profit, but interpreted so to also include such operations that concur to the carrying out of, and which are beneficial to, such activity). Any operations that infringe this limitation are null and void. Therefore, when determining the validity of a guarantee given by a Romanian company, one should consider:

  • the connection between the giving of the guarantee and the authorised activity of such company;
  • the corporate benefit deriving from the giving of the guarantee.

If the Romanian company has no commercial reason for, and no corporate benefit deriving from, giving the guarantee, the operation may be null and void for lack of consideration. There are no specific provisions of Romanian law regarding the assessing or calculating of corporate benefit. The existence of corporate benefit is assessed on a case by case basis. Note should be made that the concept of group and group interests is not recognised as such under Romanian law. However, this would not exclude the possibility of proving the existence of a corporate benefit in case of a security granted by a parent company for a loan taken by its subsidiary.

Other rules
There are other restrictions on Romanian companies granting security, including (Company Law no. 31/1990):

  • there is a prohibition on granting security, directly or indirectly, in relation to obligations of the company’s directors of an aggregated value of Euro 5,000 (and relatives of the company’s directors, up to the fourth degree or companies where such persons are directors or hold separately or together 20% of the registered share capital);
  • the creation of security interests is subject to the approval by the extraordinary general meeting of shareholders if the book value of the relevant asset(s) exceeds 50% of the company’s net value (for non-public companies).

Romanian Company Law establishes that it is a criminal offence for the director, founding shareholder, manager or legal representative of a company to use the assets and goodwill of a company, in bad faith, for a purpose which is contrary to the company’s interests or for it own interest or for favouring another company in which it is directly or indirectly interested. Also, it is a criminal offence for the above-mentioned persons to borrow money from a company managed by them, a company controlled by the latter, or from a company which controls the company managed by them or to make one of those companies to grant guarantees for their obligations. Such provisions are not very clear and they lack any relevant court practice, but should normally be construed in a restrictive way.

9. Could a party holding or enforcing security over land be liable under environmental laws, even if it did not cause any pollution of the land?
Under Romanian environmental law, the general rule is that the polluter is liable for damages brought to the environment. Owners of land have certain obligations and liabilities under the environmental laws. The liability for pollution under the environmental laws is of an objective nature, regardless of fault. Under Romanian law, the holding or enforcing of a security over land does not entail liability under the environmental laws. Following the enforcement of security, once ownership has been transferred, the creditor can be held liable in the same way as any owner of land.

The commercial debt market

10. Is contractual subordination of debt possible and common? If so, how can it be achieved, for example by an inter-creditor agreement between senior, mezzanine and junior creditors? Is structural subordination possible?
Contractual subordination is largely used in practice, although there is no specific legislation relating to this issue. Contractual subordination is commonly achieved by agreements between the debtor(s), the subordinated creditor(s) (junior or mezzanine) and the senior creditor(s), but attention should be paid to the fact that the security interests are ranked depending on the moment of registration with the Land book and/or the Electronic Archive (irrespective of any separate arrangements between the creditors). The effects of subordination agreements towards third parties might be limited in certain cases, as contractual subordination is not recognised by law and whenever there is an order of priority of payments established by law, such order would prevail.

11. Is secured debt traded in your jurisdiction? If so, what transfer mechanisms are used? How do buyers ensure that they obtain the benefit of the security associated with the transferred debt?
In principle, an assignment of receivables triggers the automatic transfer of all rights ancillary thereto, including security interests rights attached to the assigned receivables. The transfer of secured debt may be performed through assignment or receivables (no obligations being transferred) or through novation. As a rule, novation implies the consent of all parties involved in the transaction (i.e., the initial parties and the new parties) and inclusion of specific clauses in the agreements to allow the survival of the security interests following novation. As a rule, the rights of the transferees are mainly conserved by serving notice to third parties with respect to the assignment/novation by amending the initial registrations of the security interest with the relevant registries.

12. Is the trust concept recognised in your jurisdiction? If not:

  • Is a trust created under the law of another country recognised in your jurisdiction?
  • Can a security trustee enforce its rights in the courts in your jurisdiction?

