Security over Collateral. GREECE Zepos & Yannopoulos

Transcription

1 Security over Collateral GREECE Zepos & Yannopoulos CONTACT INFORMATION Nicholas Kontizas Sonia Melegou Stefanos Charaktiniotis Zepos & Yannopoulos 75 Katehaki & Kifissias Ave Athens Greece Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Under Greek law both movable and immovable (real estate) property may be charged, encumbered and liened. The Greek civil law provides (a) that an asset (real estate) may be charged with a servitude, which gives the beneficiary the right to take advantage of some capacities/benefits of the servile property or (b) that an asset may be charged either with a pledge (in the case of movables) or with a mortgage (in the case of real estate) for securing an underlying claim. The difference between the above two liens is that the servitude which constitutes also a real (in rem) right, is indeed a lien on the real estate which follows the property but does not, however, serve as security of an underlying claim since it does not give the beneficiary the right to auction the burdened asset and be satisfied by the proceeds of the auction. On the other hand, the pledge and the mortgage are granted only as security of an underlying claim and give the beneficiary (creditor) a privileged position in relation to other creditors. There are three categories of such security under (b) above: (a) real (in rem) security over real estate property in the form of a mortgage or a prenotation of mortgage (see below under 4j)

2 (b) real (in rem) security over movables in the form of (i) a pledge, (ii) transfer with retention of ownership and (iii) transfer of ownership while the transferee retains possession of the assets on the basis of a new legal relationship (eg lease) (c) real (in rem) security over a right in the form of (a) pledge or (b) assignment agreement for security. (see below under 4g) STEFANOS Exemptions regarding the permissibility to establish a specific collateral, exist with respect to the pledge whereby, for example, a pledge may not validly be created over the sea or the air or over a something that will be manufactured in the future. Also, a mortgage may only be created over an asset that belongs to a third party and not to the beneficiary herself. This means that if after the valid creation of the pledge or mortgage, the owner and the beneficiary become the same person, the pledge or mortgage is extinguished. With regards to security over a right, only those rights which have a financial value may be granted as security, thus, personal family rights or the right of personality may not validly be the object of a collateral. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? Security arrangements, as any contractual arrangement, may be subject to choice of law. However, depending on the type of security, Greek law may be exclusively applicable. Additionally, apart from the international treaties or European Regulations (e.g. Regulation 44/2000) which provide for the international jurisdiction and applicable law, the parties may agree which courts will have jurisdiction to settle any disputes that may arise from their contractual relationship and which law will be applicable, unless due to the nature and object of the dispute there is exclusive competency of the Greek courts and Greek Law may only be applicable. It should be noted that under the Greek Conflict of Law Rules, disputes concerning real estate property located in Greek fall to the exclusive competency of the Greek courts. Mortgage: This type of security regarding real estate property is exclusively governed by Greek Law, provided that the asset on which the mortgage right is established is located in Greece. Thus, although the underlying claim for which the mortgage is granted may be subject to foreign law, the creation of the mortgage and its enforcement, in case of default, will be subject to Greek Law. Pledge: Article 1211 of the Greek Civil Code ( GCC ) provides that the valid creation of a pledge requires: a) the physical delivery of the eligible collateral to the creditor (pledgee) and b) an agreement between the pledgee and the pledgor for the creation of the pledge. Pursuant to GCC, such agreement must take the form of either a notarial deed or a private agreement bearing a certified date. Also, pursuant to the Greek Conflict of Laws Rules (Article 4-33 of the GCC), the creation of a security interest (pledge) is governed by the laws of the location of the collateral (lex rei sitae). Therefore, Greek law will apply in case the collateral is deemed to be located in Greece. The Greek courts will recognise the validity of a pledge under the laws of another counrty, provided that the laws of that country for the establishment of a pledge do not

