SLOVENIA Law and Practice Contributed by: Vid Kobe and Peter Gorše, Schoenherr Slovenia
finance documents, as well as for the release of any and all security established in relation there- with (often subject to certain conditions); and • an obligation of the secured parties to (i) return any powers of attorney, bills of exchange and other physical security instruments to their issuers and (ii) issue formal (short-form) deeds of release for each type of security (whereby the forms of such short-form deeds of release are typically enclosed as schedules to the agreement). Such an agreement is typically concluded in a simple written form, whereby the short-form deeds of release may require a stricter form (such as a notarial deed or notarised signatures). It is also common for a release procedure to include pay-off language (or separate pay-off letters) specifying the amount of outstanding obligations that must be paid in order for the obligors to fully discharge the secured obligations. Issues relating to the principle of “delivery versus pay- ment”/simultaneous delivery in refinancing scenarios are dealt with on a case-by-case basis and may war- rant a form of escrow arrangement. 5.7 Rules Governing the Priority of Competing Security Interests Generally, the priority/ranking of security interests is determined based on the time of their establishment (the prior tempore potior iure principle). In addition, the timing of registration, notification of debtors and/ or other perfection steps may impact the priority order, even if not strictly required for the creation of the secu- rity interest. Hence, the omission of certain perfection steps (in particular those establishing effects vis-à-vis third parties such as registration and, in certain cases, notification) may have an adverse effect on the (rank- ing of) a lender’s security interest. By way of example, if a debtor of a claim assigned by way of fiduciary assignment is not notified of such assignment, any subsequent pledge or assignment of such claim (to a bona fide third party) of which the debtor was notified will have priority over the respective fiduciary assign- ment. Similarly, the absence of registration of a pledge over business shares in an LLC could (through a lack of publicity) enable bona fide third parties to acquire (unencumbered/prior ranking) interest over the assets subject to such pledges.
It is generally possible to agree on the contractual subordination of claims (and/or the ranking of exist- ing security interest), which is typically achieved by way of a subordination/intercreditor agreement. In terms of in rem effects, the law specifically allows for the entry of annotation of subordination (effectively subordinating the relevant security to another security specified therein) in the land register, whereas with respect to certain other registers (eg, court and com- mercial registers, a register of pledges over mova- bles), such entries may be achieved by including the subordination language in the descriptive part of the entry. This notwithstanding, there is limited case law on the effects of contractual subordination and related entries to the relevant registers. Hence, contractual subordination (with the exception of subordination of mortgage, the entry of which is expressly regulated by law) carries a degree of enforceability risk, especially in enforcement and insolvency scenarios. It remains particularly unclear whether the insolvency adminis- trator or the court would adhere to the contractual arrangement on subordination and/or the annotations of the security ranking, which are not expressly regu- lated by law. This risk may be somewhat mitigated by establishing a robust regime for the handover of proceeds. An additional risk-mitigating measure is the appointment of a joint security agent (who is obliged to distribute enforcement proceeds pursu- ant to the agreed ranking/waterfall). This is common in cross-border syndicated transactions, where the security agent holds the security for and on behalf of all secured parties (typically on the basis of a parallel debt or joint and several creditorship – see also 3.5 Agent and Trust Concepts ). In addition to the “relative subordination” (where claims of certain creditors are subordinated to spe- cific senior claims), Slovenian law also recognises so- called general subordination, where certain claims are – either by operation of law or an agreement – subor- dinated to all other ordinary and secured claims in the event of insolvency of the debtor. 5.8 Priming Liens Some of the security interests that can prime a lend- er’s security in Slovenia include the following.
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