The trust concept is not recognised under Romanian Law. A trust created under the law of another country might not be recognised in Romania to the extent Romanian courts will consider that such concept would breach Romanian private international law public order. However, there is no relevant case law to provide an indication on the position that a court would take if such a case is submitted for judgement.

13. Do the different types of security in your jurisdiction need to be documented separately or does your jurisdiction allow a single security document?
There is no specific requirement in this respect. A single agreement covering several security interests is permitted, but in certain cases, it might be advisable to have separate documents as there may be different requirements in respect of the form and the content depending on the type of the security interest and the nature of the assets subject to security interests.

Enforcement and insolvency

14. Please briefly state the circumstances in which a secured creditor can enforce its security, for example, when an event of default occurs? What requirements must the creditor comply with?
A secured creditor can generally proceed with enforcement of its security rights if the secured obligations are not fulfilled. Although not expressly required by law, it is advisable that events of default be set out in the loan documentation rather than relying on the courts’ interpretation on whether a breach has occurred (the Romanian courts have limited experience in relation to complex loan agreements). In order for an enforcement to start, an additional condition is that the financial obligations be due and payable.

15. How are the main types of security interest usually enforced? What requirements must a creditor comply with (for example, a mandatory public sale of the secured asset through the courts)?
The procedures applicable to enforcement of security interests differ, depending on the type of security and the creditor’s choice. Generally, in order to proceed with enforcement of its rights (secured or not), a creditor must hold a writ of execution (titlu executoriu in Romanian). Under Romanian law, duly executed agreements creating security in movable property pursuant to Security Interests Law and in immovable property (by way of notarised deed in the latter case) qualify as writs of execution. Therefore, when an event of default occurs and the payment obligations become due and payable, the creditors should be able to enforce their rights under the security agreement without following a judicial procedure for the recognition of the secured rights; however, the debtor may challenge in court the enforcement procedure. In such case, the enforcement procedure may be suspended.

Mortgage

The enforcement of security interests in immovable property must be made through public sale of the mortgaged asset. The public sale is conducted by an official bailiff.

Security interest in movable property

Where the debtor has failed to fulfil the secured obligations, the creditor can choose between the procedures available under the:

  • Romanian Civil Procedure Code. This consists of a generally applicable enforcement procedure, in the form of a public sale conducted by an official bailiff.
  • Security Interests Law. Under the Security Interests Law, the creditor may be able to self enforce the security agreement, but if the debtor objects, support of a court bailiff should be sought. In order to amiably apply the enforcement procedure and peacefully reposes an asset, the security interest agreement must include a specific provision, written in capital letters (in 12 point character size): “In the event of default the creditor may use its own means to take possession of the pledged asset”. The sale of the secured asset must be carried out in a commercially reasonable manner by direct sale or by public auction. The parties may contractually establish the sale procedure to be followed in case of enforcement.

16. Are company rescue or reorganisation procedures (outside of insolvency proceedings) available in your jurisdiction? If yes, please give brief details, including voting requirements to approve such procedures. How do they affect a secured creditor’s rights to enforce its security?
Under Romanian law, the debtor or its creditors may apply for a reorganisation proceeding under Law No. 85/2006 on insolvency proceedings (“Insolvency Law”). A draft law concerning a preventive, extra-judicial proceeding aimed at rescuing the debtor is currently under discussion in Parliament.

17. How does the start of insolvency procedures affect a secured creditor’s rights to enforce its security?
In principle, once insolvency proceedings have begun, all court or out-of-court actions aimed at realising the creditors’ rights are suspended. However, under very limited and strict conditions, creditors holding security interests rights may be exempted from this rule. Where there is a rescue attempt (reorganisation), various measures intended to improve the company’s economic status are set out in a reorganisation plan. Some of these measures can affect the creditors’ security rights (by amending them or even cancelling them completely). However, any unfavourable changes to creditors’ rights must comply with a number of principles, such as an obligation to provide the secured creditor with equivalent protection in case its security rights are in any way affected.