3 contravene the Greek public order and the good morals (bonos mores). Given that there have been conflicting opinions regarding the notion of public order and since under Greek Law the validity of a pledge is contingent upon the delivery of the collateral to the secured party, it is always advisable that the pledge meets the qualifications set by Greek law namely there exist an agreement of the parties and a physical delivery of the collateral to the secured party takes place. 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? Floating charge is permissible under Greek law. More specifically a floating charge is a form of a pledge without delivery of the possession that can be established on a group of movables or rights the composition of which can be constantly changed, like for instance in the quantity of inventory. The debtor granting a floating charge is entitled to transfer the ownership of a certain amount of the charged group but has to replace the transferred amount with items of the same aggregate value without any unreasonable delay. The same obligation applies if the charged items are otherwise disposed, consumed, lost or destroyed. The charge can be extended to the consideration (price paid or credited) of the items sold. The debtor granting the floating charge is obliged to send to the creditor granted with the floating charge a brief statement every three months enumerating the charged items and the changes which took place in the said three months' period. The items comprising the floating charge can be fixed and confiscated by the secured creditor either when the debtor is in default or in any situation agreed by the parties. The establishment of such a pledge requires the conclusion of a pledge agreement in written form, in which it must be specified which group of movables or rights are considered to be the subject of the pledge. The pledge agreement should thereafter be registered with the competent public registry (a special public registry called enechyrofylakio ). 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (a) Aircraft According to the provisions of the Greek law, aircraft is a movable asset subject to registration in the special public Register held by the Hellenic Civil Aviation Authority ( HCAA ). With respect to securities that may charge such asset the Aviation Code provides that an aircraft may be charged either with a simple, or with a first-class (preferred) mortgage. The difference between these two types of mortgage is that the beneficiary of the first-class mortgage may also take over the management of the aircraft and cover the claim secured by the respective profit. Both types of mortgage are registered with the HCAA, the simple by means of a declaration for granting of mortgage, and the first-class by means of contract providing the specific and exact terms of this mortgage.

4 (b) Bank Accounts The security over bank accounts requires the conclusion of both a pledge and an assignment agreement in written form, in which it must be specified which account(s) are considered to be the subject of the pledge. Such an agreement has to be notified also to the relevant bank. (c) Animals, Crops (in ground and severed) and Timber Given that animals, crops and timber are considered to constitute movable assets, the type of security which can be granted thereon is a pledge. This can take either the form of a real pledge whereby the pledged object has to be delivered to the pledgee, or the form of floating charge (see above under 3). As a general note, the rule of speciality provides that securities may charge only specifically defined corporal things. Whenever a special law provides the possibility to secure a plurality of things, then the pledges are as many as the corporal things secured. Crops in ground cannot be pledged. One may only be granted the right to make full use and collect the fruits of a thing belonging to a third party by means of a contract. Crops severed and timber may be pledged as moveable assets (see above under 2). (d) Equipment The security which can be created on equipment (such as such as machinery, vehicles, trucks) is a pledge. The establishment of a pledge on the equipment requires the conclusion of a pledge agreement in written form and the delivery of the pledged equipment to the pledgee. In case the security is granted on the equipment of a business entity most usual in practice is the establishment of a fictitious pledge (so called fixed charge). Subject to this type of pledge is exclusively those assets of the company which are essential for the operation and the production activities of the company. The particularity of this security structure is that the pledgor will remain at the possession of these assets, being therefore enabled to make use of them and continue without obstacles its operational activities. The establishment of such a pledge requires the conclusion of a pledge agreement in written form, in which it must be specified which assets of the company are considered to be subject of the pledge. Said pledge agreement should thereafter be registered with the competent public registry ( enechyrofylakio, see above). Said registration is mandatory, otherwise the agreement is null.. (e) Intellectual Property The security which may be granted on trademarks is a pledge. The establishment of a pledge on trademarks requires the conclusion of a pledge agreement in written form, in which it must be specified which trademarks are considered to be subject of the pledge. Both registered trademarks and trademarks under pending registration may be contemplated in such agreement. The pledge agreement should thereafter be registered with the Trademark Office of the Ministry of Development.

