Collateral in Public Register as a Security of Private Debt

Abstract

This article deals with approaches to establishment of the collateral. Registration in public registers is a precondition to establish a mortgage and a commercial pledge, where the first one is recorded in the Land Register, while the second – in the Register of Commercial Pledges. Unlike the mortgages, execution of rights to a commercial pledge depends not only on registration, but also on whether a pledgee has taken actual possession of property. Taking of possession has not been expressly set forth by Latvian laws. It is necessary to specify the moment in legal acts when the pledged property was actually taken into possession.
The subject of a mortgage is immovable property. The subject of a commercial pledge is movable property. Immovable property cannot be the subject of a commercial pledge. Distinction between movable and immovable property may lead to a situation when a holder of the commercial pledge loses the collateral due to the fact that the subject of pledge, once moveable, has turned into immovable property.
The collateral is also endangered by the fact that public reliability is not necessarily always attributed to all public registers in all situations. Legal regulation of the register of commercial pledges more corresponds with the principle of public reliability. This principle, however, is not clearly defined for land registers and is variously interpreted by courts, thus leaving negative influence upon the stability of pledge rights.
It is highlighted in Latvian law that existence of the collateral depends on whether there is a claim secured by a pledge (accessoriness). Current practise differs from that in the interwar period in Latvia. The difference lies within such secured claims that cannot be executed by force due to the limitation period or other reasons. Such changes in practise have led to the situation when secured claims may not be executed in case of insolvency of a debtor if the creditor has been in default to apply his claim within the term set by the insolvency administrator.