Effect of Commencement of Insolvency Proceedings
The types of insolvency proceedings to be dealt with in this section and the next are (1) enforcement (debt recovery proceedings), (2) bankruptcy (collective liquidation proceedings), (3) restructuring of an enterprise, and (4) adjustment of the debts of a private individual. Security rights over a means of transport discussed in these sections are presumed to be “fully developed” as regards protection against the security- provider debtor’s other creditors. Accordingly, in the context of the mortgage system for means of transport, it is presumed that in addition to registration of a mortgage and charging the mortgaged means of transport in favour of a creditor, possession of a bearer bond with mortgage entry has been transferred to that creditor.
Even if subject to a charge, a mortgaged means of transport can be subject to distraint as a part of enforcement proceedings initiated by another creditor. The distrained means of transport is realised in accordance with Chapter 5 of the Enforcement Code (705/2007), and the charge entitles the chargee to payment with a high ranking among the other claims involved. Enforcement Code provisions concerning real estate auctions largely apply to vessel and aircraft auctions, too (Chapter 4 Section 3, Chapter 5 Section 72).[1]
When bankruptcy proceedings begin, claims that have not yet fallen due are generally considered due between creditor and debtor (Bankruptcy Act (120/2004), Chapter 3 Section 9(1)). A creditor holding a charge or a right of pledge has a “separatist position” in relation to the bankruptcy estate (Bankruptcy Act, Chapter 17 Section 11). In the case of a charge over a mortgaged means of transport, this entails that a secured creditor can seek distraint against the means of transport after notifying the bankruptcy estate of the secured claim, as required by the Bankruptcy Act. Thus, the means of transport can be realised in accordance with Chapter 5 of the Enforcement Code. However, under Chapter 17 Section 12(1) of the Bankruptcy Act, the bankruptcy estate can prevent sale of an encumbered asset for two months (once) to scrutinise the secured creditor’s (chargee’s or pledgee’s) rights or to safeguard the interests of the estate. In certain situations specified in Chapter 17, the bankruptcy estate can sell assets that belong to the estate but are subject to a charge or right of pledge. Such sale requires either consent of the secured creditor or permission granted by the court. Court permission is possible (once) if a purchase offer has been made to the estate, the offer exceeds the likely auction price, and the secured creditor does not establish the probability of a better result of sale were the asset to be sold by other means. The bankruptcy estate can also resort to realisation under the Enforcement Code. This is possible at any time with the secured creditor’s consent. Without such consent, it is possible as a final means of realisation if three years have passed since commencement of the proceedings.[2]
Commencement of restructuring of an enterprise or adjustment of the debts of a private individual, which are rehabilitation proceedings, cause a stay on realisation efforts. Realisation belongs to the scope of “interdiction of debt collection”. This interdiction and the grounds on which the court can grant exceptions to it are found in Chapter 4 of the Restructuring of Enterprise Act (47/1993) and Chapter 4 of the Act on the Adjustment of the Debts of a Private Individual (57/1993).