5 (f) Inventory The security which can be granted on inventory (e.g. products of a company) is a floating charge (see above under 3). However, sometimes due to the particular nature of the inventory of a company (e.g. perishable goods with very short expiry dates) it may difficult to materialise the security in a very short time frame. (g) Leases a) In general it must be noted that the security which may be established on receivables may be in the form of a pledge. The establishment of such a pledge requires the conclusion of a pledge agreement in written form and the notification of the pledgor s debtors for the establishment of the pledge. In case the claims are considered as business claims, both present and future business claims of the pledgor against third parties may be contemplated in such agreement. The pledge agreement should thereafter be registered with the competent public registry (a special public registry called enechyrofylakio ). Said registration is not mandatory, although it is recommended for the following reasons: i) following such registration, the debtors of the pledgor are deemed to have been given notice of the pledge without any further formality and ii) the time of the registration is crucial for the determination of the priority status of two or more secured creditors (pledgees). In practice, the pledgee also informs the debtor (of the pledged claims) as to the registration of the pledge agreement. Should the pledgee fail to do so, the validity of the agreement is not jeopardized; however, the debtors are released from their obligation to satisfy the pledgee, and instead may satisfy the pledgor or other pledgees according to the applicable priority ranking. The debtor has the obligation to pay the pledgee instead of the pledgor in case that both the secured debt and the business claim are outstanding. Finally, for the sake of security, notification of the pledge should be in writing and served on the debtor by a court bailiff. Court bailiff should constitute solid evidence as to the receipt of the notification by the debtor. b) Apart from the pledge on receivables, please note also another security structure which may be available for security purposes, namely assignment agreement for security. Although such a security form does not offer to the lender an in rem protection, it seems to be more effective as it accommodates both the satisfaction of the lender and the operation of the business of the borrower. This security interest shall entail an assignment of borrower s receivables to the lender. The establishment of this security may be effected by means of an agreement (in simple written form) specifying the underlying cause of the assignment and including a description of the receivables assigned. The advantageous point of such security (in comparison with the establishment of a pledge) is the simplified procedure of its establishment and the fact that no notification of third parties (debtors of the receivables) is required for the perfection of such a security.

6 (h) Mineral Interests, including Hydrocarbons Mineral interests and hydrocarbons, as far as they are subject to control when concentrated within a delimited space, are classified as movable assets and therefore the security which may be granted over them may be established in the form of a pledge. (i) Promissory Notes and Chattel Paper Security interest over promissory notes and other payment instruments (such as cheques etc.) may only be in the form of a pledge. The establishment of such a pledge may be effected by means of an endorsement of the notes in the name of the pledgee. The conclusion of a pledge agreement in written form is not required, since all details pertaining to the pledge are to appear on the payment instrument in question. More specifically, the pledgor must make a note on the back of the payment instruments as the reason of the endorsement ( endorsement due to pledge ). (j) Real Estate Security over real estate (immovable assets) may take the form of either a mortgage or a prenotice of mortgage. A mortgage may be registered by way of a right awarded to the mortgagee either by the law or a judicial decision or by an agreement between the debtor (mortgagor) and the creditor (mortgagee). The most common way of registering a mortgage is following an agreement between the mortgagor and the mortgagee whereas the mortgagor grants a mortgage right to the mortgagee over real estate property of his/her ownership. Such mortgage may be created by way of a notarial deed, which is drafted by the notary. The notarial mortgage deed is signed by the mortgagor and the mortgagee. For the perfection of the mortgage the notarial mortgage deed must be registered with the competent Land Registry (Cadastre). Due to the fact that mortgages are prioritized based on their registration time, the notarial mortgage deed is preferably registered in the Land Registry on the same day that it is signed or on the next day. This is also the reason why it is of paramount importance to conduct a (title search) prior to registering a mortgage, in order to verify whether there exist other mortgages registered on the same property. The cost for the whole procedure includes the following: (a) lawyer s fees for the title search which vary depending on the complexity of the search, (b) notary s fees: aprox. 200 Euros (they are calculated on the basis of the pages of the notarial deed), (c) an amount of 1.2% of the amount of the mortgage is payable to the Notaries Association (d) 1.3% of the amount of the mortgage is payable to the Jurists Fund (e) Land Registry fees: 7/1000 of the amount of the mortgage, and (f) stamp duty, which depends on the nature of the contracting parties (entities or persons) and the underlying security. The mortgage is redeemed if (a) the secured claim is paid off in any way; (b) the property over which the mortgage is registered is destroyed physically or legally (e.g. flood, earthquake or expropriation etc.), (c) the term of the mortgage expires; (d) the mortgagee waives the mortgage right or (e) the mortgagee becomes the owner of the property or the property is auctioned. Following redemption of the mortgage, it must also be deregistered from the Land Registry/Cacastre.

