On 25th of April, 2019 National Assembly of the Republic of Serbia has adopted a Law on Amendments and Supplements to the Law on Pledge on Movable Property Registered in the Movable Pledge Register, which has stepped into the force on 7th of May, 2019. (“Law”).

Reasons behind the adoption of this amendments and supplements to the law that regulates inscription and legal treatment of the pledges on a movable property inscribed in the register are leveling and eliminating legal gaps and issues ensued in the practice and harmonization of the law with the World bank demands stated in Doing business list in the part of creation of legal framework that could uniquely apply to other sorts of collaterals.

Novelty of the Law is that it deviates from the specialty principle embedded in the pledge law by prescribing that besides pledge constitution over the individual and generic assets, it allows constitution of the pledge over the sum of movable properties intended for sale or lease including inventory and raw materials that are used within regular business activity. Therefore, Law prescribes that pledge encompasses over all movable properties that become part of that sum of movable properties that belong to the pledgor only if such property becomes part of that sum after the constitution of the pledge. By this legal mechanism, law regulated common situation ensued in the practice when producer pledges its contingent of commodity, where now pledge encompasses over new products that originate after the constitution of the pledge and which become part of the commodity contingent i.e. the sum of movable properties.

The law also distinctly prescribes possibility of the pledgee who acquired pledge by physical transposition of the property to his possession (possessory pledge), to file request for inscription of the pledge into the register in order to acquire the payment priority in relation to the latter pledgees that inscribed pledge on the same property in the register.

By provisions of this law, it is clearly defined that subject of the pledge can be receivable of the pledgor that is meant to be disbursed on the specific bank account of the pledgor, where in addition to such it is required to inscribe data concerning that bank account in the register. Moreover, the law prescribes that the company shares and other property rights can be subject to the pledge.

In order to acquire the pledge over the receivable, the pledgee is not required to firstly inform debtor, before the inscription of the pledge on receivable in the register.

Further, lawmaker coordinates provisions of the Law on Contracts and Tort which regulate authority for representation and to that extent it specify that person authorized for representation shall be determined upon the basis of pledge agreement or special authority agreement. The authorized person acts in the capacity of pledgee and his personal data are inscribed in the register, but in the case of disclaiming of the pledge authorized person shall be equipped with the special authorization.

Also, priority order between different pledgees is specifically defined in the manner that priority is constituted upon day, hour and minute of receipt of the request for inscription, where if possessory pledge is not inscribed in the register afterward, it does not enjoy priority order over the pledge inscribed in the register (non-possessory pledge).

Among other novelties we can catch sight of the changing provision about notification process addressed to pledgor and debtor regarding pledgee intention to settle his mature receivables, which now purports that pledgee shall deliver notification to the register for the purpose of its publication, so the out-of-court settlement can be started upon expiration of 30 days period from the day of the publication. Even the lawmaker prescribes that pledgee is obliged to deliver notification on the settlement to the debtor, pledgor or to the third person, the settlement process is commenced regardless of that action, solely upon expiration of the prescribed period. This solution protects the rights of the pledgee and constitutes a prevention measure from the abuse of debtors within the process of notification delivery.

Also, register publishes on its internet page notification on venue and exact term of the out-of-court settlement which shall be done at least 15 days before the occurrence of such settlement.

By this regulation changes have effect toward publicity of the data, necessary documentation for the erasure of the pledge, as well as availability and file retention period of specific documentation.

Finally, pledge subject is extended in correlation with the requirements of the World Bank in order to cover retention over the property from the Agreement on the Sale of the Movable Property with the Retention Rights, as a type of collateral for settlement of the receivable.

Through these Amendments and Supplements the lawmaker undoubtedly strengthens the position of the creditors by expanding the object of the pledge, eliminates legal gaps and enables better transparency in the process, which all together lowers the risk and scope for misapplication.

Disclaimer:  This text is written for informational purposes only as well as to give general information and understanding of the law, not to provide specific legal advice. For any additional information feel free to contact us.

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