18. What transactions granting security can be made void if the entity that granted the security becomes insolvent? Please briefly state the time limits that apply and the conditions that must be met for the security to be made void.The syndic judge (that is, the judge designated to supervise the insolvency proceedings) can, on application of the judicial administrator/liquidator or the creditors’ committee, set aside certain transactions of the insolvent debtor, including:

  • Transactions at undervalue, entered into up to 3 years before the opening of the insolvency proceeding;
  • Transactions creating or perfecting security interests for claims which were initially unsecured, concluded within the 120 days preceding the opening of the insolvency proceeding;
  • Transactions entered into up to 3 years before the opening of the insolvency proceeding with the intention of all parties thereto to create a disadvantage for the other creditors;
  • Transactions entered into up to 3 years before the opening of the insolvency proceeding with the intention of all parties thereto to conceal the debtor’s assets or to defraud other creditors;
  • Transactions entered into by the debtor with its shareholders holding at least 20% of the share capital up to 3 years before the opening of the insolvency proceeding.

These transactions may be challenged by the judicial administrator/ liquidator or, in subsidiary, by a representative of the creditors’ committee, within 18 months following the opening of the insolvency proceeding.

19. Please list the order in which creditors are paid on the borrower’s insolvency, assuming the security interests have been validly perfected. Consider:

  • Statutory claims (such as tax or other government claims, expenses of the insolvency proceedings and employee claims).
  • The secured creditors considered in Questions 1 to 5 (please state which order of priority applies between the relevant security interests).
  • Unsecured creditors.
  • Subordinated creditors.

In case of the borrower’s insolvency, as a rule, secured creditors rank higher than all unsecured creditors in relation to the proceeds resulting from sale of the secured assets. However, in certain cases, secured creditors may be outranked by creditors holding privileged rights in the secured assets (that is, preferential rights of payment provided by law, such as the seller’s privilege in respect of the purchase price). Out of the proceeds resulted from the realisation of the secured asset, taxes, stamp duties or costs relating to the sale of the respective assets shall be paid before the payment of the amounts due to the secured creditors. Creditors secured with a mortgage may outrank creditors holding a security interest in movable property over the improvements brought to a mortgaged property, if the mortgage has been registered both with the Land Book and the Electronic Archive.

Under the Insolvency Law, the following rankings apply to unsecured creditors:

  • costs of the insolvency proceedings, including expenses incurred during the proceedings to preserve the debtor’s estate;
  • labour claims;
  • loans granted by credit institutions during the insolvency proceedings as well as debts relating to the debtor’s carrying out its ordinary business activities after the proceedings were initiated;
  • debts owed to the state budget;
  • bank debts, trade debts and debts arising from lease agreements;
  • other unsecured debts;
  • subordinated claims, in the following preference order: (i) receivables of shareholders holding at least 10% of the share capital and (ii) receivables arising from gratuitous acts.

20. If more than one creditor holds the same security interest over the same asset, how is priority between them determined?
As a rule, the priority is given by the precise moment of registration of the security interest with the relevant publicity registries.

21. If a security interest has not been validly perfected, where does the security holder rank on the borrower’s insolvency?
Depending on the formality that was not complied with, the security interest may be invalidated or rendered ineffective towards third parties, which, ultimately, may lead to the secured creditor being treated as an unsecured creditor.

Cross-border issues

22. Are there restrictions on granting security (over all forms of property) to foreign lenders? If yes, please give brief details, for example registration requirements.
There are no legal restrictions on granting security interests to foreign lenders. However, in case of enforcement of a mortgage, if the foreign secured creditor wishes to adjudicate the mortgaged property towards satisfaction of its claims, it may acquire ownership right over land situated in Romania only under strict conditions. EU based entities non-residing in Romania may acquire the ownership right over land as of 5 years after Romania’s accession to the EU (7 years in some cases depending on the type of land). Other foreign entities may acquire ownership right over the land based on international agreements to which Romania is a party on a reciprocity basis (Law no. 312/2005 concerning acquisition of private ownership right over land by foreign citizens, stateless persons and foreign legal persons).