7 Prenotice of mortgage Due to the high cost of registering a mortgage, in practice the usual legal method for securing a claim is the prenotice of mortgage. The prenotice of mortgage is a sort of provisional mortgage which can be turned into a full stricto sensu mortgage when the claim of the beneficiary of the prenotice right is recognized by virtue of a final (not subject to appeal) court decision. The prenotice of mortgage is usually created by way of a judicial decision issued by the court by way of the injunctive measures procedure, either following a court dispute or a consensus procedure before the court. In the consensus procedure a petition is filed by the mortgagee (beneficiary of the mortgage right) before the judge and at the same time the owner of the property himself (mortgagor) or an agent of his provides his consent before the judge to the granting of the prenotice right. The court judgment, is signed and ratified by the Judge and thereafter the beneficiary of the prenotice of the mortgage must register it with the competent Land Registry. The main benefit of the prenotice is that it may be turned into a full mortgage only if and when the debtor of the secured claim defaults on his obligations. In this case the holder of the prenotice right will seek the judicial recognition of his claim (something that he would be obliged to do even if he had registered a full mortgage) and once this is recognized by virtue of a final court judgment he will register a full mortgage. It shoud be stressed that the order of priority is set according to the time of registration of the prenotice of mortgage and not the full mortgage. The cost for the prenotice of mortgage is approx Euros for lawyer fees, depending on the amount of time and effort spent, and 7.75/1000 of the amount of the prenotice of mortgage. The prenotice of mortgage is redeemed for all the reasons mentioned above in the case of a full mortgage as well as if the decision of the court ordering its registration is revoked or if it is not turned into a full mortgage within 90 days as of the final recognition of the secured claim. (k) Receivables (credit rights under contracts or invoices) See above under 4(g) (l) Rights under Contracts (excluding Receivables) Security interest over rights under contracts (excluding receivables) may only be in the form of a pledge and subject to the provision that there is no restriction on the transfer of the right. The pledge agreement must bear the form of a notarial deed or of a document of certified date and must determine the right on which the pledge is granted. (m) Shares (in book-entry and certificate form and other securities)

