Pledge represents a substantive legal instrument for securing claims. Creditors use pledge to secure the collection of their claims and debtors guarantee such collection by their movable assets or right (e.g. right of claim against third party).

Registered pledge vs “pignus” was a great turning point in the field of pledge right and it resembles pledge on real estate (mortgage) entered into the real estate cadastre.

Instead of ceding the object of pledge to creditor’s ownership, registered pledge made it possible for the object of pledge to remain in debtor’s possession, while the creditor’s interests – namely limited disposal of the object of pledge by debtor, remained protected by pledge registration in public registry available to all. In such manner, the introduction of registered pledge into the legal system of the Republic of Serbia in 2003 by the adoption of the Law on Pledge of Movable Property and Rights Registered in the Pledge Register (“LPMP”) particularly influenced the financing of purchase of equipment and machines, vehicles etc., since the subject of procurement could also be a means for securing the payment of credit used for financing the purchase.

As per the LPMP, the subject of registration includes:

• Contractual pledge to movable assets and rights with and without cession of the subject of pledge to creditor’s possession,
• Judicial pledge generated in accordance with the law governing the procedure of enforcement and security,
• Statutory pledge generated in accordance with the law governing tax procedures and
• Other pledges generated in accordance with special regulations and which are the subject of registration under the law.

Retention of ownership right from the contracts on sale of movable assets

The amendments to the LPMP from May 2019 extended the subject of registration in the Register of Pledges to cover the retention of ownership right from the contract on movable asset sale with retention of ownership right for securing seller’s claim until payment of full price.

The contract referred to in LPMP is regulated by the Law on Contracts and Torts (“LCT”). In accordance with the LCT, a seller of movable asset may, by special contractual provision, retain the ownership right even after ceding the asset to the buyer until the latter pays full price, while the risk from accidental destruction or damage to the asset shall be immediately transferred to the buyer i.e. at the moment of asset cession. In this manner, the buyer enjoys the benefits from using the asset before full price payment, while the seller protects his interest in price collection by retaining ownership of the asset.

The Rulebook on the Content of the Register of Pledges on Movable Property and Rights and Documents Required for Registration from October 2019 (“Rulebook”) specifies the registration of retention of ownership right on basis of the said sales contract, whereas the application of these provisions has been delayed until 1 January 2021.

 

According to the Rulebook, sales contract shall be submitted upon registration of ownership right retention, and if the seller files registration application – buyer’s statement of consent to seller’s entry of contract into the register, which needs to be certified if the buyer is a natural person. The following data on sales contract shall be entered into the Register of Pledges:

• Date of conclusion of sales contract;
• Data on parties from the sales contract i.e. buyer and seller;
• Data which specify the asset that is subject to sales contract;
• Date when purchase price was paid in full.

Contractual pledge with cession of assets to creditor’s ownership

Besides retention of ownership right, starting from 1 January 2021 it is possible to register contractual pledge on movable assets and rights with cession to creditor’s ownership into the Register of Pledges. Although it may appear that registered pledge will thus be more alike “pignus” and one may question the justifiability of such security instrument, this is actually a mixed model that implies cession of assets to creditor’s ownership (pignus) and pledge registration (registered pledge), which secures an increased certainty for creditor’s settlement and protect the debtor against unlawful disposal of pledged object by a negligent creditor. It is noteworthy that the creditor will certainly acquire the right of possession of objects after claims maturity, which is realised in a procedure stipulated by the LPMP.

Electronic applications

In accordance with the amendments to the Rulebook from December 2020, electronic application for the Register of Pledges will only be possible starting from 1 July 2022. This deadline has been postponed by 18 months as the initial provision stipulated that electronic application should start from 1 January 2021.

Effects of pledge registration in the Register

Pledge is an important security instrument with wide application and its registration creates an impression that third parties are familiar with the existence of pledge.

However, it should be noted that even the entry of data into the Register is no proof of existence of ownership or other rights of pledgers to pledged movable assets, nor does it prove that the secured claim or pledge is valid. It is therefore necessary to be particularly careful during preparation of documents based on which pledge is registered.

This article is to be considered as exclusively informative, with no intention to provide legal advice.
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