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Proposed amendments to attachment of real estate

2014-04

On 8 May 2014, the Government of the Republic of Slovenia sent to the National Assembly for discussion by regular procedure the proposed Act Amending the Enforcement and Securing of Civil Claims Act (hereinafter: the ZIZ-J).

Practice has shown that the attachment of real estate is ineffective, as it is complicated and protracted, while the achieved price is in general significantly lower than the property's appraised value. In practice, real estate is not sold at the first scheduled hearing. Public auctions of individual, separate co-ownership shares are particularly unsuccessful. The applicable act only allows the sale of real estate at a public auction and the sale based on a direct agreement, while the latter is rarely use in practice. The sale of real estate encumbered by land debt is particularly problematic, as the holders of the land debt certificate are not known until the enforcement of their repayment right. If the court fails to establish the creditor of the land debt based on the situation from case files and data from the land register or other circumstances, it keeps the sum to which the land debt creditor is entitled on a court deposit account for a period of five years. This means that, in the meantime, other creditors cannot challenge or enforce the nullity of the land debt establishment or transfer, and thus cannot achieve the repayment of their claims.

For the aforementioned reasons, the main objective of the proposed amendment is to improve the regulatory framework of attachment of real estate in order to accelerate the process and create better conditions for the sale of real estate, and facilitate the more transparent and quicker attachment of real estate encumbered by land debt.

The amendment proposes the following solutions for improvement:

  • the proposed act allows the opening bid at the first public auction to be set at 70% of the established real estate value and no longer at 100%;
  • at the request of any creditor – provided that other creditors, lienors and land debt creditors do not oppose such a request - real estate can be sold based on a binding collection of bids, which follows the regulation in the the Financial Collateral Act and Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act;
  • the abolition of the third scheduled public auction, meaning that the attachment of real estate is suspended if the real estate is not sold at the second public auction;
  • the proposed act introduces the possibility of selling the entire real estate (including all co-ownership shares), if so agreed by all co-owners, when the subject of attachment is an individual co-ownership share;
  • the legal remedy of appealing against the winning bid order is abolished; the grounds for appeal, which are enforced against the winning bid decision, may now be enforced by parties and participants against the order on real estate handover to the buyer according to the proposed act;
  • an additional warning issued to the debtor has been introduced regarding the latter's legal options with respect to the attachment of other real estate or other assets, as a way of additionally protecting debtors;
  • provisions governing the security deposit concept have been amended, in such a way to clearly indicate that, in the event an agreement is not concluded for reasons on the part of the buyer, the security deposit is not returned to the latter, but is instead distributed among the creditors. In addition, a security deposit must now also be deposited by co-owners wishing to enforce their pre-emptive right at a public auction;
  • the compulsory registration of claims, also by lienors and holders of land debt certificates has been proposed by no later than the distribution hearing. Lienors who fail to register their claim on time during the attachment of real estate, on which they hold a lien, do not lose their claim against the debtor. However they lose their lien on the real estate in question, meaning the entitlement to be repaid from the value of precisely that (pledged) real estate;
  • the amendment introduces a special notification process for land debt certificate holders, according to which holders of land debt certificates must submit to the court their own data and handover the original of the land debt certificate within three months of the published notification. Otherwise it is assumed that the holder of the land debt certificate is in fact the real estate owner; and
  • the proposed act determines that the deadline for filing a lawsuit to challenge the debtor's legal acts concerning the establishment and disposal of land debt and claims associated therewith starts running from the moment when the holder of the land debt certificate is revealed.

Effective repayment of creditor claims requires the efficient and rapid enforcement proceedure. Therefore, we agree with the most of the proposed solutions.