COMPETITION OF SEIZURE OF CLAIMS AND CONTRACTUAL FIDUCIARY ASSIGNMENT OF CLAIMS IN INSOLVENCY PROCEEDINGS

On 25 January 2022, the Supreme Court of the Republic of Slovenia (the “Supreme Court”) adopted the judgment, ref. no. III Ips 27/2021, in which it adopted a position on the competition of seizure of claims and contractual fiduciary assignment of the same claims, which at the time of their seizure has not (yet) been concluded in the form of a notarial deed, in case of bankruptcy proceedings.

In the abovementioned case the plaintiff was a creditor of the company A d. o. o. (“A”). The plaintiff had done business with A, supplied it with goods and thus had claims against it, whereby at the same time A supplied goods to the defendant and thus had claims against the defendant. A assigned the claims (matured and future) arising from the supply of goods to customers to the plaintiff by way of a Fiduciary Assignment Agreement dated 10 April 2017. On the basis of the Loan Agreement dated 13 April 2017, the plaintiff, as lender and creditor (assignee), and A, as borrower and debtor (assignor), agreed on 14 April 2017 by means of a Fiduciary Assignment Agreement, to secure the claim from the Loan Agreement by assigning all present and future claims of the debtor (assignor) towards its buyers. On 30 May 2017 A notified the defendant (A’s debtor) of the assignment of its claim to the plaintiff. In the enforcement proceedings, commenced upon the motion of A’s creditor, the company B d. o. o. (“B”) against A, on 9 June 2017, the defendant as the debtor’s debtor was served with a resolution on the seizure of claims dated 5 June 2017 in favour of the creditor B, including A’s claim against the defendant. On 20 June 2017, the Assignment of Claims Agreement of 14 April 2017 was concluded (confirmed) in the form of a notarial deed. Insolvency proceedings against A were commenced on 5 March 2018.

The court of first instance, with which the appellate court also agreed, gave priority to the seizure of claims. As it explained, on the date the resolution on the seizure in favour of B was served to the defendant, which took place on 9 June 2017, the seizure of the claims was effected pursuant to Article 107 of the Enforcement and Security act (Official Gazette of the Republic of Slovenia, no 3/07 et seq., “the ESA”). The defendant was thereby prohibited from settling the claims and debtor A was prohibited inter alia from disposing of the claims in any way. By subsequently recording the Assignment Agreement in the form of a notarial deed on 20 June 2017, the subject-matter of which was precisely the assignment of those (previously seized) claims, the parties (A and the plaintiff) breached a mandatory statutory provision, due to which the Agreement was partially void pursuant to Article 86(1) of the Code of Obligations (Official Gazette of the Republic of Slovenia, no 97/07 et seq.). Consequently, there was no valid assignment of the claims to the plaintiff.

The Supreme Court disagreed with this interpretation. As it stated, the fiduciary assignment, which was relevant in the respective case, is pursuant to Article 207(1) of the Law of Property Code act (Official Gazette of the Republic of Slovenia, no. 87/02 et seq., “the LPC”) a form of securing a claim, in which the assignor assigns a claim to the assignee. Assignment of a claim is a dispositive transaction under the law of obligations, which has a direct effect on a property right, meaning that the conclusion of such a transaction has an immediate effect on the transfer of that property right from the assignor to the assignee. In the present case, that means that, by the Fiduciary Assignment Agreement of 10 April 2017, A’s claim against the defendant passed out of his proprietary interest on that date. Consequently, B, as a creditor, could not, by virtue of the resolution on seizure of 5 June 2017, have acquired his pledge on the disputed claims within the meaning of Article 107(3) of the ESA, since at the time those claims were not in the legal sphere of the defendant. In the opinion of the Supreme Court, this is in no way changed by the fact that upon the issuance and subsequent service of the resolution on seizure the assignment of claims was not concluded in the form of a notarial deed and that this occurred only after the service of the resolution on seizure (whereby, in the opinion of the Supreme Court, this did not represent conclusion of a new legal transaction, but the parties rather only gave the transaction additional quality). As it explained, the purpose of formality is to prevent abuse linked to uncertainty as to the date of the transaction, however, that the risk does not exist when the fiduciary assignment is notified to the debtor of the assigned claim, which happened in the present case on 30 May 2017. According to the Supreme Court, a notarial deed as a form of fiduciary assignment agreement is important especially in the case of the insolvency of the assignor. According to Article 209(2) of the LPC, in case of insolvency of the assignor, the provisions of Article 206 of the LPC, pursuant to which the fiduciary (assignee in fiduciary assignment) has the right of separation on the fiduciarily assigned property (claim in fiduciary assignment) in the event of bankruptcy or compulsory settlement of the assignor, shall apply mutatis mutandis only if the agreement on the assignment of the claim is concluded in the form of a notarial deed.

Once the bankruptcy proceedings commenced upon A on 5 March 2018 the assigned claim therefore automatically reverted to the plaintiff’s estate by law and the latter thus, since it was already in possession of the assignment agreement in the form of a notarial deed of 20 June 2017, acquired a right of separation over the claims.

The Supreme Court’s decision has been criticised by the legal profession. Professor Dr. Vrenčur is of the opinion that the key purpose of Article 209(2) of the LPC, which prescribes the form of the notarial deed, is to prevent abuse, which is crucial for the existence of a right of separation in insolvency proceedings. On that basis, in his view, priority should be given to the seizure, since the legal effect of the seizure, and thus of the right of separation, arose before the notarial deed of fiduciary assignment of those same claims was drawn up. Professor Dr. Vrenčur also points out that the parties could have chosen a pledge which does not require the form of a notarial deed.

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