23. Are there exchange controls that restrict payments to a foreign lender under a security document or loan agreement?
There are no provisions preventing a creditor from repatriating proceeds realised in Romania following the enforcement of its security rights or from receiving payments under a loan agreement. However, for statistical purposes, residents are required to notify to the National Bank of Romania any loan concluded with foreign lenders with a maturity exceeding one year.

24. Is a foreign choice of law clause in a security document recognised and applied by the courts in your jurisdiction? Does local law always apply in certain circumstances?
As a rule, creation, perfection and enforcement of security over assets located in Romania shall be governed by Romanian law. In certain cases, a foreign choice of law may be recognised, but Romanian law provisions governing creation, publicity and enforcement of security interest cannot be avoided and will be applicable as part of the Romanian public order of international private law.

Tax and fees

25. Are taxes or fees paid on the granting and enforcement of security? Consider the following and state the fee amounts and tax rates, if they are more than a nominal amount:

  • Documentary taxes (for example, stamp duty).
  • Registration fees.
  • Notaries’ fees.

The entering into security agreements, as well as the publicity and enforcement thereof, are subject to the payment of certain taxes and fees.

Execution of security agreements

Mortgages. The execution and registration of a mortgage agreement mainly imply the following costs:

  • Notary fees. Notary fees calculated depending on the value of the secured amount;
  • Registration fee. On registration of a mortgage with the Land Book, a fee of 0,1% of the secured amount + RON 100 (approximately Euro 30) is due. For fees related to registration with the Electronic Archive, please see below Security interest in movable property;
  • Translation and related notary certification of the translator’s signature costs.

Security interests in movable property. Security interests in movable property do not need to be notarised. In respect of registration with the Electronic Archive, the registration fees amount to Euro 20 for the initial registration with the Electronic Archive (irrespective of the agreement’s value) and to Euro 15 for each amendment to the initial registration with the Electronic Archive.

The enforcement of security agreements is also subject to the payment of stamp duties and enforcement fees to the official bailiff, except for the private enforcement of security interests in movable property (see Question 15).

26. If such taxes and fees make granting security too expensive, are there strategies to minimise costs?
Taxes and fees payable in respect of taking, registering and enforcing security interests are generally not perceived as prohibitive. It is unlikely that these costs could be minimised in any way.

Reform

27. Please summarise any proposals for reform and state whether they are likely to come into force and, if so, when.
The project of a new Civil Code has for a while now been discussed, but there are no clear indications of the moment of its approval by the Parliament. It will most probably provide for a unique legal framework for all security interests, in both movable and immovable property, and bring some major changes to the current regime.

Mortgages

The following changes have been proposed in relation to immovable property:

  • Security interests in lease receivables arising in connection to a leased immovable asset will be deemed as “mortgages” and will be subject to the rules applicable to mortgage agreements.
  • Security interests in future immovable assets will no longer be prohibited.
  • Prohibitions on the transfer of mortgaged assets, as well as negative pledges, will be expressly forbidden.
  • The maximum secured amount clause will have to provide, whenever a floating interest rate is applied to the principal, the mechanism for determining that interest rate.

Security interests in movable property

The following changes have been proposed in relation to movable property:

  • In the case of transfer of the secured asset in the usual course of business, the security will automatically transfer over the replacement asset or amount. Otherwise, a notice must be served to the secured creditor in respect of the transfer, and the creditor will have 15 days after the transfer to re-register its security with the Electronic Archive, in order to maintain its security rights and priority rank.
  • Although floating charges will still be permitted, a more detailed description of the assets over which security is created will need to be provided; a reference to “all the debtor’s present and future assets” will no longer be acceptable.
  • The requirement that a security interest be created by private agreement and registered with the Electronic Archive will apply exclusively to non-possessory security interests. Possessory security interests (pledges) will become a distinct type of security (no written instrument and registration with the Electronic Archive will be required).
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