This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

In 2009 an extensive amendment to the Act on the Registered Pledge was introduced, removing many restrictions on the registered pledge system. Most of the changes are welcomed as they will lead to more widespread use of the registered pledge system.

Broader application

A fundamental change concerns the extension of entities for which a registered pledge may be established. So far, registered pledges have been used to secure, among others, the receivable debts of the State Treasury and domestic and foreign banks. As a result of the amendment, it will be possible to establish a registered pledge on behalf of each entity, including natural persons not engaged in business activities and foreign legal entities which are non-credit institutions.
Furthermore, the amendment finally resolves the issue of a specific form for establishing a registered pledge on rights and shares. In accordance with the new provisions, in order for the agreement for a registered pledge on shares in a limited liability company to be valid, a standard written form is sufficient.

Broader scope for pledge administrator

Another important change is to do with the pledge administrator. The scope of receivable debts in regard to which a pledge administrator might be appointed has changed. Previously it was possible only in the case of granting a common loan. Since 11 January 2009 it has become possible to appoint a pledge administrator to secure: (i) a claim to which two or more creditors are entitled, (ii) two or more claims resulting from agreements or (iii) a claim covered by arrangement in bankruptcy or reorganisation proceedings.

Another amendment concerns the new possibility of securing several receivable debts with one registered pledge, provided that they result from the agreements and are available to the same creditor.

Non-expiry of the registered pledge

The amendment also specifies in detail the cases in which the parties to the agreement for the registered pledge may reserve that the registered pledge will not expire despite the expiry of the receivable debt. According to the new provisions, the registered pledge does not expire if the agreement stipulates so and determines at least: (i) a legal relationship from which a new claim results or may result, (ii) a time limit during which a new legal relationship should arise, but not longer than six months from the expiry date of the claim secured with the pledge, (iii) the highest security amount for the new claim, and which may not be higher than the one stated in the register. Irrespective of the circumstances, the registered pledge expires and is subject to being removed from the pledge register after 20 years from the date of entry, unless the parties agree to prolong the pledge, but not longer than ten years. A court removes the pledge ex officio.

An extremely important proposed change would make it possible to introduce by the parties to the registered pledge contractual mechanisms which enable determining the value of the object of the registered pledge should the pledgee take over the value of the object of the registered pledge as its own property. Before the amend ment, the parties were obliged to indicate a set value of the object of the pledge. In practice, it was difficult to determine the value in the case of establishing a registered pledge on shares in a limited liability company.

Procedural simplifications

The new regulation provides for considerable simplifications of the procedure in relation to an entry of a registered pledge in the pledge register. The legislator has extended the catalogue of agreements under which an entry may be made to the pledge register. Previously, an agreement for a registered pledge had to be attached to the application. Since 11 January 2009, instead of the agreement for the registered pledge, it is allowed to attach to the application an agreement from which it results: (i) the purchase of the object of the registered pledge along with the registered pledge, (ii) the purchase of shares in a jointly owned object of the registered pledge, (iii) the purchase of the secured claim or its part or (iv) to attach another document under which an entry was made.

Another simplification is the opportunity to file applications electronically. Such applications must bear a safe electronic signature which can be verified with a valid qualified certificate in accordance with the Electronic Signature Act.

In regard to the entry procedure, the most noticeable change has been to narrow the court's right to examine the form and content of the application (as well as documents being the basis for an entry) only to data being entered into the register. This means that the court will no longer examine the whole agreement for the registered pledge and documents being the basis for an entry. This amendment should shorten the time of considering applications.

Another change accelerating and simplifying the procedure for entering a registered pledge in the pledge register is the elimination of the requirement that a registration application be submitted within one month from the conclusion of the agreement for a registered pledge.

It will be possible to establish a registered pledge on behalf of natural persons not engaged in business activities and foreign legal entities which are non-credit institutions.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.