522 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Variation

In the Bankruptcy Act (konkurslagen, 1987) there are two means of recovery (avoidance) which apply to security rights (pledges, charges and fiduciary transfers) that have been granted after a loan was made. Pursuant to chapter 4 section 12, a security may always be recovered (avoided) if it was perfected (by transfer of possession, registration, etc.) less than three months prior to the application for insolvency, provided that it was perfected with delay and after the actual transfer of credit, or that the security was not required when the debt arose. There is one exception to this rule in a special statute concerning financial instruments, according to which an additional security may not be recovered if required from the outset and later perfected without delay after either the original security (collateral) decreased in value or the debt increased in value, further provided that the transfer of the additional security was ordinary. Should the security have been perfected more than three months prior to the application to commence insolvency proceedings, chapter 4 section 5 may apply (actio Pauliana). Here the time limit is five years, unless the transaction was made in favour of a closely related person (legal or natural); in such case there is no time limit. The application of this rule requires that: (1) the transaction has in some way been to the disadvantage of all creditors or to some particular creditor; (2) the debtor was insolvent or became insolvent; (3) the creditor was inappropriately favoured; and (4) the creditor realised or ought to have realised these circumstances.

Avoidance is possible subject to the same requirements if a composition is confirmed by a court.

f i n l a n d

(a) A pledge is ineffective as against other creditors of the pledgor, if the pledged property remains at his disposal.114 The same applies when, while the debtor formally transfers ownership of the goods, the parties are in reality trying to arrange a security for the creditor. The stock can, however, in both cases be left on the premises of the debtor if the debtor

the same as if the secondary pledgee had accepted sale to a third party, which no doubt would have invalidated the pledge. In Sweden, everyone accepts this in principle but almost everybody, and especially the banks, denies any practical application! Håstad, Sakrätt rörande lös egendom 330 ff.

114See chapter 10 s. 1 Commercial Code (kauppalaki/köplag) and e.g. Kartio, Esineoikeuden perusteet 134--135.

524 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Variation

The security right must be established without any unnecessary delay. A delay of many months is not acceptable. Therefore, the security right would be voidable according to the rules of recovery relating to insolvency estates, if C later became bankrupt and the application for insolvency was filed less than three months or, in certain circumstances, less than two years after the security was granted.117 The longer time-limit applies if the parties are connected to each other in the way more precisely defined in the law, e.g. near relatives or enterprises belonging to the same owner.118

The security right could also be voided on grounds of the general rule of recovery relating to insolvency estates (actio Pauliana).119 The legal consequences of any act or omission of the debtor can be voided, if

(1) that act or omission has been to the prejudice of the creditors; (2) the debtor was insolvent or has become insolvent, wholly or partially, because of that act or omission;120 (3) the other person has known or should have known of these facts; and (4) the act or omission occurred within the period of five years before the insolvency petition was filed.121

The rules concerning avoidance, described above, are applicable both in insolvency and to execution.122 The basic legal consequence of recovery is that the disposition made by the debtor or another person concerned is declared by the court to be of no legal effect. Therefore, the payments or other performances, which are made on the basis of this legal disposition, are to be returned by both sides. When the disposition to be avoided is, for instance, the grant of a security to the creditor, there is, of course, nothing to be returned to the creditor.

117See s. 14 of the Act on Recovery to Bankrupt’s Estate (laki takaisinsaannista konkurssipesään/lag om återvinning till konkursbo) and e.g. Tuomisto, Takaisinsaannista

255 ff.

118See s. 3 of the Act on Recovery to Bankrupt’s Estate (laki takaisinsaannista konkurssipesään/lag om återvinning till konkursbo) and e.g. Tuomisto, Takaisinsaannista

14 ff.

119See s. 5 of the Act on Recovery to Bankrupt’s Estate (laki takaisinsaannista konkurssipesään/lag om återvinning till konkursbo) and e.g. Tuomisto, Takaisinsaannista

38 ff.

120If the act or omission has been beneficial, the relevant factor is whether the debtor was excessively indebted or became excessively indebted.

121When the debtor and the other person are natural or legal persons connected to each other there is, in principle, no time-limit.

122They are, as a matter of fact, applicable even to the reconstruction of enterprise and the adjustment of a natural person’s debts.