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The Warsaw Voice » Law » May 20, 2009
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Fairy-Tale Ending
May 20, 2009   
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Springtime blossom lies heavy on the trees, nature is bursting into life after the winter lethargy. Our legislators know something about lethargy-after 12 years they have finally decided to issue a regulation on sale of an object of a registered pledge by public auction. The Law on Registered Pledge opened up this avenue of extra-execution enforcement on paper, but it was never followed up by the required statutory order and so remained purely theoretical. And so, like Sleeping Beauty everything fell into a deep slumber for many years.

Public sale allows creditors to avoid a time consuming, troublesome and unsatisfactory judicial process. The Regulation of the Minister of Justice making it all possible entered into force on April 4, 2009. The regulation defines in particular the place, conditions, manner and costs of sale by public auction. One important point to remember is to include this enforcement method in the original pledge agreement.

Under the regulation a public auction shall be carried out, at the pledgee's discretion, by a notary public or court bailiff/sheriff ("komornik") within 14 days of the pledgee's motion for sale by public auction. The regulation does not apply to the sale of rights under financial instruments within the meaning of the Act on Trading in Financial Instruments.

To initiate a public auction the creditor/pledgee must chose a notary or bailiff, make an advance payment to cover the costs of auction and file a request. The request must comply with certain requirements; among other things it must include the estimated value of the pledge object. This value can be agreed either between the parties in the pledge agreement itself or at a later date. Alternatively, it can be determined by a valuer appointed by the notary or bailiff.

No later than three days prior to the auction date, the party conducting the auction places a notice of auction in a widely read local newspaper and at the place where the auction is to be conducted (and in any other way indicated by the pledgee), stating inter alia: (i) place and timing of the auction; (ii) object of sale; (iii) estimated value; (iv) asking price, usually 50 percent of the estimated price; (v) place and time of inspection of the object; (vi) the deposit (minimum 10 percent of the estimated value) and method of settlement.

If the secured receivable is in a foreign currency, it is translated into Polish zlotys at the mid rate issued by the National Bank of Poland on the day preceding the filing date of the pledgee's motion for sale by public auction.

Unless the pledge agreement provides otherwise, the auction shall be held in the locality where the object is located or within the geographical jurisdiction of the relevant district court. With sales of property rights, the place of auction shall be determined by the place of residence or the registered office of the pledgor. Nevertheless, the auction may be held at another location if the pledgee so requests and the pledgor gives consent.

For an auction to be held effectively, at least one person must register. The following are excluded from the auction: pledgee, pledgor, debtor, the person conducting the auction, next of kin of the foregoing and persons acting in an official capacity at the auction.

The highest bidder will become the buyer so long as it receives the approval of the notary or bailiff conducting the auction. Sale of the object of a registered pledge by public auction produces the same effects as sale in enforcement proceedings, and the buyer becomes the owner upon payment of the purchase price-to be made by transfer, cash or in any other way approved by the pledgee, crediting the deposit against the price. Following payment of the entire purchase price, the auctioneer will issue the buyer with a certificate of purchase and other documents enabling it to use/dispose of the right or object. If the buyer does not pay the entire purchase price immediately upon approval, it shall forfeit the deposit, any other monies paid and the rights resulting from the approval and shall be excluded from the auction.

Unless the pledgee and the pledgor decide otherwise, the costs of auction, comprising the notary's or bailiff's fee and a reimbursement of expenses, shall be borne by the pledgor, even if the auction falls through.

Hopefully, the new regulation will help creditors who secure claims by registered pledge to enforce their rights in a more user friendly way. At long last.

Zbigniew Korba counsel at Salans Warsaw Banking & Finance team

Hubert Żółw associate at Salans Warsaw Banking & Finance team
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