8 Security interest over Greek shares may only be in the form of a pledge. The most usual case of taking security over securities is the establishment of a pledge on registered shares or listed dematerialised shares. Registered shares: Under Greek law, establishment of pledge over registered shares requires the execution of a share pledge agreement and the registration of the pledge in the shareholders registry. The pledge agreement must bear the form of a notarial deed or of a document of certified date and must contain at least the following information: a) the number of the shares to be pledged, b) whether the Pledgor shall maintain and exercise all voting rights attached to the shares, c) whether the Pledgor shall have the right to collect all proceeds, dividends and earnings deriving from the shares, d) determination of the enforcement event. Upon execution of the agreement, the pledgor delivers to the pledge the pledged shares via endorsement and the pledge is registered in the shareholders book. Listed dematerialised shares: Pursuant to Article 49 of Law 2396/1996 and the Regulation of Hellenic Exchanges, the establishment of a pledge on dematerialized shares is completed when the pledge agreement is filed with the Hellenic Exchanges and a relevant registration is made with the Dematerialised Securities System. Therefore, the establishment of a security interest over Greek listed dematerialized shares requires registration of the pledge in the relevant system and the book entry transfer of the relevant securities to a specially created restricted account of the pledgor. (n) Vessels Vessels may be charged with a mortgage according to the provisions of the Code of Maritime Law. The mortgage is granted as soon as the interested parties execute their relevant declaration before the Notary Public. Such declaration must then be registered with the competent Register of Mortgages. Vessels can also be charged with preferred mortgage; the title for the registration of such mortgage must be an agreement signed by both the beneficiary and the owner of the vessel. Such a mortgage grants the beneficiary the right to acquire the management of the vessel and cover his/her claim therefrom. (o) Vehicles Vehicles are movable assets which may be charged by means of a pledge according to the provisions of the Greek Civil Code (see above under 2). Such a security is not usual, as it takes for granted the physical delivery of the vehicle to the debtor. In sale contracts usually the parties agree that the seller may retain the ownership of the vehicle until the final repayment of the price (sale under retention of title). In case the purchaser does not pay the amount due, the seller has the right to apprehend the possession of the vehicle. (p) Business as a going concern As a general notice, the rule of speciality provides that securities may charge only specifically defined corporal things. Whenever a special law provides the possibility to secure a plurality of things, then the pledges are as many as the corporal things secured. The Greek law does not provide real securities over business as a going concern. Pledges and mortgages may only charge specifically defined corporal things and rights.

9 Therefore, its asset or right of the business may be charged with a separate security according to the provisions of the applicable law. 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? The procedure for the enforcement of real security over assets differs upon the type of the security. In particular as regards assets charged with mortgages, since the secured debt has become due and outstanding, the secured creditor may proceed to the compulsory enforcement of the real estate burdened with the mortgage. Said enforcement may be effected by means of the seizure and the auctioning of the real estate property. The produced proceeds will serve for the satisfaction of the creditor(s). The enforcement of the simple mortgages over aircrafts and vessels is apparently the same. The preferred mortgage over the above types of assets given by the debtor the right to take over the management of the asset and cover the secured debt with the relevant profit. In case of a pledged collateral the procedure is as follows: Should the secured debt become due and outstanding, the pledgee may seek satisfaction by means of enforcement of the pledged assets. The enforcement procedure provides the issue of court decision, which will enable the seizure of said assets in favor of the pledgee, followed finally by the auction of the assets. If the title by virtue of which the pledgee acquired the security is automatically enforceable (notarial deed, order for payment), such court decision is not needed. Pursuant to the applicable Regulation 44/2001 and the Lugano Convention, exclusively competent for the enforcement of a security are the courts of the state where the assets are located. Furthermore, such Regulation provides that for the enforcement procedures competent are the courts of the state where the enforcement occurs. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? In case a bond loan provides for in rem securities in favour of the bondholders, then a bondholder agent must be appointed. The bondholder agent must be a credit institution or investment firm which is allowed to offer underwriting services in Greece. The bondholder agent is appointed by the issuer and may be replaced by virtue of a decision of the general assembly of the bondholders. The representative acts on behalf of the bondholders in all legal actions against the issuer and represents them in any bankruptcy proceedings of the issuer, save that for any compromise with the issuer, for the waiver of a remedy provided by law and for the filing of a petition to declare the issuer bankrupt, a decision of the general assembly of bondholders is required. Any in rem security in favor of the bondholders is registered in the name of the bondholder agent but for the favour of the bondholders with a written agreement between the provider of the security and the bondholder agent.

