Perfection Of Security Interest In Personal Property

On the 1 October 2011, the New Civil Code ("NCC") came into force. Some of the changes address the conditions for creating, exercising the rights derived from and enforcing the security interest in personal property.

Perfection of security interest

The language used by the NCC to designate the security interest in personal property is that of movable assets mortgage. One difference from the previous regulation is that registration with the Electronic Archive for Security Interest in Personal Property ("Electronic Archive") is no longer deemed sufficient to have a perfected security interest which would be enforceable against third parties. A security interest is perfected when:

the secured obligation comes into effect; the constitutor of the mortgage ("constitutor") acquires rights over the collateral; and public notice has been given. The public notice requirement is fulfilled by registering the interest in the Electronic Archive, unless otherwise indicated by law.

The perfected security interest is opposable to and enforceable against the constitutor's others creditors, the subsequent creditors secured by the same asset, and against any other third party. Public notice of the security interest in the bank accounts In the case of creating a security interest in the bank account of the constitutor, the public notice requirement may be alternatively met by:

Registering the security interest in the Electronic Archive; or Acquiring control over the bank account. The NCC introduces the concept of bank account control. The secured creditor acquires control over the bank account of the constitutor if:

the secured creditor is the bank itself. In such a case the bank has an important tool in avoiding further proceedings against bad debtors and may set-off the outstanding secured debt against the constitutor's claim for the account operated by the bank; the constitutor, the bank and the secured creditor enter into a written agreement. Once this agreement is convened, the bank will follow the creditor's orders, without the prior approval of the constitutor, regarding the amounts available in the constitutor's account; or the secured creditor becomes owner of the constitutor's bank account. If any of the last two conditions is met, then the secured creditor has the possibility to...