10 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? According to the Greek Bankruptcy Code ( the Code ), the suspect period is specified in the court decision declaring a person or entity as bankrupt, and may not precede more than two years the date of issuance of the decision; during the suspect period, it is assumed that the bankrupt person or entity has discontinued its payments. The Code specifies that the following transactions are subject to claw-back, upon request of the bankruptcy administrator or a creditor, as artificially diminishing the bankruptcy property: (a)donations or other transactions in which the consideration received by the bankrupt person or entity from its counterparty are disproportionately small in relation to its own obligations; or (b) payments of non-outstanding debts; or (c) non-cash payments of outstanding debts; or (d) establishment of in rem securities (including the prenotation of mortgage) or provision of guarantees, for pre-existing obligations or obligations in novation. In addition, transactions involving the bankrupt person or entity and entered into during a period of five years preceding the declaration of bankruptcy are subject to avoidance, in case the bankrupt person has acted intentionnally to damage its creditors or discrimainate against some of them, while the counterparty was aware of the bankrupt person s intention. By contrast, transactions entered into as part of a reorganisation plan of the bankrupt person or entity are not subject to avoidance. Creditors holding in rem security may opt to satisfy their claims outside the bankruptcy procedure or, in the alternative, announce their secured claims as part of the bankruptcy procedure. If they opt to announce their claims, their satisfaction is subordinate to the prior satisfaction of claims arising from the financing of the bankrupt business (in view of its reorganisation), claims from employment relationships accrued no earlier than six months prior to the date of declaration of bankruptcy, tax claims attributable to the year during which the bankruptcy auction took place and its preceding year, as well as social security contributions accrued no earlier than twenty-four months prior to the date of declaration of bankruptcy. Creditors holding mortgages and announcing theirs claims in bankruptcy may, for the portion that has not been satisfied from the auction of the mortgaged assets, be seeking satisfaction as unsecured creditors. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Subordination of claims is usual in cases where a party has taken credit from several different sources and, by virtue of an agreement, grants preferential rights related to the payment of the credit. However, in case of auction of the assets of a party under e.g. insolvency, enforcement proceedings, special liquidation regimes, etc. parties such as close relatives of the debtor whose sustenance expenses were paid by the debtor, employees, public tax authorities, public insurance funds, and in rem secured creditors are granted ex lege preferential

11 satisfaction of their claims. Therefore, claims of non-secured creditors are by virtue of the law subordinated. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) In case of assignment or transfer of the claim, the securities originally placed on the burdened asset in favour of the assigning party are also assigned and transferred to the assignee and continue to exist in his/her favour, unless otherwise agreed by the parties. However, the assignment of a claim (which as said includes the assignment of the securities on the claim) must be notified to the debtor in order to be valid. It must be noted that in case of assignment or transfer of a claim secured by mortgage or prenotation of mortgage the registration of such assignment in the relevant Land registry Books does not constitute a prerequisite for the validity of the assignment or transfer of the mortgage but a measure that protects the interests of third parties. Novation however, represents the replacement of one obligation by a different obligation by virtue of the elimination of existing obligation and the creation of a new one. Therefore, since the initial obligation is eliminated, the security placed for its favour is consequently eliminated and therefore a new security must replace it. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? The assignment of pledged collateral to the beneficiary would result to the redemption of the pledge; in such case the beneficiary would become the owner of the asset and could be satisfied directly as such without enforcing the pledge. It must also be noted that according to the provisions of the GCC, no pledge can be created over an asset, unless the owner of the asset who grants the pledge in favor of the lender is other than the latter. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? The enforcement of a right secured with a pledge or mortgage requires an enforceable title. Enforceable titles are a court decision ordering the satisfaction of the claim or an agreement with a form of notarial deed. If a third party wishes to step in an enforcement procedure started by a beneficiary who has abandoned said procedure, the third party must obtain an enforceable title (i.e. court decision/notarial deed) in order to take over the abandoned enforcement procedure.